<PAGE> 1
As filed with the Securities and Exchange Commission on July 9, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LIGAND PHARMACEUTICALS INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 2834 33-0642614
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
---------------
10275 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 550-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID E. ROBINSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
LIGAND PHARMACEUTICALS INC.
10275 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 550-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO
THE AGENT FOR SERVICE, SHOULD BE SENT TO:
FAYE H. RUSSELL, ESQ.
BROBECK, PHLEGER & HARRISON LLP
550 WEST "C" STREET, SUITE 1300
SAN DIEGO, CALIFORNIA 92101
(619) 234-1966
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN AND AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
TITLE OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED(1) REGISTERED PER SHARE PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock,
par value $.001
per share.............. (2) (2) $72,177,415(3)(4) $14,436(3)(4)
===================================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant to
be issued to holders of Common Stock of Seragen, Inc., a Delaware
corporation, and holders of membership interests of Marathon
Biopharmaceuticals, LLC, a Massachusetts limited liability company.
(2) The amount to be registered and proposed maximum offering price per
share of Registrant's Common Stock is unknown as of the date of this
Registration Statement. A total of 1,858,800 shares of Registrant's
Common Stock will be issued at the closing of the proposed
transactions; an additional $45 million will be paid by the Registrant
upon the achievement of a milestone, such payment to be in the form of
Registrant's Common Stock, cash or a combination thereof, in
Registrant's sole discretion.
(3) Previously paid with submission of confidential preliminary proxy
materials on June 22, 1998.
(4) Any registration fee calculated pursuant to Rules 457(f) and 457(c)
will be substantially less than the fee previously paid. The average of
the high and low prices reported in the consolidated reporting system
for Seragen's Common Stock on July 8, 1998 was $0.50 per share; as of
July 6, 1998, the most recent practicable date, 28,430,011 shares of
Seragen Common Stock were outstanding, resulting in a proposed maximum
aggregate offering price of $10,215,005 for the shares of Seragen
Common Stock to be received by the Registrant in the proposed
transaction (after deducting, pursuant to Rule 457(f)(3), the $4.0
million in cash to be paid by the Registrant in such transaction). The
book value of the membership interests of Marathon to be received by
the Registrant in the proposed transaction, valued pursuant to Rule
457(f)(2), is substantially less than the $61,962,410 which would be
required to equal the maximum aggregate offering price previously
estimated.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
SERAGEN, INC.
97 SOUTH STREET
HOPKINTON, MASSACHUSETTS 01748
Dear Stockholder: July 14, 1998
A special meeting of the stockholders of Seragen, Inc. ("Seragen") will
be held on August 12, 1998, at 9:00 a.m., local time, at the Radisson Hotel at
11 Beaver Street, Milford, Massachusetts (the "Seragen Meeting").
At the Seragen Meeting, you will be asked to consider and vote (i) to
approve and adopt the Agreement and Plan of Reorganization, dated May 11, 1998
(the "Merger Agreement"), by and among Ligand Pharmaceuticals Incorporated
("Ligand"), Knight Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Ligand ("Merger Sub"), and Seragen, and to approve Ligand's
acquisition of Seragen through the merger of Merger Sub with and into Seragen,
with Seragen being the surviving corporation and becoming a wholly owned
subsidiary of Ligand (the "Merger") and (ii) to transact such other business as
may properly come before the meeting.
The Merger will occur as soon as possible after Ligand and Seragen
obtain all necessary regulatory and stockholder approvals and satisfy certain
other conditions set forth in the Merger Agreement.
As consideration for Ligand's acquisition of Seragen through the
Merger, Ligand has agreed to pay to holders of shares of capital stock of
Seragen (the "Seragen Capital Stock") and certain creditors and obligees of
Seragen an aggregate amount of up to $67.0 million (the "Merger Consideration").
The Merger Consideration will be paid as follows: (a) at the closing of the
Merger (the "Closing"), $30.0 million (the "Closing Consideration"), payable in
the form of cash in the amount of $4.0 million and approximately 1,858,800
shares of Ligand common stock, par value $.001 per share (the "Ligand Common
Stock"), valued at $13.9875 per share (the average closing price of the Ligand
Common Stock on the Nasdaq National Market for the five trading days prior to
the announcement of the Merger) or $26.0 million in the aggregate; and (b) in
the event approval is received from the United States Food and Drug
Administration to sell, market and distribute DAB(389)IL-2 in the United States
for cutaneous T-cell lymphoma ("Final FDA Approval") on or before the second
anniversary of the date of the Closing (the "Second Closing Anniversary") or, in
the event Final FDA Approval is not received by the Second Closing Anniversary
and Ligand has not satisfied certain obligations to undertake activities to
obtain Final FDA Approval, an aggregate of $37.0 million (the "Milestone
Consideration") on the earlier of (i) the date which is six months after the
receipt of Final FDA Approval or (ii) the Second Closing Anniversary. The
Milestone Consideration, if any, may be paid in the form of cash, shares of
Ligand Common Stock or a combination of both, as determined by Ligand in its
sole discretion. Any shares of Ligand Common Stock issued in satisfaction of the
Milestone Consideration will be valued at the average of the closing prices of
Ligand Common Stock on the Nasdaq National Market for the 10 trading days
immediately preceding the date of issuance of such Ligand Common Stock. Ligand
may, in its sole discretion, increase the amount of cash paid as Closing
Consideration solely to cover certain amounts payable by Seragen as of the
Closing, in which case the Closing Consideration payable in shares of Ligand
Common Stock will be correspondingly reduced. In the event Final FDA Approval
has not been received by the Second Closing Anniversary and Ligand has not
breached certain obligations to undertake activities to obtain Final FDA
Approval, Ligand will be relieved of all obligations to pay the Milestone
Consideration.
Ligand is registering the issuance of Ligand Common Stock included in
the Merger Consideration under the Securities Act of 1933, as amended. The
Merger will not be treated as a tax-free reorganization, but instead will be
treated for federal income tax purposes as a purchase by Ligand of the Seragen
Capital Stock in which holders of the Seragen Capital Stock will recognize in
full their gain or loss.
THE SERAGEN BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER DESCRIBED IN THE ATTACHED MATERIALS AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF SERAGEN AND SERAGEN'S STOCKHOLDERS. THE BOARD OF DIRECTORS
RECOMMENDS THAT SERAGEN'S STOCKHOLDERS APPROVE THE MATTERS DESCRIBED IN THE
MATERIALS ACCOMPANYING THIS LETTER.
<PAGE> 3
(2)
Approval of the Merger Agreement and the Merger requires the
affirmative vote of a majority by voting power of the outstanding Seragen
Capital Stock entitled to vote thereon.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Stockholders, a Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by Seragen stockholders at the Seragen
Meeting, and a proxy card. The Proxy Statement/Prospectus more fully describes
the Merger Agreement, the proposed Merger and the Merger Consideration to be
issued by Ligand in the Merger, and includes important information about Ligand
and Seragen. It also serves as a Prospectus for Ligand describing the investment
decision regarding Ligand Common Stock that the Seragen stockholders will be
making in approving the Merger.
All stockholders are cordially invited to attend the Seragen Meeting in
person. However, whether or not you plan to attend the Seragen Meeting, please
complete, sign, date and return your proxy in the enclosed postage-paid
envelope. If you attend the Seragen Meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
Sincerely,
Reed R. Prior,
Chairman, Chief Executive Officer
and Treasurer
<PAGE> 4
SERAGEN, INC.
97 SOUTH STREET
HOPKINTON, MASSACHUSETTS 01748
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 12, 1998
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Seragen Meeting") of Seragen, Inc., a Delaware corporation ("Seragen"), will be
held on August 12, 1998, at 9:00 a.m., local time, at the Radisson Hotel at 11
Beaver Street, Milford, Massachusetts, to consider and vote upon the following
matters, which are more fully described in the accompanying Proxy
Statement/Prospectus:
1. To approve and adopt the Agreement and Plan of Reorganization, dated
May 11, 1998 (the "Merger Agreement"), by and among Ligand Pharmaceuticals
Incorporated ("Ligand"), Knight Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Ligand ("Merger Sub"), and Seragen, and to approve
Ligand's acquisition of Seragen through the merger of Merger Sub with and into
Seragen, with Seragen being the surviving corporation and becoming a wholly
owned subsidiary of Ligand (the "Merger").
As consideration for Ligand's acquisition of Seragen through the Merger,
Ligand has agreed to pay to holders of shares of capital stock of Seragen (the
"Seragen Capital Stock") and certain creditors and obligees of Seragen an
aggregate amount of up to $67.0 million (the "Merger Consideration"). The Merger
Consideration will be paid as follows: (a) at the closing of the Merger (the
"Closing"), $30.0 million (the "Closing Consideration"), payable in the form of
cash in the amount of $4.0 million and approximately 1,858,800 shares of Ligand
common stock, par value $.001 per share (the "Ligand Common Stock"), valued at
$13.9875 per share (the average closing price of the Ligand Common Stock on the
Nasdaq National Market for the five trading days prior to the announcement of
the Merger) or $26.0 million in the aggregate; and (b) in the event approval is
received from the United States Food and Drug Administration to sell, market and
distribute DAB(389)IL-2 in the United States for cutaneous T-cell lymphoma
("Final FDA Approval") on or before the second anniversary of the date of the
Closing (the "Second Closing Anniversary") or, in the event Final FDA Approval
is not received by the Second Closing Anniversary and Ligand has not satisfied
certain obligations to undertake activities to obtain Final FDA Approval, an
aggregate of $37.0 million (the "Milestone Consideration") on the earlier of (i)
the date which is six months after the receipt of Final FDA Approval or (ii) the
Second Closing Anniversary. The Milestone Consideration, if any, may be paid in
the form of cash, shares of Ligand Common Stock or a combination of both, as
determined by Ligand in its sole discretion. Any shares of Ligand Common Stock
issued in satisfaction of the Milestone Consideration will be valued at the
average of the closing prices of Ligand Common Stock on the Nasdaq National
Market for the 10 trading days immediately preceding the date of issuance of
such Ligand Common Stock. Ligand may, in its sole discretion, increase the
amount of cash paid as Closing Consideration solely to cover certain amounts
payable by Seragen as of the Closing, in which case the Closing Consideration
payable in shares of Ligand Common Stock will be correspondingly reduced. In the
event Final FDA Approval has not been received by the Second Closing Anniversary
and Ligand has not breached certain obligations to undertake activities to
obtain Final FDA Approval, Ligand will be relieved of all obligations to pay the
Milestone Consideration.
2. To transact such other business as may properly come before the
meeting.
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY BY VOTING POWER OF THE OUTSTANDING
SERAGEN CAPITAL STOCK ENTITLED TO VOTE THEREON, EACH SHARE OF SERAGEN COMMON
STOCK BEING ENTITLED TO ONE VOTE AND EACH SHARE OF SERAGEN SERIES B PREFERRED
STOCK BEING ENTITLED TO 250 VOTES. ABSTENTIONS AND BROKER NON-VOTES WILL BE
COUNTED AS NEGATIVE VOTES.
WHETHER OR NOT YOU PLAN TO ATTEND THE SERAGEN MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
<PAGE> 5
(2)
STATES. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT/PROSPECTUS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON,
IF YOU WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
Only stockholders of record at the close of business on July 6, 1998 are
entitled to notice of, and to vote at, the Seragen Meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors,
July 14, 1998 Reed R. Prior
Chairman, Chief Executive Officer
and Treasurer
<PAGE> 6
LIGAND PHARMACEUTICALS INCORPORATED
PROSPECTUS
(Ligand Common Stock)
and
SERAGEN, INC.
PROXY STATEMENT FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 12, 1998
This Proxy Statement/Prospectus is being furnished to the holders of the
capital stock of Seragen, Inc., a Delaware corporation ("Seragen"), in
connection with the solicitation by Seragen's board of directors (the "Seragen
Board"), for use at a special meeting of the stockholders of Seragen, and at any
adjournment or postponement thereof, for the purposes set forth herein and in
the Notice of Meeting of Stockholders accompanying this Proxy
Statement/Prospectus. The aforesaid special meeting of the stockholders of
Seragen will be held on August 12, 1998, at 9:00 a.m., local time, at the
Radisson Hotel at 11 Beaver Street, Milford, Massachusetts (the "Seragen
Meeting"). This Proxy Statement/Prospectus and form of proxy is being mailed to
the stockholders of Seragen on or about July 14, 1998.
AT THE SERAGEN MEETING, THE SERAGEN STOCKHOLDERS ARE BEING ASKED TO VOTE
ON EACH OF THE FOLLOWING SEPARATE PROPOSALS:
(A) To approve and adopt the Agreement and Plan of Reorganization, dated
May 11, 1998 (the "Merger Agreement"), by and among Ligand Pharmaceuticals
Incorporated ("Ligand"), Knight Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Ligand ("Merger Sub"), and Seragen, and to approve
Ligand's acquisition of Seragen through the merger of Merger Sub with and into
Seragen, with Seragen being the surviving corporation and becoming a wholly
owned subsidiary of Ligand (the "Merger")(collectively, the "Seragen Proposal").
(B) To transact such other business as may properly come before the
Seragen Meeting.
This Proxy Statement/Prospectus also constitutes the prospectus of Ligand
filed as part of the Registration Statement on Form S-4 relating to the Ligand
common stock, par value $.001 per share (the "Ligand Common Stock"), issuable
under the Merger Agreement as partial consideration for Ligand's acquisition of
Seragen and the Ligand Common Stock issuable pursuant to Ligand's acquisition of
Marathon Biopharmaceuticals, LLC ("Marathon"). All information herein with
respect to Ligand has been furnished by Ligand, and all information herein with
respect to Seragen has been furnished by Seragen.
SEE "RISK FACTORS" STARTING ON PAGE 28 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED CAREFULLY BEFORE VOTING ON THE MATTERS MORE FULLY
DESCRIBED HEREIN.
----------------------------
NEITHER THIS TRANSACTION NOR THE SHARES OF LIGAND COMMON STOCK TO BE ISSUED IN
THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 14, 1998
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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Page
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AVAILABLE INFORMATION..................................................................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................... 4
FORWARD-LOOKING STATEMENTS................................................................................................ 5
SUMMARY ................................................................................................................. 7
INTRODUCTION.............................................................................................................. 25
RISK FACTORS.............................................................................................................. 28
THE MERGER................................................................................................................ 42
BACKGROUND OF THE MERGER......................................................................................... 42
DESCRIPTION OF THE MERGER........................................................................................ 46
General ............................................................................................... 46
Effects of the Merger .................................................................................. 46
Recommendation of the Seragen Board; Factors Considered................................................. 46
Opinion of Lehman Brothers Inc.......................................................................... 48
Significant Assumptions Underlying Forecasts ........................................................... 53
Federal Income Tax Consequences......................................................................... 53
Accounting Treatment.................................................................................... 57
Effect of the Merger on the Interests of Certain Persons ............................................... 57
Stockholder Voting Agreements and Irrevocable Proxies to Vote Seragen, Inc. Stock....................... 60
Option and Purchase Agreement........................................................................... 62
Extension Option Agreement.............................................................................. 63
Seragen Biopharmaceuticals Ltd. Settlement Agreement.................................................... 64
Accord Agreement........................................................................................ 66
Agreements among Lilly, Ligand and Seragen.............................................................. 69
Lock-Up Agreements...................................................................................... 71
Escrow Agreements....................................................................................... 72
Resale of Ligand Common Stock; Affiliates............................................................... 73
Regulatory Requirements................................................................................. 74
Appraisal Rights........................................................................................ 74
THE MERGER AGREEMENT...................................................................................................... 77
The Merger.............................................................................................. 77
Closing Date and Effective Time......................................................................... 77
Certificate; Bylaws; Directors and Officers............................................................. 77
Merger Consideration.................................................................................... 77
Exchange of Certificates................................................................................ 81
Fractional Shares....................................................................................... 81
Conditions to Closing................................................................................... 82
Termination............................................................................................. 83
Expenses; Termination Fee............................................................................... 84
Acquisition Proposals................................................................................... 84
Conduct of Business Pending Merger...................................................................... 85
Treatment of Warrants and Stock Options................................................................. 86
Directors' and Officers' Indemnification and Insurance.................................................. 87
Representations and Warranties.......................................................................... 87
Amendments and Waivers.................................................................................. 87
</TABLE>
1.
<PAGE> 8
<TABLE>
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Confidentiality Agreements.............................................................................. 88
PRO FORMA FINANCIAL STATEMENTS............................................................................................ 90
SERAGEN ................................................................................................................. 98
BUSINESS ........................................................................................................ 98
General ............................................................................................... 98
Product Development Update.............................................................................. 100
Interleukin-2 ("IL-2") Fusion Protein (DAB(389)IL-2).................................................... 100
Autoimmune Diseases..................................................................................... 104
Epidermal Growth Factor ("EGF") Fusion Protein (DAB(389)EGF)............................................ 106
Adverse Events Associated with Clinical Trials of Fusion Proteins ...................................... 106
Strategic Alliance with Eli Lilly and Company........................................................... 107
Manufacturing........................................................................................... 108
Competition............................................................................................. 109
Patents, Licenses and Proprietary Rights................................................................ 109
Research and Licensing Agreements....................................................................... 112
Government Regulation................................................................................... 112
Research and Development Spending....................................................................... 115
Employees............................................................................................... 115
Properties.............................................................................................. 115
Legal Proceedings....................................................................................... 116
PRICE RANGE OF SERAGEN COMMON STOCK AND DIVIDEND POLICY.......................................................... 117
SELECTED FINANCIAL DATA OF SERAGEN............................................................................... 118
SERAGEN'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................................. 120
Overview ............................................................................................... 120
Results of Operations for the three months ended March 31, 1998 and 1997................................ 120
Results of Operations for Years Ended December 31, 1997 and 1996........................................ 122
Results of Operations for Years Ended December 31, 1996 and 1995........................................ 122
Liquidity and Capital Resources......................................................................... 123
Disagreements on Accounting and Financial Disclosures................................................... 129
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................... 130
DIRECTORS AND EXECUTIVE OFFICERS OF SERAGEN...................................................................... 134
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS.............................................................. 135
Option Grants........................................................................................... 135
OPTION GRANTS IN LAST FISCAL YEAR................................................................................ 136
Fiscal Year-End Option Values........................................................................... 136
AGGREGATED FISCAL YEAR-END OPTION VALUES......................................................................... 137
Employment and Consulting Agreements; Change in Control Arrangements.................................... 137
Compensation Committee Interlocks and Insider Participation............................................. 139
Other Arrangements...................................................................................... 140
CERTAIN TRANSACTIONS............................................................................................. 142
COMPARISON OF RIGHTS OF HOLDERS OF LIGAND CAPITAL STOCK AND
HOLDERS OF SERAGEN CAPITAL STOCK.......................................................................................... 146
Comparison of Authorized and Outstanding Capital Stock........................................................... 146
Comparison of Rights and Preferences of Common Stock............................................................. 146
Comparison of Rights and Preferences of Preferred Stock.......................................................... 147
Comparison of Stockholder Rights................................................................................. 148
Comparison of the Provisions Governing the Board of Directors.................................................... 149
Comparison of Certain Other Rights............................................................................... 149
Comparison of Anti-takeover Provisions........................................................................... 150
</TABLE>
2.
<PAGE> 9
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LEGAL MATTERS............................................................................................................. 152
EXPERTS ................................................................................................................. 152
STOCKHOLDER PROPOSALS..................................................................................................... 152
OTHER MATTERS............................................................................................................. 152
INDEX TO SERAGEN FINANCIAL STATEMENTS..................................................................................... 153
</TABLE>
<TABLE>
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APPENDIX A - OPINION OF LEHMAN BROTHERS INC.
APPENDIX B - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPENDIX C - AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF MAY 11, 1998, BY AND AMONG LIGAND PHARMACEUTICALS INCORPORATED,
KNIGHT ACQUISITION CORPORATION, AND SERAGEN, INC.
APPENDIX D - OPTION AND ASSET PURCHASE AGREEMENT, DATED AS OF MAY 11, 1998, BY AND AMONG LIGAND PHARMACEUTICALS INCORPORATED,
MARATHON BIOPHARMACEUTICALS, LLC, 520 COMMONWEALTH AVENUE REAL ESTATE CORP., AND 660 CORPORATION
APPENDIX E - EXTENSION OPTION AGREEMENT, DATED AS OF MAY 11, 1998, BY AND AMONG LIGAND PHARMACEUTICALS INCORPORATED, SERAGEN,
INC., MARATHON BIOPHARMACEUTICALS, LLC, 520 COMMONWEALTH AVENUE REAL ESTATE CORP., AND 660 CORPORATION
APPENDIX F - ACCORD AND SATISFACTION AGREEMENT, DATED AS OF MAY 11, 1998, BY AND AMONG SERAGEN, INC., SERAGEN TECHNOLOGY, INC.,
TRUSTEES OF BOSTON UNIVERSITY, SERAGEN LLC, MARATHON BIOPHARMACEUTICALS, LLC, UNITED STATES SURGICAL CORPORATION,
LEON C. HIRSCH, TURI JOSEFSEN, GERALD S.J. AND LORETTA P. CASSIDY, REED R. PRIOR, JEAN C. NICHOLS, PH.D.,
ELIZABETH C. CHEN, ROBERT W. CRANE, SHORELINE PACIFIC INSTITUTIONAL FINANCE, LEHMAN BROTHERS INC., 520
COMMONWEALTH AVENUE REAL ESTATE CORP., AND 660 CORPORATION.
</TABLE>
3.
<PAGE> 10
AVAILABLE INFORMATION
Ligand is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates at the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a Web site (the "Commission Website") on the
Internet at http://www.sec.gov that contains reports, proxy statements and other
information regarding Ligand. Ligand Common Stock is traded on the Nasdaq
National Market. Reports and other information concerning Ligand also can be
inspected at the offices of the National Association of Securities Dealers,
Inc., Market Listing Section, 1735 K Street, N.W., Washington, D.C. 20006.
Ligand has filed with the Commission a Registration Statement on Form S-4
(together with all amendments or exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), with respect to the
shares of Ligand Common Stock to be issued pursuant to the Merger Agreement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to Ligand and the shares of Ligand Common Stock offered
hereby, reference is made to the Registration Statement, which may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission, or
on the Commission Website. Statements contained in this Proxy
Statement/Prospectus concerning the provisions of any documents are not
necessarily complete, and, in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement is qualified in its entirety by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LIGAND,
SERAGEN OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF LIGAND OR SERAGEN SINCE THE DATE HEREOF OR THAT THE INFORMATION
IN THIS PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A PROXY IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference certain
documents of Ligand which are not presented herein or delivered herewith. Ligand
hereby undertakes to provide without charge to each person to whom a copy of
this Proxy Statement/Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any or all of the documents which have
been or may be incorporated by reference in this Proxy Statement/Prospectus (not
including exhibits). These documents are available upon request from the
Secretary, Ligand Pharmaceuticals Incorporated, 10275 Science Center Drive, San
Diego, California 92121, telephone number (619) 550-7500. In order to insure
timely delivery of these documents, any request should be made by July 30, 1998.
4.
<PAGE> 11
The following documents or portions thereof filed by Ligand with the
Commission under the Exchange Act and the Act are incorporated herein by
reference:
(a) The description of Ligand Common Stock contained in its Registration
Statement on Form 8-A dated November 21, 1994;
(b) The description of Ligand's Preferred Stock Purchase Rights
contained in its Registration Statement on Form 8-A dated
September 9, 1996;
(c) Ligand's annual report on Form 10-K (File No. 0-20720) for the year
ended December 31, 1997;
(d) Ligand's quarterly report on Form 10-Q (File No. 0-20720) for the
quarterly period ended March 31, 1998; and
(e) Ligand's proxy statement pursuant to Section 14(a) of the Exchange
Act dated April 17, 1998.
The information relating to Ligand contained in this Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference. All
documents subsequently filed by Ligand pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the date of the consummation of the Merger shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to be a part of
this Proxy Statement/Prospectus from the date of filing thereof. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statements so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LIGAND,
SERAGEN OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF LIGAND OR SERAGEN SINCE THE DATE HEREOF OR THAT THE INFORMATION
IN THIS PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A PROXY IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION.
FORWARD-LOOKING STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS PROXY
STATEMENT/PROSPECTUS, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT
FROM THE MERGER, AS TO FUTURE FINANCIAL PERFORMANCE, AND AS TO THE ANALYSIS
PREFORMED BY THE FINANCIAL ADVISOR TO SERAGEN AND THE PROJECTIONS RELIED UPON BY
SUCH FINANCIAL ADVISOR, MAY BE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" STARTING
ON PAGE 28 HEREIN, WHICH THE STOCKHOLDERS OF SERAGEN SHOULD CAREFULLY REVIEW.
Neither Ligand nor Seragen undertakes any obligation to publicly release
the results of any revisions to such forward-looking statements that may be made
to reflect events or circumstances after the date of this Proxy
5.
<PAGE> 12
Statement/Prospectus or thereof, as the case may be, or to reflect the
occurrence of unanticipated events. Stockholders of Seragen are cautioned not to
place undue reliance on such statements, which speak only as of the date hereof.
Neither Ligand nor Seragen makes any express or implied representation or
warranty as to the attainability of the projected or estimated financial
information, if any, referenced or set forth under "Description of the
Merger--Opinion of Lehman Brothers Inc." or elsewhere herein or as to the
accuracy or completeness of the assumptions from which such projected or
estimated information is derived. Projections or estimations of Ligand's and
Seragen's future performance are necessarily subject to a high degree of
uncertainty and may vary materially from actual results. Reference is made to
the particular discussions set forth under "Risk Factors."
6.
<PAGE> 13
SUMMARY
The following is a summary of certain of the information contained in this
Proxy Statement/Prospectus. The summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement/Prospectus, the appendices and the materials incorporated by
reference, all of which should be carefully reviewed. Cross-references in this
summary refer to indicated captions or portions of this Proxy
Statement/Prospectus.
THE PARTIES
LIGAND
Ligand is a biopharmaceutical company engaged in the discovery and
development of small-molecule drugs which mimic or block the activities of
various hormones and cytokines to regulate gene activity and the genetic
processes affecting many diseases. Ligand's drug discovery and development
programs are based on its proprietary technologies involving two natural
mechanisms that regulate gene activity: (i) hormone-activated Intracellular
Receptors ("IRs") and (ii) cytokine-activated Signal Transducers and Activators
of Transcription ("STATs"). IRs play key roles in many disease processes,
including certain cancers, women's health disorders, cardiovascular diseases,
metabolic diseases, inflammatory disorders and skin diseases. Similarly, STATs
influence many biological processes, including cancer, metabolic diseases,
inflammation and blood cell formation. In programs acquired in connection with
the merger with Glycomed Incorporated ("Glycomed") in May 1995, Ligand is also
seeking, through licensees, to develop orally active drugs to modulate
biological processes involving complex carbohydrates and other cell surface
components for the treatment of inflammation and cancer. Ligand currently is
developing new drugs through a combination of internal and collaborative
programs, including substantial collaborations with Eli Lilly and Company
("Lilly"), SmithKline Beecham Corporation ("SmithKline Beecham"), Wyeth-Ayerst,
the pharmaceutical division of American Home Products ("AHP"), Abbott
Laboratories ("Abbott"), Glaxo-Wellcome plc ("Glaxo"), Sankyo Company, Ltd.
("Sankyo"), Pfizer Inc. ("Pfizer") and Allergan, Inc. ("Allergan"). Ligand has
initiated human clinical trials for five potential products: the retinoids
Panretin(TM) Capsules, Panretin(TM) Gel, LGD1550 Capsules, Targretin(TM) Gel and
Targretin(TM) Capsules. Ligand also has 25 non-retinoid compounds in various
stages of development, including a three compound series being developed by AHP,
as well as two compounds which are now under development by Pfizer for
osteoporosis. In May 1998, Ligand announced the submission of a new drug
application ("NDA") to the United States Food and Drug Administration ("FDA")
for Panretin gel (alitretinoin) 0.1% for the treatment of AIDS-related Kaposi's
sarcoma. The NDA was based on two multi-center, randomized, double-blind,
placebo-controlled clinical trials conducted at 52 sites in Europe, Australia
and North America.
Ligand was incorporated in Delaware in 1987. Ligand's principal executive
offices are located at 10275 Science Center Drive, San Diego, California 92121,
and its telephone number is (619) 550-7500.
SERAGEN
Seragen is a biotechnology company engaged in the discovery and
development of a new class of therapeutic products called fusion proteins or
fusion toxins ("Fusion Proteins"). This technology has led to the discovery of a
number of molecules, two of which have been studied in clinical trials for the
treatment of cancers and autoimmune diseases.
In December 1997, Seragen submitted a Biologics License Application
("BLA") to the FDA requesting clearance to market its lead molecule,
DAB(389)IL-2, for the treatment of patients with advanced cutaneous T-cell
lymphoma ("CTCL") who have received previous treatment with other agents. On
June 2, 1998, Ligand and Seragen announced that an expanded Oncologic Drugs
Advisory Committee to the FDA (the "ODAC") had voted favorably on questions put
to it by the FDA regarding the efficacy of, and the acceptability of the
incidence and severity of
7.
<PAGE> 14
toxicity associated with, DAB(389)IL-2 for the treatment of patients with
recurrent or persistent CTCL. The ODAC also recommended that treating physicians
should decide the appropriate doses within a prescribed dose range. The ODAC's
votes, although not binding, will be considered by the FDA in its review of the
BLA. See "Risk Factors--Uncertainties Related to Regulatory Review of
DAB(389)IL-2 and Panretin Gel." On June 9, 1998, the FDA issued a complete
review letter (the "Complete Review Letter") to Seragen in respect of its BLA.
The Complete Review Letter identified certain deficiencies in the BLA related to
safety, efficacy, manufacturing and product characterization. Seragen is in the
process of addressing and responding to the issues set out in the Complete
Review Letter. See "Risk Factors--Uncertainties Related to Regulatory Review of
DAB(389)IL-2 and Panretin Gel."
Seragen's proprietary Fusion Proteins consist of fragments of diphtheria
toxin genetically fused to a ligand (a targeting and binding mechanism) that
targets specific receptors on the surface of disease-causing cells. The Fusion
Proteins are designed to bind to specific receptors present on the surface of
disease-causing cells, penetrate the target cells and destroy the target cells'
ability to manufacture proteins, thereby killing the targeted cells. Seragen
builds its Fusion Proteins from a template based on the genetic components of
the diphtheria toxin molecule. Using this platform, Seragen has genetically
engineered six Fusion Proteins, each of which consists of fragments of
diphtheria toxin fused to a different targeting ligand, such as a polypeptide
hormone or growth factor. Seragen has conducted clinical trials of two proteins,
DAB(389)IL-2 and DAB(389)EGF, for applications in oncology, dermatology, HIV and
autoimmune disorders. Although Seragen has created four other proteins, namely
DAB(389)IL-4, DAB(389)IL-6, DAB(389)CD-4, and DAB(389)MSH, for oncology,
infectious disease and autoimmune disorders, Seragen has, at this point, focused
its clinical efforts on its two leading molecules, DAB(389)IL-2 and DAB(389)EGF.
Seragen was organized as a Massachusetts corporation in 1979 as a joint
venture between Trustees of Boston University ("BU") and several of its
scientific faculty members. It adopted its present name in 1980 and was
reincorporated as a Delaware corporation in February 1982. Seragen's principal
executive offices are located at 97 South Street, Hopkinton, Massachusetts
01748, and its telephone number is (508) 435-2331.
MERGER SUB
Merger Sub is a Delaware corporation recently organized by Ligand for the
purpose of effecting the Merger. It has no material assets and has not engaged
in any activities except in connection with the Merger. Merger Sub's executive
offices are located at 10275 Science Center Drive, San Diego, California 92121,
and its telephone number is (619) 550-7500.
THE SERAGEN MEETING
INTRODUCTION
At the Seragen Meeting, the Seragen stockholders will be asked to consider
and vote on the following matters:
(A) To approve and adopt the Seragen Proposal.
(B) To transact such other business as may properly come before the
Seragen Meeting.
TIME, DATE AND PLACE
The Seragen Meeting will be held on August 12, 1998, at 9:00 a.m., local
time, at the Radisson Hotel, 11 Beaver Street, Milford, Massachusetts.
8.
<PAGE> 15
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of shares of capital stock of Seragen (the "Seragen
Capital Stock") at the close of business on July 6 (the "Seragen Record Date")
will be entitled to notice of and to vote at the Seragen Meeting. At the close
of business on the Seragen Record Date, there were 28,430,011 shares of common
stock of Seragen, par value $0.01 ("Seragen Common Stock"), and 23,800 shares of
Series B Preferred Stock of Seragen, par value $0.01 ("Seragen Series B
Preferred Stock"), issued and outstanding. Each outstanding share of Seragen
Common Stock is entitled to one vote per share at the Seragen Meeting. Each
outstanding share of Seragen Series B Preferred Stock is entitled to 250 votes
per share at the Seragen Meeting. See "Introduction--Voting and Proxies."
VOTE REQUIRED--SERAGEN
Approval of the Seragen Proposal requires the affirmative vote of the
holders of a majority by voting power of the outstanding Seragen Capital Stock
entitled to vote thereon. The holders of a majority by voting power of the
outstanding shares of Seragen Capital Stock entitled to vote at the Seragen
Meeting must be present in person or represented by proxy at the Seragen Meeting
in order to constitute a quorum for the conduct of business at the Seragen
Meeting.
As a condition to Ligand's willingness to enter into the Merger Agreement,
the directors and executive officers of Seragen and certain of their affiliates,
certain other affiliates of Seragen, and Lilly agreed to enter into agreements
with Ligand to vote the shares of Seragen Capital Stock over which they have
voting control in favor of the Merger Agreement, the Merger and any matter that
could reasonably be expected to facilitate the Merger. The directors and
executive officers of Seragen and certain of their affiliates, certain other
affiliates of Seragen, and Lilly have entered into such agreements and, in
connection therewith, have granted irrevocable proxies to David E. Robinson,
Chairman of the Board, President and Chief Executive Officer of Ligand ("Mr.
Robinson"), and William L. Respess, Senior Vice President, General Counsel,
Government Affairs and Secretary of Ligand ("Mr. Respess"), covering
approximately 57% by voting power of the outstanding Seragen Capital Stock as of
the Seragen Record Date. See "The Merger--Description of the Merger--Stockholder
Voting Agreements and Irrevocable Proxies to Vote Seragen, Inc. Stock."
THE MERGER
GENERAL
At the Effective Time (as defined below), Merger Sub will be merged with
and into Seragen. Merger Sub will then cease to exist, and Seragen will be the
surviving corporation and a wholly owned subsidiary of Ligand (the "Surviving
Corporation").
RECOMMENDATION OF THE SERAGEN BOARD; FACTORS CONSIDERED
The Seragen Board unanimously approved the Merger Agreement and the
Merger. The Seragen Board unanimously recommends that Seragen stockholders vote
FOR the Seragen Proposal to approve and adopt the Merger Agreement and the
Merger. In reaching this conclusion, the Seragen Board considered a number of
factors, including the following:
1. Broad CTCL product pipeline. The Seragen Board believes that the Merger
will position Seragen's DAB(389)IL-2 product with other complementary products
being developed by Ligand for CTCL. These products may also have potential as
treatments for other non-Hodgkin's lymphomas. Ligand is currently conducting
three Phase II/III and pivotal Phase III clinical trials in CTCL with Targretin
gel and Phase II/III clinical trials in CTCL with Targretin capsules. As a
result, the Seragen Board believes that the drug candidates for CTCL to be
offered by Ligand and Seragen together following the Merger (the "Combined
Companies") will give physicians a broad
9.
<PAGE> 16
spectrum of possible drugs to offer CTCL patients and strengthen the market
position of each of the Combined Companies' CTCL drugs over the market position
that would be available to either Ligand or Seragen individually.
2. Specialty sales force. The Combined Companies, with three products
intended to treat CTCL, plan to develop a specialty sales force that will focus
on physicians treating this disease.
3. Enhanced drug discovery and design programs. The Seragen Board believes
that Seragen will benefit from Ligand's drug discovery and design programs,
which are complementary to those maintained by Seragen. The potential diversity
of resulting products should, the Seragen Board believes, produce a more
competitive company in the biopharmaceutical industry.
4. Increased financial resources. The Seragen Board believes that
Seragen's proprietary fusion protein technologies will benefit from the
increased financial resources that will be available through Ligand for product
development, clinical trials and marketing of Seragen's DAB(389)IL-2 product and
Seragen's other proprietary technologies. Seragen's need to fund further
research, development and clinical trials is significant. Financial resources
currently available to Seragen are not, however, sufficient to support such
activities. If Seragen does not consummate the Merger, a financing or other
transactions, Seragen's current cash position may not be sufficient to meet its
financial obligations at current levels beyond July 1998 unless BU and Marathon
continue to forbear from collecting amounts due to them from Seragen under the
Service Agreement, dated February 14, 1997, by and between BU and Seragen (the
"Service Agreement"). See "Seragen--Seragen's Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and
"Seragen--Certain Transactions."
5. Uncertain business outlook. Seragen's ability to commercialize
DAB(389)IL-2 on an economically viable basis is unlikely. A number of
considerations affect Seragen's ability to successfully commercialize
DAB(389)IL-2, including: the currently-projected sales levels for the product;
the prices that Seragen will receive for the product from Lilly, Seragen's
marketing partner for DAB(389)IL-2 for cancer indications; the royalties Seragen
must pay to third parties for technology licenses relevant to DAB(389)IL-2;
Seragen's obligation to repay out of sales proceeds otherwise payable to Seragen
a $5.0 million advance provided by Lilly to Seragen against future sales of
Seragen products; and Seragen's manufacturing costs for DAB(389)IL-2. The
Seragen Board believes that the Combined Companies will be better positioned to
successfully commercialize DAB(389)IL-2 and execute desired business strategies
with respect to that product and other Seragen proprietary technologies. The
Seragen Board expects that, among other things, the arrangements between Lilly
and Ligand, as modified in connection with the execution of the Merger
Agreement, and the purchase of the assets of Marathon by Ligand pursuant to the
Option and Asset Purchase Agreement, dated May 11, 1998, by and among Ligand,
Marathon, 520 Commonwealth Avenue Real Estate Corp. ("520 Commonwealth") and 660
Corporation ("660 Corporation" and together with 520 Commonwealth and Marathon,
the "Sellers") (the "Option and Purchase Agreement"), will contribute
significantly to the ability of the Combined Companies to proceed with the
successful commercialization of DAB(389)IL-2 and other Seragen products.
6. Less dependence on any one product. The Seragen Board believes that the
Merger will decrease the risk normally associated with emerging biotechnology
companies because the Combined Companies will, once combined, be less dependent
on the success of any single product than Seragen otherwise would have been. The
cost of the failure of a single product would be spread over a larger product
base, potentially reducing the risk to former Seragen stockholders, while
permitting former Seragen stockholders, as stockholders of Ligand, to benefit,
although in diluted form, from the upside potential that the depth and breadth
of the Combined Companies' technology, product portfolio and financial strength
may offer.
7. Lack of alternative opportunities. The Seragen Board believes that
Seragen was unlikely to identify an alternative business combination or other
opportunity that would provide the same likelihood of return on investment to
holders of Seragen Capital Stock as that offered by the Merger.
10.
<PAGE> 17
Additional financing. In November 1996, Seragen hired a new
management team consisting of Reed R. Prior, currently Chairman, Chief Executive
Officer and Treasurer ("Mr. Prior"), Robert W. Crane, currently Vice President
and Chief Financial Officer ("Mr. Crane"), and Elizabeth Chen, currently Vice
President of Business Development ("Ms. Chen") and promoted Jean C. Nichols,
Ph.D., currently President, Chief Technology Officer and Secretary ("Dr.
Nichols" and together with Messrs. Prior and Crane and Ms. Chen, the "New
Management Team"), to undertake significant efforts to identify alternatives to
maintain Seragen's viability. On the basis of the New Management Team's contacts
with prospective equity and debt investors, the Seragen Board concluded that
additional financing was unlikely to be available to Seragen except upon terms
that would, in the view of the Seragen Board, have resulted in unacceptable
dilution to Seragen's existing stockholders. In addition, it was the opinion of
the Seragen Board that, even upon those terms proposed by potential providers of
additional financing, the successful completion of such financing would have
been in serious doubt.
New collaborative arrangements. The New Management Team met with a
number of companies regarding a possible collaborative arrangement or strategic
alliance. None of these discussions, however, proved productive. Among concerns
cited by prospective strategic partners contacted by the New Management Team
were constraints on successful marketing of DAB(389)IL-2 for non-cancer
indications created by Seragen's existing contractual arrangements with Lilly,
particularly the provisions in Seragen's agreements with Lilly which provide
Lilly with protection against any dilution of its DAB(389)IL-2 profits that
might result from use of DAB(389)IL-2 sold for non-cancer indications for cancer
indications, and the apparent side effect profile for Seragen's fusion protein
technology generally. On the basis of the outcome of the New Management Team's
discussions with prospective strategic partners, the Seragen Board concluded
that Seragen was unlikely to be able to enter into additional collaborative
arrangements or strategic alliances, on acceptable terms, for the further
development and commercialization of its DAB(389)IL-2 product or for the
development and commercialization of its other proprietary molecules.
Bankruptcy. The Seragen Board and the New Management Team considered
the advisability of a voluntary bankruptcy filing by Seragen as a means to
maximize shareholder value. The Seragen Board and the New Management Team
determined that there were a number of risks and uncertainties associated with a
bankruptcy, including uncertainties as to the ability of Seragen to finance its
operations during the pendency of a bankruptcy proceeding and uncertainties
regarding the status of certain of Seragen's agreements with third parties in a
bankruptcy context and claims that could be made against the bankruptcy estate
with respect thereto. In addition, the Seragen Board and the New Management Team
believed it unlikely that preferred shareholders, creditors and obligees of
Seragen whose claims would rank senior to those of holders of Seragen Common
Stock in bankruptcy would agree in the context of a bankruptcy to accept less
than the full amounts to which they were entitled, thereby reducing the
likelihood that assets would remain for allocation to holders of Seragen Common
Stock. Accordingly, the Seragen Board and the New Management Team determined
that a bankruptcy would be unlikely to maximize value for holders of Seragen
Common Stock.
Sale or merger. The New Management Team also met with a number of
companies other than Ligand regarding a possible sale or merger of Seragen.
While some of these companies expressed initial interest in pursuing an
acquisition of Seragen, none of them proposed terms, including price, that the
New Management Team and the Seragen Board deemed an acceptable alternative to
the terms of the Merger.
8. Favorable and fair terms of the Merger. The Seragen Board concluded
that, given the significant business and other obstacles confronting Seragen,
the consideration of an aggregate amount of up to $67.0 million to be received
in the Merger by holders of shares of Seragen Capital Stock and certain
creditors and obligees of Seragen (the "Merger Consideration") is a favorable
and fair price for holders of Seragen Capital Stock, including holders of
Seragen Common Stock. In concluding that the Merger Consideration for which
provision is made in the Merger Agreement is favorable and fair, the Seragen
Board considered the fact that an aggregate of $37 million of the Merger
Consideration (the "Milestone Consideration") will be payable on the earlier of
(i) the date which is six months after the receipt of approval from the FDA to
sell, market and distribute DAB(389)IL-2 in the United States
11.
<PAGE> 18
for CTCL ("Final FDA Approval") or (ii) the second anniversary of the date of
the Closing (as defined below) (the "Second Closing Anniversary") (the earlier
of (i) or (ii), the "Milestone Date"), but only in the event Final FDA Approval
is received on or before the Second Closing Anniversary or, if Final FDA
Approval is not received by the Second Closing Anniversary, Ligand has not
satisfied certain obligations to undertake activities to obtain Final FDA
Approval. The Seragen Board concluded that the Merger Consideration is fair and
favorable even after allowing for the contingent nature of the Milestone
Consideration, since the value of Seragen would be severely compromised if Final
FDA Approval were not to be forthcoming on a timely basis.
9. Willingness of Preferred Shareholders, Creditors and Obligees to Accept
Discounts. In connection with the negotiation of the Merger Agreement and
related agreements, and in order to facilitate the Merger, certain preferred
shareholders, creditors and obligees of Seragen agreed to accept the right to
receive Merger Consideration as full and complete satisfaction of their claims
against Seragen. See "The Merger--Description of the Merger--Effect of the
Merger on the Interests of Certain Persons" and "--Accord Agreement" and "The
Merger Agreement--Merger Consideration." The amount of Merger Consideration
allocated to such preferred shareholders, creditors and obligees constitutes
what Seragen management expects to be a discount of from 25% to 40% (with the
exact amount of the discount depending on the date of the Closing and the amount
of Seragen's payables as of the Closing) on amounts otherwise owed by Seragen
to such persons. In addition, such preferred shareholders and certain of such
creditors and obligees have agreed to accept the right to receive Milestone
Consideration, as opposed to the right to receive Closing Consideration (as
hereinafter defined), as partial payment for their claims, thereby subjecting
what Seragen management expects to be from 80% to 90% of their right to receive
Merger Consideration to the contingency associated with the Milestone
Consideration and also, in the likely event the Milestone Consideration does not
become payable by the time of the Closing, to some delay. See "The
Merger--Description of the Merger--Effect of the Merger on the Interests of
Certain Persons" and "--Accord Agreement" and "The Merger Agreement--Merger
Consideration." The Seragen Board concluded that (i) the agreements reached with
said preferred shareholders, creditors and obligees would result in substantial
benefit to holders of Seragen Common Stock by reducing, in the context of the
Merger, the claims to Merger Consideration ranking senior to the rights of the
Seragen Common Stock, thereby freeing up Merger Consideration for distribution
to holders of Seragen Common Stock and (ii) that such arrangements would be
unlikely to be available otherwise than in connection with the Merger or a
similar transaction.
RISK FACTORS
In connection with a determination to approve and adopt the Merger
Agreement and the Merger, stockholders should evaluate the risk factors
associated with Ligand, Seragen and the operation of the Combined Companies
following the Merger. Stockholders should note that the market prices for
securities of biotechnology companies, including those of Ligand and Seragen,
have been volatile. Factors such as failure to obtain regulatory approval when
expected, technological innovations, public concern as to safety, general market
conditions and other factors may impact market prices and may result in costly
stockholder litigation.
SEE "RISK FACTORS" STARTING ON PAGE 28 FOR A MORE DETAILED DESCRIPTION OF
THE RISK FACTORS ASSOCIATED WITH THE MERGER AND THE BUSINESSES OF LIGAND AND
SERAGEN.
OPINION OF SERAGEN'S FINANCIAL ADVISOR
Seragen's financial advisor, Lehman Brothers Inc. ("Lehman Brothers"),
rendered a written opinion, dated May 1, 1998, that as of the date of such
opinion, and subject to certain assumptions, factors and limitations set forth
in such opinion, the aggregate consideration to be paid by Ligand in the Merger
is fair to holders of Seragen Common Stock from a financial point of view.
Seragen has agreed to pay Lehman Brothers certain fees for acting as financial
advisor in connection with the Merger. This opinion should be read in its
entirety and is set forth in Appendix A.
12.
<PAGE> 19
EFFECTIVE TIME
Unless the Merger Agreement is terminated or the parties agree to another
time, the closing of the Merger (the "Closing") will take place no later than
five business days following the satisfaction or waiver of the conditions set
forth in Article VI of the Merger Agreement (the date of the Closing, the
"Closing Date"). On the Closing Date, Ligand and Seragen will consummate the
Merger by filing a Certificate of Merger with the Secretary of State of the
State of Delaware. The time of confirmation by the Delaware Secretary of State
of the filing of the Certificate of Merger is referred to herein as the
"Effective Time" or the "Effective Date." See "--Conditions to Closing".
MERGER CONSIDERATION
As consideration for Ligand's acquisition of Seragen through the Merger,
Ligand has agreed to pay to holders of shares of Seragen Capital Stock and
certain creditors and obligees of Seragen the Merger Consideration. The Merger
Consideration will be paid as follows: (a) at the Closing, $30.0 million (the
"Closing Consideration"), payable in the form of cash in the amount of $4.0
million and approximately 1,858,800 shares of Ligand Common Stock valued at
$13.9875 per share (the average closing price of the Ligand Common Stock on the
Nasdaq National Market for the five trading days prior to the announcement of
the Merger) or $26.0 million in the aggregate; and (b) in the event Final FDA
Approval is received on or before the Second Closing Anniversary, or in the
event Final FDA Approval is not received by the Second Closing Anniversary and
Ligand has not satisfied certain obligations to undertake activities to obtain
Final FDA Approval, the Milestone Consideration on the Milestone Date. The
Milestone Consideration, if any, may be paid in the form of cash, shares of
Ligand Common Stock or a combination of both, as determined by Ligand in its
sole discretion. Any shares of Ligand Common Stock issued in satisfaction of the
Milestone Consideration will be valued at the average of the closing prices of
Ligand Common Stock on the Nasdaq National Market for the 10 trading days
immediately preceding the date of issuance of such Ligand Common Stock. Ligand
may, in its sole discretion, increase the amount of cash paid as Closing
Consideration solely to cover certain amounts payable by Seragen as of the
Closing, in which case the Closing Consideration payable in shares of Ligand
Common Stock will be correspondingly reduced. In the event Final FDA Approval
has not been received by the Second Closing Anniversary and Ligand has not
breached certain obligations to undertake activities to obtain Final FDA
Approval, Ligand will be relieved of all obligations to pay the Milestone
Consideration.
For a discussion of the manner in which the Merger Consideration will be
distributed, see "The Merger Agreement--Merger Consideration."
TREATMENT OF WARRANTS AND STOCK OPTIONS
At the Effective Time, the unexpired and unexercised warrant to purchase
up to 10,757 shares of Seragen Common Stock (at an exercise price of $12.55 per
share of Seragen Common Stock) held by MMC/GATX Partnership No. 1 (the "GATX
Warrant") will be assumed by Ligand in accordance with the terms of such
warrant. Ligand will also assume warrants to purchase up to 281,751 shares of
Seragen Common Stock (at an exercise price of $10.00 per share of Seragen Common
Stock) to the extent such warrants are not terminated by their terms as a result
of the effectiveness of the Merger (collectively, with the GATX Warrant, the
"Seragen Warrants"). The remaining warrants to purchase Seragen Capital Stock
outstanding prior to the Merger will be terminated immediately prior to the
Merger.
All options entitling the holder to purchase Seragen Capital Stock will be
accelerated prior to the Effective Time and will expire on the Effective Time
unless previously exercised. Ligand will not assume any such options.
EXCHANGE OF SERAGEN COMMON STOCK CERTIFICATES
Prior to the Effective Time, Ligand will designate a bank or trust company
with assets of not less than $500 million to act as exchange agent (the
"Exchange Agent"). Ligand will make available to the Exchange Agent (i) the
13.
<PAGE> 20
Closing Consideration allocable to the holders of Seragen Common Stock on or
before the Closing Date and (ii) the Milestone Consideration, if any, allocable
to the holders of Seragen Common Stock on or before the Milestone Date.
Promptly after the Effective Time, the Surviving Corporation will cause to
be mailed to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Seragen Common Stock and which shares were converted into the right to receive
the portion of the Merger Consideration issuable with respect to such shares
pursuant to the terms of the Merger Agreement (the "Certificates"), (i) a letter
of transmittal (which will specify that delivery is to be effected, and risk of
loss and title to the Certificates is to pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Ligand may reasonably specify) and (ii) instructions for effecting
the surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Ligand, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate will be entitled to receive
in exchange for the Certificate the portion of the Merger Consideration due such
holder as and when the Exchange Agent receives the Merger Consideration with
respect to the shares of Seragen Common Stock represented by such Certificate,
and the Certificate that such holder surrenders will be canceled. Subject to the
provision below, each outstanding Certificate that, prior to the Effective Time,
represented shares of Seragen Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the right to receive the
portion of the Merger Consideration due the holder of such Certificate as and
when the Exchange Agent receives the Merger Consideration with respect to the
shares of Seragen Common Stock represented by such Certificate.
No dividends or other distributions with respect to Ligand Common Stock
declared or made after the date such shares are to be distributed to the holders
of the Seragen Common Stock and with a record date after such date will be paid
to the holder of any outstanding Certificate with respect to the shares of
Ligand Common Stock represented by such outstanding Certificate until the holder
of record of such Certificate has surrendered such Certificate. Subject to
applicable law, following surrender of any such Certificate, there will be paid
to the record holder of the certificates representing whole shares of Ligand
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions payable with respect
to such whole shares of Ligand Common Stock with a record date after the date
such shares of Ligand Common Stock are to be delivered by Ligand to the Exchange
Agent for distribution to the holders of the Seragen Common Stock. The
provisions of the foregoing sentence are in addition to, and not by way of
limitation of, the valuation formulas set forth in the Merger Agreement for
determining the value of Ligand Common Stock issued as part of the Closing
Consideration and the Milestone Consideration, if any. See "The Merger
Agreement--Merger Consideration."
If any certificate for shares of Ligand Common Stock is to be issued in a
name other than the name under which the Certificate surrendered in exchange is
registered, such shares of Ligand Common Stock will be issued only if the
Certificate that is surrendered (i) is properly endorsed and otherwise in proper
form for transfer and (ii) the person requesting such exchange has paid to
Ligand or any agent designated by Ligand any transfer or other taxes required by
reason of the issuance of a certificate for shares of Ligand Common Stock in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Ligand or any agent designated by it that
such tax has been paid or is not payable.
ACQUISITION PROPOSALS
Under the Merger Agreement, Seragen has agreed that it and its officers,
directors, employees or other agents will not, directly or indirectly, take any
action to solicit, initiate or encourage the making of any Acquisition Proposal
(as defined below). However, the Seragen Board may engage in negotiations with,
or disclose any nonpublic information relating to Seragen or afford access to
the properties, books or records of Seragen to, any person or entity that
informs the Seragen Board that it is considering making, or has made, an
Acquisition Proposal.
14.
<PAGE> 21
Until the Merger Agreement is terminated, Seragen may not enter into any
agreement to merge or consolidate with, or sell a substantial portion of its
assets to, any person or entity. Seragen has the right to terminate the Merger
Agreement if Seragen receives an Acquisition Proposal which the Seragen Board
determines, after consultation with counsel, to recommend to the stockholders of
Seragen in order to comply with the fiduciary duty of the Seragen Board. Seragen
has agreed to notify Ligand promptly after receipt of any Acquisition Proposal
or any request for nonpublic information relating to Seragen in connection with
an Acquisition Proposal or for access to the properties, books or records of
Seragen by any person or entity that informs the Seragen Board that it is
considering making, or has made, an Acquisition Proposal.
The term "Acquisition Proposal" as used in the Merger Agreement means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Seragen or the acquisition of a majority of
equity interests in, or a majority of the assets of, Seragen other than the
transactions contemplated by the Merger Agreement.
CONDITIONS TO CLOSING
The obligations of Ligand and Seragen to consummate the Merger are each
subject to the satisfaction of the following conditions: (i) requisite approval
by Seragen's stockholders of the transactions contemplated in the Merger
Agreement; (ii) there having been obtained any and all governmental
authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws, the failure to comply with which
would be reasonably likely to have a material adverse effect on the business,
assets (including intangible assets), financial condition, results of
operations, liabilities or prospects ("Material Adverse Effect") of Ligand or
Seragen or would be reasonably likely to subject any of Ligand, Seragen or any
of their respective directors or officers to substantial penalties or criminal
liability; (iii) the effectiveness under the Act of the Registration Statement;
(iv) there being no statute, rule, regulation, executive order, decree,
injunction or restraining order having been enacted, promulgated or enforced
(and not repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger; (v) the
approval upon notice of issuance for listing on the Nasdaq National Market of
the shares of Ligand Common Stock to be issued in the Merger; and (vi) the
decision of the Office of the Attorney General of the Commonwealth of
Massachusetts, Public Charities Division not to take action to prevent the
Merger, notice of which was received on May 11, 1998, remaining in full force
and effect.
The obligations of Seragen to consummate the Merger are also subject to
the satisfaction of the following conditions: (i) the representations and
warranties of Ligand and Merger Sub contained in the Merger Agreement being true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by the Merger Agreement and except for those
representations and warranties which address matters only as of a particular
date (which must have been true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Ligand, and the delivery of a certificate to Seragen
signed on behalf of Ligand to such effect; (ii) Ligand and Merger Sub having
performed and complied with all of their respective covenants contained in the
Merger Agreement in all material respects on or before the Effective Time; (iii)
the receipt of all written consents, approvals and waivers other than those the
failure of which to obtain would not have a Material Adverse Effect on Ligand or
Merger Sub, as the case may be; and (iv) Seragen having received an opinion of
Brobeck, Phleger & Harrison LLP, counsel to Ligand and Merger Sub in
substantially the form and substance previously provided to Seragen's counsel.
The obligations of Ligand and Merger Sub to consummate the Merger are also
subject to satisfaction of the following conditions: (i) the representations and
warranties of Seragen contained in the Merger Agreement being true and correct
in all material respects on and as of the Closing Date, except for changes
contemplated by the Merger Agreement and except for those representations and
warranties which address matters only as of a particular
15.
<PAGE> 22
date (which must have been true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Seragen or Ligand, and the delivery of a certificate
to Ligand and Merger Sub signed on behalf of Seragen to such effect; (ii)
Seragen having performed and complied with all of its covenants contained in the
Merger Agreement in all material respects on or before the Effective Time; (iii)
the receipt of all written consents, assignments, waivers or authorizations
other than those the failure of which to obtain would not have a Material
Adverse Effect on Seragen; (iv) Ligand having received an opinion of Covington &
Burling, counsel to Seragen in substantially the form and substance previously
provided to Ligand's counsel; (v) Seragen having received bills marked as final
from each of its legal counsel and accountants; (vi) there not having occurred
any material adverse change in the business, assets (including intangible
assets), liabilities, financial condition or results of operations of Seragen
since March 31, 1998 (the date of the "Company Balance Sheet" (as defined in the
Merger Agreement)) which could reasonably be expected to result in a diminution
of the value of Seragen by $5.0 million or more; provided, however, that any
developments, or the absence of developments, with respect to the FDA's review
of Seragen's BLA for DAB(389)IL-2 for CTCL will not be a condition to the
obligations of Ligand or Merger Sub, and will not be included in the
determination of any adverse change with respect to Seragen; (vii) the
representations and warranties of Marathon contained in the Option and Purchase
Agreement being true and correct in all material respects on and as of the
Closing Date, except for changes contemplated by the Option and Purchase
Agreement and except for those representations and warranties which address
matters only as of a particular date (which must have been true and correct as
of such date), with the same force and effect as if made on and as of the
Closing Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on Marathon;
(viii) Marathon having performed or complied in all material respect with all
agreements and covenants required under the Option and Purchase Agreement; (ix)
except for the Seragen Warrants, all Seragen options and warrants having
terminated prior to the Closing; (x) the resignation of all of the members of
Seragen's Board and all of its officers; (xi) holders of not more than 10% of
the outstanding shares of Seragen Capital Stock having exercised appraisal,
dissenter's or similar rights under applicable law with respect to such holders'
shares of Seragen Capital Stock by virtue of the Merger, and no other
stockholder of Seragen having any continued right to exercise such appraisal,
dissenter's or similar rights; and (xii) the amendment or termination of
specified license agreements, royalty agreements, service agreements, marketing
and other agreements in a manner satisfactory to Ligand.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the stockholders of Seragen, under
the following circumstances: (i) the Merger Agreement may be terminated by the
mutual consent of the board of directors of Ligand (the "Ligand Board"), the
board of directors of the Merger Sub (the "Merger Sub Board") and the Seragen
Board; (ii) either Ligand or Seragen may terminate the Merger Agreement (A) if
the Effective Time has not occurred on or before January 31, 1999; provided,
however, that the right to terminate the Merger Agreement under this provision
will not be available to any party whose willful failure to fulfill any
obligation under the Merger Agreement caused, or resulted in, the failure of the
Effective Time to occur on or before such date; and provided further, that in
the event either Ligand or Seragen has exercised the option under the Extension
Option Agreement, dated May 11, 1998, by and among Ligand, Seragen, Marathon,
520 Commonwealth and 660 Corporation (the "Extension Option Agreement") such
date will be extended upon each exercise of such option to the then-effective
termination of such option, (B) upon a final nonappealable order of a federal or
state court in effect preventing consummation of the Merger or (C) if any
statute, rule, regulation or order is enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal; (iii) Ligand may terminate the Merger Agreement if there
is any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
entity which would: (A) prohibit Ligand's or the Surviving Corporation's
ownership or operation of all or any portion of the business of Seragen or (B)
compel Ligand or the Surviving Corporation to dispose of or hold separate all or
a portion of the business or assets of Seragen or Ligand as a result of the
Merger; (iv) Ligand
16.
<PAGE> 23
may terminate the Merger Agreement if it is not in material breach of its
obligations under the Merger Agreement and there has been a material uncured
breach of any representation, warranty, covenant or agreement contained in the
Merger Agreement on the part of Seragen that would result in certain conditions
to the Merger not being satisfied; (v) Seragen may terminate the Merger
Agreement if it is not in material breach of its obligations under the Merger
Agreement and there has been a material uncured breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement on the part of
Ligand or Merger Sub that would result in certain conditions to the Merger not
being satisfied; (vi) Ligand may terminate the Merger Agreement if Seragen
suffers a Material Adverse Effect which could reasonably be expected to result
in a diminution of the value of Seragen by $5.0 million or more; provided,
however, a Material Adverse Effect will not include effects arising from the
FDA's review of DAB(389)IL-2 for CTCL; (vii) either Ligand or Seragen may
terminate the Merger Agreement if (A) Seragen fails to obtain the requisite
stockholder approval, (B) if at a meeting of Seragen stockholders, such
stockholders approve an acquisition proposal (other than an acquisition proposal
with Ligand) (see "--Acquisition Proposals") or (C) if the other party becomes
insolvent or seeks protection under any bankruptcy, receivership, trust deed,
creditors arrangement, composition or comparable proceeding, or if any such
proceeding is instituted against such other party (and not dismissed within 60
days); provided, however, that Seragen will not be deemed to be insolvent as a
result of its failure to pay Marathon under the Service Agreement for so long as
Marathon and BU forbear from the collection of such payments or for any period
that Marathon and BU are contractually obligated to so forbear; (viii) Ligand
may terminate the Merger Agreement if it is not in material breach of its
obligations under the Merger Agreement and (A) if any Person other than Ligand
or any of Ligand's affiliates purchases a majority of the outstanding shares of
Seragen Common Stock, (B) if the Seragen Board has withdrawn its recommendation
of the Merger, adversely changed its recommendation of the Merger or recommended
or approved any acceptance by Seragen's stockholders of any acquisition proposal
(other than an acquisition proposal with Ligand) or (C) if Seragen has
recommended or approved the acceptance by Seragen's stockholders of any
acquisition proposal (other than an acquisition proposal made by Ligand or an
affiliate of Ligand), or (ix) Seragen may terminate the Merger Agreement if
Seragen has received an Acquisition Proposal (other than with respect to Ligand
or an affiliate of Ligand), which the Seragen Board determines, after
consultation with counsel, to recommend to the Seragen stockholders in order to
comply with the fiduciary duty of the Seragen Board.
EXPENSES; TERMINATION FEE
Both Ligand and Seragen will be responsible for paying their respective
fees and expenses incurred in connection with the Merger, including, without
limitation, all legal, accounting, financial advisory and consulting fees and
all other fees and expenses of third parties incurred in connection with the
negotiation and consummation of the terms and conditions of the Merger Agreement
and the transactions contemplated by the Merger Agreement ("Third Party
Expenses"). Notwithstanding the foregoing, if (i) Ligand terminates the Merger
Agreement because Seragen becomes insolvent or seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding or if any such proceeding is instituted against Seragen
and not dismissed within 60 days or (ii) Seragen terminates the Merger Agreement
because it has received an Acquisition Proposal (other than with respect to
Ligand or an affiliate of Ligand), which the Seragen Board determines, after
consultation with counsel, to recommend to the Seragen stockholders in order to
comply with the fiduciary duty of the Seragen Board, then Seragen is obligated
to pay Ligand a fee equal to $5.0 million plus 5% of any additional value over
the $67.0 million in Merger Consideration contemplated under the Merger
Agreement realized by Seragen, its stockholders or its creditors and obligees in
connection with the consummation of an Acquisition Proposal not related to
Ligand or any of its affiliates. In addition, such fee is to be increased by any
Marathon losses assumed by Ligand in connection with its exercise of its option
under the Extension Option Agreement to extend the term of the Merger Agreement
and the Service Agreement beyond January 31, 1999.
TAX CONSEQUENCES
The Merger is intended to be treated as a purchase by Ligand of the
Seragen Common Stock in which Seragen stockholders will recognize gain or loss.
The purchase of the Seragen Common Stock should not result in
17.
<PAGE> 24
the recognition of gain or loss by Seragen. However, Seragen's ability to
utilize its net operating losses and other similar tax carryovers will be
limited following the purchase. The purchase should not have any direct tax
effect on Ligand.
For federal income tax purposes, it is anticipated that the surrender of
shares of Seragen Common Stock in the Merger in exchange for Ligand Common
Stock, cash and the Milestone Consideration will be treated as a sale by the
Seragen stockholders in which they must recognize gain or loss. The recognition
of gain or loss cannot be deferred in the transaction because the transaction
will not qualify as a "reorganization" within the meaning of the Section 368 of
Internal Revenue Code due to the significant portion of the consideration being
paid for the Seragen shares which is not voting stock of Ligand. For this
purpose, the obligation to deliver the Milestone Consideration, regardless of
whether it is eventually paid in cash or Ligand voting stock, will be treated as
property other than Ligand voting stock due to Ligand's right to make any such
payment either in cash or stock. As a result, each Seragen stockholder will be
required to recognize gain or loss on the sale in an amount equal to the
difference between the "amount realized" by the stockholder and such
stockholder's basis in the Seragen Common Stock surrendered. For this purpose,
the amount realized will include the sum of the cash and the fair market value
of the Ligand Common Stock received as the Closing Consideration and the
Milestone Consideration (not including the portion of the Milestone
Consideration treated as "original issue discount.") See "The
Merger--Description of the Merger--Federal Income Tax Consequences" below.
ALL STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION IN "THE
MERGER--DESCRIPTION OF THE MERGER--FEDERAL INCOME TAX CONSEQUENCES."
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
ACCOUNTING TREATMENT
For financial reporting purposes, the Merger will be recorded using the
purchase method of accounting. Accordingly, the purchase price consisting of the
fair value of Ligand Common Stock and cash payments, transaction expenses and
liabilities assumed by Ligand will be allocated to the tangible and intangible
assets acquired based on their estimated fair values at the Effective Time.
Ligand has assigned the estimated total cost to the fair value of net assets
acquired, including $30.0 million to in-process technology. Ligand will record a
one-time, non-cash charge to operations for the $30.0 million of in-process
technology immediately following completion of the Merger.
AGREEMENTS AMONG LILLY, LIGAND AND SERAGEN
As a condition to Ligand's willingness to enter into the Merger Agreement,
Lilly and Seragen agreed to enter into a letter agreement with Ligand dated May
11, 1998 (the "Letter Agreement"), in which Seragen gave its consent to the
assignment of the Seragen Agreements (as defined below) by Lilly to Ligand in
the following circumstances: (a) if the Closing occurs prior to the receipt of
all authorizations by the appropriate governmental entity or entities necessary
for commercial sale of the finished, salable pharmaceutical form of
DAB(389)IL-2, including approval of labeling, price, reimbursement and
manufacturing, in a jurisdiction ("Governmental Approval"), or (b) if
Governmental Approval is received prior to the Closing and Ligand is in
compliance with the best efforts requirement under Section 5.9 of the Merger
Agreement. Ligand is deemed to be in compliance with Section 5.9 of the Merger
Agreement if Seragen fails to notify Ligand and Lilly within two business days
of receipt of Governmental Approval that Ligand is not in compliance.
In addition, Seragen and Lilly agreed, pursuant to the Letter Agreement,
to amend the Seragen Agreements to provide for an amended milestone payment to
Seragen upon receipt of Governmental Approval of DAB(389)IL-2 in the United
States. Finally, Seragen agreed that it would, effective upon the assignment of
the Seragen Agreements, (a) release Lilly and Ligand from liabilities and
obligations arising from the execution and delivery of
18.
<PAGE> 25
the Wholesale Agreement (as defined below) and (b) release Lilly from
liabilities and obligations arising from the sale and use of DAB(389)IL-2 after
the effective date of assignment. See "Description of the Merger--Agreements
with Lilly, Ligand and Seragen."
19.
<PAGE> 26
COMPARATIVE MARKET PRICES
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the range of high and low sale
prices of Ligand Common Stock as reported by the Nasdaq National Market and the
range of high and low sale prices of Seragen Common Stock as reported by the
Nasdaq National Market before the Seragen Common Stock was delisted from the
Nasdaq National Market in September 1997 and the high and low sale prices as
reported by the OTC Bulletin Board for Seragen Common Stock after the Seragen
Common Stock was delisted from the Nasdaq National Market.
On May 8, 1998, the last trading date prior to the joint public
announcement by Ligand and Seragen of the signing of the Merger Agreement, the
last reported sale prices were $14 3/8 per share for Ligand Common Stock as
reported by the Nasdaq National Market and $0.44 per share for Seragen Common
Stock as reported by the OTC Bulletin Board.
<TABLE>
<CAPTION>
LIGAND COMMON STOCK SERAGEN COMMON STOCK
---------------------- ----------------------
PERIOD HIGH LOW HIGH LOW
- ---------------------------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
1st Quarter............... $13 3/4 $ 9 3/4 $5 5/8 $2 7/8
2nd Quarter............... 19 3/4 11 1/8 5 3/4 3 3/4
3rd Quarter............... 16 1/8 10 3/8 4 1/2 2 5/8
4th Quarter............... 15 11/16 11 1/4 3 1/8 2 9/32
Year Ended December 31, 1997
1st Quarter............... 17 10 1/4 1 5/8 15/16
2nd Quarter............... 14 1/2 9 1/8 2 1/8 15/16
3rd Quarter............... 17 3/4 11 5/8 1 1/16 1/2
4th Quarter............... 18 3/8 11 1/4 1 1/16 15/64
Year Ending December 31, 1998
1st Quarter............... 16 5/8 10 7/8 .84 .30
2nd Quarter .............. 16 3/8 12 3/16 .62 .36
3rd Quarter
(through July 2, 1998) ... 12 7/8 12 3/8 .53 .46
</TABLE>
20.
<PAGE> 27
SUMMARY FINANCIAL INFORMATION
The summary historical financial information presented below for each of
the three years in the period ended and as of December 31, 1997, for Ligand, and
for each of the three years in the period ended and as of December 31, 1997, for
Seragen, are derived from the financial statements of Ligand and Seragen,
respectively, which have been audited by Ernst & Young LLP, independent auditors
(Ligand), and Coopers & Lybrand L.L.P., independent auditors (Seragen, 1995) and
Arthur Andersen LLP, independent auditors (Seragen, 1996 and 1997). The data
should be read in conjunction with the accompanying historical financial
statements and notes thereto of Ligand and Seragen, incorporated by reference
for Ligand and included elsewhere in this Proxy Statement/Prospectus for
Seragen.
The unaudited financial information presented below for Ligand and Seragen
for the three-month periods ended March 31, 1997 and 1998 is derived from the
unaudited interim financial statements of Ligand and Seragen. The unaudited
financial statements of Ligand and Seragen include all adjustments (consisting
only of normal recurring entries) which management considers necessary for a
fair presentation of the financial position and results of operations for the
periods indicated. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the full
fiscal year or any future period. The data should be read in conjunction with
the accompanying historical financial statements and notes thereto of Ligand and
Seragen, incorporated by reference for Ligand and included elsewhere in this
Proxy Statement/Prospectus for Seragen.
The following summary pro forma financial information has been derived
from the Unaudited Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Proxy Statement/Prospectus. See "Pro Forma Financial
Statements." This information should be read in conjunction with the Unaudited
Pro Forma Condensed Consolidated Financial Statements and notes thereto and the
historical financial statements and related notes of Ligand and Seragen
incorporated by reference for Ligand and included elsewhere herein for Seragen.
The pro forma data are presented for comparative purposes only and are not
necessarily indicative of the financial position or results of operations which
may occur in the future, or what the financial position or results of operations
would have been had the Merger been consummated for the periods or as of the
dates for which the pro forma data are presented. Amounts are in thousands,
except per share data.
HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------- ---------------------------
LIGAND 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Historical Statements of Operations Data:
Revenues .................................. $ 24,516 $ 36,842 $ 51,699 $ 9,812 $ 5,066
Costs and expenses:
Research and development ............... 41,636 59,494 72,426 16,626 14,907
General and administrative ............. 8,181 10,205 10,108 2,319 2,769
Write off of acquired in-process
technology ............................. 19,564 -- 64,970 -- --
ALRT contribution ......................... 17,500 -- -- -- --
Interest income (expense), net ............ (1,807) (4,456) (4,345) (1,006) (930)
Net loss .................................. $ (64,172) $ (37,313) $ (100,150) $ (10,139) $ (13,540)
Basic and diluted net loss per
share .................................. $ (2.70) $ (1.30) $ (3.02) $ (.32) $ (.35)
</TABLE>
21.
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares used in computing net loss
per share .............................. 23,792 28,781 33,128 31,994 38,565
</TABLE>
<TABLE>
<CAPTION>
LIGAND DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents, short-term investments and
restricted cash ..................................... $ 86,287 $ 64,591
Working capital ........................................ 62,399 49,300
Total assets ........................................... 107,423 89,453
Long-term debt ......................................... 14,751 14,824
Convertible subordinated debentures .................... 36,628 37,296
Accumulated deficit .................................... (277,744) (291,284)
Total stockholders' equity ............................. 34,349 22,809
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -----------------------
SERAGEN 1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(AS RESTATED (1))
<S> <C> <C> <C> <C> <C>
Historical Statements of Operations
Data:
Contract revenues and license fees ....... $ 3,337 $ 5,542 $ 4,714 $ 912 $ 747
Expenses:
Cost of contract revenues
and license fees..................... 3,337 4,504 4,281 882 747
Research and development ............ 14,087 13,959 10,601 2,517 1,495
General and administrative .......... 4,904 5,148 5,739 1,190 606
-------- -------- -------- -------- --------
Loss incurred in connection with
Canadian affiliate .................. (390) (2,924) -- -- --
Extraordinary income--forgiveness
of indebtedness ..................... -- -- 2,050 -- --
Other income (expense), net .............. (1,720) (5,333) (45) (157) 44
Preferred stock dividends and
accretion ........................... -- (10,395) (3,488) (721) (1,503)
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders ............................. $(21,101) $(36,721) $(17,390) $ (4,555) $ (3,560)
Basic and diluted net loss per share ..... $ (1.29) $ (2.20) $ (.88) $ (.25) $ (.15)
Basic and diluted shares used in
computing net loss per share ........ 16,356 16,724 19,827 17,937 23,244
</TABLE>
- ----------
(1) See Note O in Seragen's Notes to Financial Statements for discussion of
restatement.
22.
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
SERAGEN 1997 1998
------------ ------------
<S> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and restricted cash ..... $ 5,504 $ 4,789
Working capital (deficit) ...................... (3,126) (10,180)
Total assets ................................... 8,812 8,592
Canadian affiliate put option liability ........ 2,400 2,400
Deferred revenue ............................... 10,000 10,000
Long-term obligation ........................... 1,450 1,450
Accumulated deficit ............................ (206,385) (209,945)
Total stockholders' deficit .................... (14,892) (21,948)
</TABLE>
PRO FORMA REFLECTING MERGER
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1997 MARCH 31, 1998
------------ --------------
LIGAND AND SERAGEN COMBINED PRO FORMA FINANCIAL DATA
<S> <C> <C>
Pro Forma Statements of Operations Data:
Revenues ................................................. $ 56,413 $ 5,813
Total operating expenses ................................. 169,096 21,149
Loss from operations ..................................... (112,683) (15,336)
Other income (expense), net .............................. (4,675) (1,013)
Net loss ................................................. $ (117,358) $ (16,349)
Basic and diluted net loss per share ..................... $ (3.35) $ (.40)
Weighted average shares outstanding ...................... 34,987 40,424
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Balance Sheet Data: MARCH 31, 1998
--------------
<S> <C>
Cash, cash equivalents, investments and restricted cash........... $ 58,591
Working capital................................................... 44,842
Total assets...................................................... 135,553
Long-term obligations, excluding current portion.................. 102,220
Total stockholders' equity........................................ 18,809
Book value per common share....................................... $ .47
</TABLE>
23.
<PAGE> 30
COMPARATIVE PER SHARE DATA:
<TABLE>
<CAPTION>
PRO FORMA
LIGAND SERAGEN REFLECTING
HISTORICAL HISTORICAL MERGER
---------- ---------- ----------
<S> <C> <C> <C>
Net loss for the year
ended December 31, 1997 ................... $(3.02) $(0.88) $(3.35)
Net loss for the three months
ended March 31, 1998 ...................... (0.35) (0.15) (0.40)
Book value per common share at
March 31, 1998 ............................ 0.59 (0.94) 0.47
</TABLE>
REGULATORY REQUIREMENTS
Other than the effectiveness of the Registration Statement and the decision
of the Office of the Attorney General of the Commonwealth of Massachusetts,
Public Charities Division, not to take action to prevent the Merger, notice of
which was received on May 11, 1998, Seragen and Ligand are not aware of any
federal, state or foreign governmental or regulatory approval that is required
in order to consummate the Merger. Should any such approval be required, it is
currently contemplated that such approval would be sought.
APPRAISAL RIGHTS
Holders of record of Seragen Capital Stock who do not vote in favor of the
Merger Agreement and who otherwise comply with the requirements of Section 262
("Section 262") of the Delaware General Corporation Law (the "DGCL") summarized
herein will be entitled to appraisal rights under the DGCL. A person having a
beneficial interest in shares of Seragen Capital Stock held of record in the
name of another person, such as a broker or nominee, must act promptly to cause
the record holder to follow the appropriate procedures and to do so in a timely
manner to perfect appraisal rights. See "The Merger--Description of the
Merger--Appraisal Rights."
24.
<PAGE> 31
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to the stockholders of
Seragen in connection with the solicitation of proxies by the Seragen Board from
the holders of outstanding shares of Seragen Capital Stock for use at the
Seragen Meeting. At the Seragen Meeting, the Seragen stockholders will be asked
to consider and vote (i) upon the Seragen Proposal to approve and adopt the
Merger Agreement and to approve the Merger and (ii) to transact such other
business as may properly come before the Seragen Meeting.
This Proxy Statement/Prospectus constitutes the Prospectus of Ligand with
respect to the shares of Ligand Common Stock to be issued in the Merger. The
information in this Proxy Statement/Prospectus with respect to Ligand has been
supplied by Ligand, and the information with respect to Seragen has been
supplied by Seragen.
The principal executive offices of Ligand are located at 10275 Science
Center Drive, San Diego, California 92121, and its telephone number is (619)
550-7500. The principal executive offices of Seragen are located at 97 South
Street, Hopkinton, Massachusetts 01748, and its telephone number is (508)
435-2331.
EFFECT OF MERGER
If the Merger is consummated, Merger Sub will merge with and into
Seragen. Merger Sub will then cease to exist and Seragen will be the surviving
corporation and a wholly owned subsidiary of Ligand. The Merger will be effected
after satisfaction (absent waiver) of all conditions set forth in the Merger
Agreement, including the approval of the Merger Agreement by the stockholders of
Seragen.
As consideration for Ligand's acquisition of Seragen through the Merger,
Ligand has agreed to pay to holders of shares of Seragen Capital Stock and
certain creditors and obligees of Seragen an aggregate amount of up to $67.0
million. The Merger Consideration will be paid as follows: (a) at the Closing,
$30.0 million, payable in the form of cash in the amount of $4.0 million and
approximately 1,858,800 shares of Ligand Common Stock valued at $13.9875 per
share (the average closing price of the Ligand Common Stock on the Nasdaq
National Market for the five trading days prior to the announcement of the
Merger) or $26.0 million in the aggregate; and (b) in the event Final FDA
Approval is received on or before the Second Closing Anniversary, or in the
event Final FDA Approval is not received by the Second Closing Anniversary and
Ligand has not satisfied certain obligations to undertake activities to obtain
Final FDA Approval, the Milestone Consideration on the Milestone Date. The
Milestone Consideration, if any, may be paid in the form of cash, shares of
Ligand Common Stock or a combination of both as determined by Ligand in its sole
discretion. Any shares of Ligand Common Stock issued in satisfaction of the
Milestone Consideration will be valued at the average of the closing prices of
Ligand Common Stock on the Nasdaq National Market for the 10 trading days
immediately preceding the date of issuance of such Ligand Common Stock. Ligand
may, in its sole discretion, increase the amount of cash paid as Closing
Consideration solely to cover certain amounts payable by Seragen as of the
Closing, in which case the Closing Consideration payable in shares of Ligand
Common Stock will be correspondingly reduced. In the event Final FDA Approval
has not been received by the Second Closing Anniversary and Ligand has not
breached certain obligations to undertake activities to obtain Final FDA
Approval, Ligand will be relieved of all obligations to pay the Milestone
Consideration.
VOTING AND PROXIES
Seragen. Holders of record of shares of Seragen Common Stock and Seragen
Series B Preferred Stock at the close of business on the Seragen Record Date
will be entitled to vote at the Seragen Meeting, and at any adjournment or
postponement thereof. As of the close of business on the Seragen Record Date,
Seragen had 28,430,011 shares of Seragen Common Stock outstanding and 23,800
shares of Seragen Series B Preferred Stock outstanding. On March 30, 1998, all
shares of Seragen Series C Preferred Stock ("Seragen Series C Preferred Stock")
were either purchased by Seragen or automatically converted into shares of
Seragen Common Stock. Each outstanding share of Seragen Common Stock is entitled
to one vote per share at the Seragen Meeting. Each
25.
<PAGE> 32
outstanding share of Seragen Series B Preferred Stock is entitled to 250 votes
per share at the Seragen Meeting. Approval of the Seragen Proposal requires the
affirmative vote of the holders of a majority by voting power of the outstanding
Seragen Capital Stock entitled to vote thereon. The holders of a majority by
voting power of the outstanding shares of Seragen Capital Stock entitled to vote
at the Seragen Meeting must be present in person or represented by proxy at the
Seragen Meeting in order to constitute a quorum for the conduct of business at
the Seragen Meeting.
As a condition to Ligand's willingness to enter into the Merger
Agreement, the directors and executive officers of Seragen and certain of their
affiliates, certain other affiliates of Seragen, and Lilly agreed to enter into
agreements with Ligand to vote the shares of Seragen Capital Stock over which
they have voting control in favor of the Merger Agreement, the Merger and any
matter that could reasonably be expected to facilitate the Merger. The directors
and executive officers of Seragen and certain of their affiliates, certain other
affiliates of Seragen, and Lilly have entered into such agreements and, in
connection therewith, have granted irrevocable proxies to Messrs. Robinson and
Respess covering approximately 57% by voting power of the outstanding Seragen
Capital Stock as of the Seragen Record Date. See "The Merger--Description of the
Merger--Stockholder Voting Agreement and Irrevocable Proxy to Vote Seragen, Inc.
Stock."
All shares of Seragen Capital Stock represented by properly executed
proxies will be voted at the Seragen Meeting in accordance with the directions
indicated on the respective proxies unless the proxies previously have been
revoked. Unless contrary direction is given, the shares of Seragen Capital Stock
will be voted FOR the Seragen Proposal and in the proxyholder's discretion as to
such other matters incident to the conduct of the Seragen Meeting as may
properly come before stockholders at the Seragen Meeting.
If any other matters are properly presented at the Seragen Meeting for
action, including a question of adjourning the meeting from time to time, the
proxy holders will have discretion to vote on those matters in accordance with
their best judgment. The Seragen Meeting may be adjourned, and additional
proxies solicited, if at the time of the Seragen Meeting the vote necessary to
approve the Seragen Proposal has not been obtained. Any adjournment of the
Seragen Meeting will require the affirmative vote of the holders of at least a
majority of the shares of Seragen Capital Stock represented at the Seragen
Meeting (regardless of whether those shares constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke it
at any time before it is voted. A stockholder who wishes to revoke a proxy can
do so by executing a later-dated proxy relating to the same shares and
delivering it to the Vice President and Chief Financial Officer of Seragen prior
to the vote at the Seragen Meeting, by giving written notice of revocation to
the Vice President and Chief Financial Officer prior to the vote at the Seragen
Meeting, or by appearing in person at the Seragen Meeting and voting in person
the shares to which the proxy relates. Any written notice revoking a Seragen
proxy should be sent to Seragen at 97 South Street, Hopkinton, Massachusetts
01748, Attention: Robert W. Crane, Vice President and Chief Financial Officer.
Shareholder proxies will be received by the Bank of Boston, Seragen's
independent proxy processing agent. The proxy vote will be certified by an
independent inspector of elections. Proxies and ballots that identify the vote
of individual stockholders will be kept confidential until the final vote has
been tabulated at the Seragen Meeting, except where disclosure is necessary to
meet legal requirements or in a contested proxy solicitation and in cases where
stockholders write comments on their proxy cards.
The expense of printing and mailing proxy materials to Seragen
stockholders will be borne by Seragen. In addition to the solicitation of
proxies by mail, solicitation may be made by personal interview, telephone or
facsimile transmission by certain directors, officers and employees of Seragen.
No additional compensation will be paid to directors, officers or employees of
Seragen for such services. Copies of solicitation material will be furnished to
brokerage houses, fiduciaries and custodians to forward to beneficial owners of
shares held in their names. Those persons will be reimbursed for their
reasonable expenses in forwarding solicitation material to beneficial owners.
26.
<PAGE> 33
ATTENDANCE AT SERAGEN MEETING
To ensure availability of adequate space for stockholders wishing to
attend the Seragen Meeting, priority seating will be given to stockholders of
record and beneficial owners of Seragen Capital Stock having evidence of such
ownership, or their authorized representatives, and to the invited guests of
management. In addition, a stockholder may bring one guest. In order that
seating may be equitably allocated, a stockholder wishing to bring more than one
guest must contact Lora Maurer, Manager--Investor Relations/Corporate
Communications, telephone (508) 435-2331.
27.
<PAGE> 34
RISK FACTORS
The following are among the factors that should be considered carefully
in evaluating Ligand, Seragen and the operation of the Combined Companies after
the Merger. These factors should be considered in conjunction with other
information included in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus may contain forward-looking statements within the meaning
of Section 27A of the Act and Section 21E of the Exchange Act. Actual results
could differ materially from those projected in these forward-looking statements
as a result of a variety of factors, including those set forth below and
elsewhere in this Proxy Statement/Prospectus.
Inability to Calculate Value of Closing Consideration Received in Merger
and the Number of Shares of Ligand Common Stock Issuable as Milestone
Consideration. Potential fluctuations of the market prices of Ligand Common
Stock make it impossible for Seragen stockholders to definitively calculate the
value of the Closing Consideration to be received by them in the Merger or the
number of shares of Ligand Common Stock issuable to them as Milestone
Consideration, if any, until the Closing Date or the Milestone Date,
respectively. Also, the payment of the Milestone Consideration is subject to the
satisfaction of certain conditions, and no assurance can be given that such
conditions will be satisfied. In addition, the price of the Ligand Common Stock
on the date the Closing Consideration or the Milestone Consideration, if any, is
payable may vary significantly from the closing price as of the date as of which
the Merger Agreement was executed, the date of this Proxy Statement/Prospectus
or the date on which the Seragen stockholders vote on the Merger. The market
price for Ligand Common Stock has historically been subject to significant
fluctuations. As a result, neither at the time of executing a proxy nor at the
time of the Seragen Meeting will Seragen stockholders know the per share value
of shares of Ligand Common Stock to be delivered as Closing Consideration or as
Milestone Consideration, if any. See "--Volatility of Stock Price."
Early Stage of Product Development; Technological Uncertainty. Neither
Ligand nor Seragen has received any regulatory approvals required for, or
generated any revenues from, the sale of products developed by them or their
collaborators. To achieve profitable operations, the Combined Companies, alone
or with others, will have to successfully develop, clinically test, receive
required regulatory approvals, market and sell their products. Any products
resulting from the Combined Companies' or their collaborative partners' product
development efforts are not expected to be available for sale until next year,
if at all. No assurance can be given that required regulatory approvals from the
FDA or equivalent foreign authorities for their intended indications or any
other indication with respect to DAB(389)IL-2 or Panretin gel (alitretinoin)
0.1% or any other potential products will be obtained in a timely manner or at
all. If any such approvals are not obtained it could have a material adverse
effect on the Combined Companies.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that potential products are
found during preclinical testing or clinical trials to be ineffective or to
cause harmful side effects, that they fail to receive necessary regulatory
approvals, are difficult or uneconomical to manufacture on a large scale, fail
to achieve market acceptance or are precluded from commercialization by
proprietary rights of third parties.
To date, Ligand's resources have been substantially dedicated to the
research and development of potential pharmaceutical products based upon its
expertise in IR and STATs technologies. Even though certain pharmaceutical
products act through IRs, some aspects of Ligand's proprietary IR technologies
have not been used in the discovery or development of any currently approved
pharmaceutical products. In addition, Ligand is not aware of any drugs that have
been developed and successfully commercialized that interact directly with
STATs. Much remains to be learned about the location and function of IRs and
STATs. Seragen has concentrated its product development efforts on potential
pharmaceutical products based on its fusion protein technology. Seragen expects
that its products, other than DAB(389)IL-2 for CTCL, will not be available for
commercial sale or use for several years, if at all. Seragen's products
previously tested in preclinical trials may not be successful in human clinical
trials. Products currently in, or which in the future advance to, various phases
of human clinical trials may not prove to be efficacious, or unintended or
unacceptably high levels of toxic side effects may occur. See "--Uncertainties
Related to Regulatory Review of DAB(389)IL-2 and Panretin Gel," "--Uncertainties
Related to Clinical Trials," "--Extensive Government Regulation; No Assurance of
Regulatory Approval" and "Seragen--Business."
28.
<PAGE> 35
Uncertainties Related to Regulatory Review of DAB(389)IL-2 and Panretin
Gel. In December 1997, Seragen submitted a BLA to the FDA requesting clearance
to market its lead molecule, DAB(389)IL-2, for the treatment of patients with
advanced CTCL who have received previous treatment with other agents. In May
1998, Ligand announced the submission of an NDA to the FDA for Panretin gel
(alitretinoin) 0.1% for the treatment of AIDS-related Kaposi's sarcoma ("KS").
On June 2, 1998, Ligand and Seragen announced that the ODAC had voted
favorably on questions put to it by the FDA regarding the efficacy of, and the
acceptability of the incidence and severity of toxicity associated with,
DAB(389)IL-2 for the treatment of patients with recurrent or persistent CTCL.
The ODAC also recommended that treating physicians should decide the appropriate
doses within a prescribed dose range. The ODAC's votes, although not binding,
will be considered by the FDA in its review of the BLA.
On June 9, 1998, the FDA issued the Complete Review Letter to Seragen in
respect of its BLA. The Center for Biologics Evaluation and Research ("CBER"),
the division of the FDA responsible for reviewing Seragen's application, no
longer issues so-called "approvable" or "non-approvable" letters at the
conclusion of their formal review of license applications when the action is not
an approval. Instead, the CBER issues letters signifying that a complete review
of all information and data submitted has been carried out. Per the CBER's
January 22, 1998 correspondence to applicants, a complete review letter
"summarizes all of the deficiencies and describes actions necessary to place the
application in a condition for approval."
The Complete Review Letter fulfills the FDA's commitment under the
Prescription Drug User Fee Act to a six-month review of the BLA, which was
designated for priority review. Upon the issuance of the Complete Review Letter,
the review clock was suspended with respect to the BLA and will not be
reactivated until all deficiencies have been addressed by Seragen.
The Complete Review Letter identified certain deficiencies in the BLA
related to safety, efficacy, manufacturing and product characterization. Seragen
is in the process of addressing and responding to the issues set out in the
Complete Review Letter.
The short-term future financial results of the Combined Companies and the
price of the Ligand Common Stock will be highly dependent on the timely receipt
of regulatory approvals required to market these products in the United States
and other jurisdictions and the subsequent successful commercial introduction of
such products. Any failure to obtain required regulatory approvals on a timely
basis could have a material adverse effect on the Combined Companies and a
significant impact on the trading price of Ligand Common Stock. Generally, only
a small percentage of new pharmaceutical products are approved for sale.
Moreover, if regulatory approval of a product is granted, the approval may limit
the indicated uses for which the product may be marketed. Such regulatory
approvals may be conditioned upon the performance of additional clinical trials
or other requirements established by the regulatory authorities. Even if
regulatory approval is obtained, a marketed product and its manufacturer are
subject to continual review. Discovery of previously unknown problems with a
product or manufacturer may result in restrictions on the use of the product or
its manufacturer, including withdrawal of the product from market. Also, prior
to marketing, the Combined Companies will be required to finalize labeling
requirements and satisfy the regulatory authorities that all manufacturing
facilities meet regulatory requirements.
There can be no assurance that regulatory approvals required for
DAB(389)IL-2 or Panretin gel will be received in a timely manner, if at all,
that the products will be capable of being produced in commercial quantities at
a reasonable cost, or that the products will be successfully marketed. In
addition, the Milestone Consideration will only be paid if Final FDA Approval is
received by the Second Closing Anniversary. If it is not received by the Second
Closing Anniversary, provided Ligand has not breached certain obligations to
undertake activities to obtain Final FDA Approval, Ligand will be relieved of
all obligations to pay the Milestone Consideration. See "--Extensive Government
Regulation; No Assurance of Regulatory Approval," "The Merger Agreement--Merger
Consideration" and "Seragen--Business."
Uncertainties Related to Clinical Trials. Before obtaining required
regulatory approvals for the commercial sale of each product under development,
Ligand and Seragen and their collaborators must demonstrate through
29.
<PAGE> 36
preclinical studies and clinical trials that such product is safe and
efficacious for use. The results of preclinical studies and initial clinical
trials are not necessarily predictive of results that will be obtained from
large-scale clinical trials. The safety and efficacy of a therapeutic product
under development must be supported by extensive data from clinical trials.
Moreover, clinical trials are often conducted with patients having the most
advanced stages of the disease. During the course of treatment, these patients
can die or suffer other material adverse effects for reasons that may not be
related to the proposed product being tested, but which can nevertheless affect
clinical trial results. A number of companies have suffered significant setbacks
in advanced clinical trials, despite promising results in earlier trials. No
assurance can be given that the Combined Companies' product development efforts
will be successful, that required regulatory approvals from the FDA or
equivalent foreign authorities for any indication will be obtained in a timely
manner or at all, or that any products, if introduced, will be capable of being
produced in commercial quantities at reasonable costs or will be successfully
marketed. The failure to demonstrate adequately the safety and efficacy of a
therapeutic drug under development would delay or prevent regulatory approval of
the product and could have a material adverse effect on the Combined Companies.
In addition, the FDA may require additional clinical trials, which could result
in increased costs and significant development delays. Finally, if regulatory
approval of a product is granted, the approval may limit the indicated uses for
which the product may be marketed. Even if regulatory approval is obtained, a
marketed product and its manufacturer are subject to continual review. Discovery
of previously unknown problems with a product or manufacturer may result in
restrictions on the use of the product or its manufacturer, including withdrawal
of the product from the market.
Seeking and obtaining regulatory approval for a new therapeutic product,
including the full clinical trial process, may take several years and may
require the expenditure of substantial resources. The rate of completion of
clinical trials of Ligand's and Seragen's potential products is dependent upon,
among other factors, obtaining adequate clinical supplies and the rate of
patient accrual. Patient accrual is a function of many factors, including the
size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial and the availability of clinical trial
material. Delays in planned patient enrollment in clinical trials may result in
increased costs, program delays or both, any of which could have a material
adverse effect on the Combined Companies. In addition, some of Ligand's and
Seragen's current collaborative partners have certain rights to control the
planning and execution of product development and clinical programs, and there
can be no assurance that such corporate partners' rights to control aspects of
such programs will not impede the Combined Companies' ability to conduct such
programs in accordance with the schedules and in the manner currently
contemplated by Ligand and Seragen for such programs. There can be no assurance
that, if clinical trials are completed, the Combined Companies or their
collaborative partners will submit an NDA or BLA with respect to any potential
product or that any such application will be reviewed and approved by the FDA in
a timely manner, if at all. Failure to do so could have a material adverse
effect on the Combined Companies. See "--Extensive Government Regulation; No
Assurance of Regulatory Approval" and "Seragen--Business."
Reliance on Collaborative Relationships. The Combined Companies' strategy
for the development, clinical testing, manufacturing and commercialization of
certain of their potential products will include entering into collaborations
with corporate partners, licensors, licensees and others. To date, Ligand has
entered into drug discovery and development collaborations with Lilly,
SmithKline Beecham, AHP, Abbott, Sankyo, Glaxo, Allergan and Pfizer, and Seragen
has entered into strategic alliances with Lilly and United States Surgical
Corporation ("USSC"). These collaborations provide Ligand with funding and
research and development resources for potential products for the treatment or
control of metabolic diseases, hematopoiesis, women's health disorders,
inflammation, cardiovascular disease, cancer and skin disease, and osteoporosis,
respectively, and Seragen with funding required to continue its CTCL clinical
trials and initiate preclinical studies for restenosis, respectively. The
Combined Companies' collaborative agreements allow their collaborative partners
significant discretion in electing to pursue or not to pursue any development
program. There can be no assurance that the Combined Companies' collaborations
will continue or that the collaborations will be successful. In connection with
the proposed Merger, or prior to the Merger in certain circumstances, Lilly will
assign its rights and obligations under its agreements with Seragen to Ligand.
Pursuant to the Accord Agreement, the agreement between USSC and Seragen will
terminate in connection with the Merger.
There can be no assurance that the Combined Companies' collaborators will
not pursue alternative technologies either on their own or in collaboration with
others as a means of developing drugs competitive with the
30.
<PAGE> 37
types of drugs currently being developed in collaboration with the Combined
Companies, and any such action may result in the withdrawal of support or
increased competition for the Combined Companies' programs. In addition, if
products are approved for marketing under these programs, any revenues to the
Combined Companies from these products will be dependent on the manufacturing,
marketing and sales efforts of their collaborators, which generally retain
commercialization rights under the collaborative agreements. Ligand's and
Seragen's current collaborators also generally have the right to terminate their
respective collaborations under certain circumstances. In connection with the
Merger, Lilly has agreed with Ligand that it will not amend, terminate or agree
to terminate its agreements with Seragen, or take any action that would give
rise to a right of termination by Seragen. If any of these collaborative
partners was to breach or terminate such agreements or otherwise fail to conduct
the collaborative activities successfully, the development of the Combined
Companies' products under such agreements would be delayed or terminated. The
delay or termination of any of the collaborations could have a material adverse
effect on the Combined Companies.
There can be no assurance that disputes will not arise in the future
between the Combined Companies and their collaborators, including with respect
to the ownership of rights to any technology developed. Ligand was involved in
litigation with Pfizer, which was settled in April 1996, with respect to
Ligand's rights to receive milestones and royalties based on the development and
commercialization of droloxifene. These and other possible disagreements with
collaborators could lead to delays in the achievement of milestones or receipt
of milestone payments or research revenue, or to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products, or could require or result in litigation or
arbitration, any or all of which could be time consuming and expensive and could
have a material adverse effect on the Combined Companies. See "The
Merger--Description of the Merger--Agreements with Lilly, Ligand and Seragen"
and "Seragen--Business."
Limited Sales and Marketing Capability. The creation of infrastructure to
commercialize pharmaceutical products is a difficult, expensive and
time-consuming process. Neither Ligand nor Seragen currently has any sales
capabilities. Ligand has only limited marketing capabilities, and Seragen has
none. To market any of their products directly, the Combined Companies will need
to develop a marketing and sales force with technical expertise and distribution
capability or contract with other pharmaceutical and/or health care companies
with distribution systems and direct sales forces. There can be no assurance
that the Combined Companies will be able to establish direct or indirect sales
and distribution capabilities or be successful in gaining market acceptance for
proprietary products or for other products. In addition, any third parties with
whom the Combined Companies establish marketing, distribution or sales
arrangements may have significant control over important aspects of the
commercialization of the Combined Companies' products, including market
identification, marketing methods, pricing, composition of sales force and
promotional activities. There can be no assurance that the Combined Companies
will be able to control the amount and timing of resources that any third party
may devote to the Combined Companies' products or prevent any third party from
pursuing alternative technologies or products that could result in the
development of products that compete with the Combined Companies' products and
the withdrawal of support from the Combined Companies' programs. See
"Seragen--Business."
Substantial Competition; Risk of Technological Obsolescence. Some of the
drugs which Ligand or Seragen are developing or the Combined Companies will
develop will compete with existing therapies. In addition, a number of companies
are pursuing the development of novel pharmaceuticals which target the same
diseases that Ligand or Seragen are targeting as well as related or competitive
approaches to drug discovery and development. The biotechnology industry is
subject to rapid and significant technological change and intense competition.
Many of Ligand's and Seragen's existing or potential competitors, particularly
large pharmaceutical companies, have substantially greater financial, technical
and human resources than Ligand and Seragen and may be better equipped to
develop, manufacture and market products. In addition, many of these competitors
have extensive experience in preclinical testing and human clinical trials,
obtaining FDA and other regulatory approvals, and manufacturing and marketing
pharmaceutical products. Other companies, academic institutions, governmental
agencies and other public and private research organizations are also conducting
research to develop technologies and products that may compete with those under
development by Ligand and Seragen. These institutions are becoming increasingly
aware of the commercial value of their findings and are becoming more active in
seeking patent protection and licensing arrangements to collect royalties for
the use of technology that they have developed. These institutions also may
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market competitive commercial products on their own or through joint ventures
and will compete with the Combined Companies in recruiting highly qualified
scientific personnel. Any of these companies, academic institutions, government
agencies or research organizations may develop and introduce products and
processes competitive with or superior to those of the Combined Companies. The
development by others of new treatment methods for those indications for which
Ligand and Seragen are developing products could render the Combined Companies'
products noncompetitive or obsolete.
Ligand's and Seragen's products under development target a broad range of
markets. The Combined Companies' competition will be determined in part by the
potential indications for which the Combined Companies' products are developed
and ultimately approved by regulatory authorities. For certain of the Combined
Companies' potential products, an important factor in competition may be the
timing of market introduction of the Combined Companies' or competitors'
products. Accordingly, the relative speed at which the Combined Companies or
their existing or future corporate partners can develop products, complete the
clinical trials and regulatory approval process, and supply commercial
quantities of the products to the market is expected to be an important
competitive factor. Competition among products approved for sale can be expected
to be based, among other things, on product efficacy, safety, reliability,
availability, price and patent position. See "Seragen--Business."
History of Operating Losses; Accumulated Deficit. Ligand and Seragen have
experienced significant operating losses since their respective inceptions. As
of March 31, 1998, Ligand had an accumulated deficit of approximately $291.3
million and Seragen had an accumulated deficit of approximately $210.0 million.
In addition, many of Ligand's and Seragen's drug candidates are in the early
developmental stage and will require significant time consuming and costly
development, testing and regulatory clearances. To date, substantially all of
Ligand's and Seragen's revenues have consisted of amounts received under
collaborative arrangements. Each of Ligand and Seragen expects to incur
additional losses during the next several years and losses of the Combined
Companies can be expected to increase as the Combined Companies' research and
development efforts and clinical trials progress. See "Seragen--Seragen's
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Possible Loss of Net Operating Loss Carryforwards. As of December 31,
1997, Seragen had net operating loss carryforwards for federal income tax
purposes of approximately $189 million, expiring at various dates from 1998
through 2013, which were available to reduce future federal income taxes.
Pursuant to a quasi-reorganization in 1985, approximately $11 million of these
loss carryforwards will be credited to additional paid-in capital if realized.
(Upon consummation of this quasi-reorganization, approximately $14 million of
accumulated deficit was charged to additional paid-in capital.) In addition,
Seragen had research and experimental and investment tax credit carryforwards of
approximately $6 million expiring at various dates from 1998 through 2013. The
consummation of the Merger will result in an ownership change as defined by
Section 382 of the Code. Such an ownership change will limit the Combined
Companies' utilization of Seragen's net operating loss carryforwards and tax
credit carryforwards to offset future taxable income and income tax, if any. In
addition, the net operating loss and tax credit carryforwards began expiring in
1998. See "Seragen--Seragen's Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Future Capital Needs; Uncertainty of Additional Funding. The discovery
and development of products will require the commitment of substantial resources
to conduct research, preclinical testing and clinical trials, to establish pilot
scale and commercial scale manufacturing processes and facilities and to
establish and develop quality control, regulatory, marketing, sales and
administrative capabilities. The future capital requirements of the Combined
Companies will depend on many factors, including the pace of scientific progress
in research and development programs, the magnitude of these programs, the scope
and results of preclinical testing and clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims, competing
technological and market developments, the ability to establish additional
collaborations, changes in existing collaborations, the cost of manufacturing
scale-up and establishment of internal capacity and third party arrangements for
sales and marketing functions. There can be no assurance that the Combined
Companies independently or through their collaborations will successfully
develop, manufacture or market any products or ever achieve or sustain revenues
or profitability from the commercialization of such products. Moreover, even if
profitability is achieved, the level of that profitability cannot be accurately
predicted. The Combined Companies' operating results may fluctuate from quarter
to quarter as a result of differences in the timing
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of expenses incurred and the revenues received from collaborative arrangements
and other sources. Some of these fluctuations may be significant. Ligand
believes that available cash, cash equivalents, marketable securities and
existing sources of funding will be adequate to satisfy the anticipated capital
requirements of the Combined Companies through 1999.
Seragen has previously announced that its ability to finance operations
beyond July 1998 is dependent on the continued forbearance of BU and Marathon
from collecting amounts due to them from Seragen under the Service Agreement or
Seragen's ability to raise additional capital or enter into other transactions
that would provide it with funds. Seragen's current strategic partner Lilly has
agreed to provide the funds required for the CTCL clinical trials under the
terms of its agreements with Seragen and, in connection with the Merger, has
agreed not to amend, terminate or agree to terminate its agreements with Seragen
so as to adversely affect Ligand. In connection with the proposed Merger, or
prior to the Merger in certain other circumstances, Lilly will assign its rights
and obligations under its agreements with Seragen to Ligand, except that Lilly
will pay amounts due to Ajinomoto Co., Inc.
("Ajinomoto") as previously agreed.
One of Ligand's subsidiaries, Glycomed, has outstanding indebtedness
which includes $50.0 million principal amount of 7 1/2% Convertible Subordinated
Debentures Due 2003 (the "Debentures"). There can be no assurance that Glycomed
will have the funds necessary to pay the interest on or the principal of the
Debentures when due or, if not, that it will be able to refinance the
Debentures.
Both Ligand and Seragen have incurred negative cash flow from operations
since inception and do not expect to generate positive cash flow to fund their
respective operations for at least the next year. As a result, substantial
additional equity or debt financings will be required in the near future to fund
the Combined Companies' operations. There can be no assurance that any
additional equity or debt financings will be available on acceptable terms, if
at all, or that such financings, if consummated, will be adequate to meet the
Combined Companies' capital requirements. Any additional equity or convertible
debt financings could result in substantial dilution to Ligand's stockholders.
If adequate funds are not available, the Combined Companies may be required to
delay, reduce the scope of or eliminate one or more of their drug development
programs or attempt to continue development by entering into arrangements with
collaborative partners or others that may require the Combined Companies to
relinquish some or all of their rights to certain technologies or drug
candidates that the Combined Companies would not otherwise relinquish. Any
inability of the Combined Companies to obtain additional financing or of
Glycomed to service its obligations under the Debentures could have a material
adverse effect on the Combined Companies.
No Assurance that Businesses Can Be Successfully Combined. The Combined
Companies will be significantly more complex and diverse than either Ligand or
Seragen prior to the combination. Following the Merger, to achieve optimal
synergies, the Combined Companies will need to successfully integrate and
streamline overlapping functions and control expenditures resulting from the
Combined Companies' business operations in San Diego, California, and Hopkinton,
Massachusetts. Some Seragen employees, including officers of Seragen, will leave
and others may leave if they find new assignments unattractive or unacceptable.
These departures may create operating difficulties and could adversely affect
morale and operations at Seragen for some period of time following the Merger.
In addition, the two companies have different systems and procedures in many
areas which must be reconciled. The effort required to reconcile systems and
procedures and the impact of success or failure may be material. The Merger may
also place significant demands on the Combined Companies' business, including
their administrative, technical and financial personnel and systems. There can
be no assurance that the process of integrating the two companies can be
effectively managed to achieve desired results. There can be no assurance that
any of the objectives for the Merger, including reducing the Combined Companies'
dependence on a few products, broadening product development capabilities or
achieving other financial synergies, can be achieved. Failure to achieve any of
the objectives could have a material adverse effect on the Combined Companies.
See "The Merger--Recommendation of The Seragen Board; Factors Considered."
Uncertainty of Market Acceptance. Even if the requisite regulatory
approvals are obtained for the Combined Companies' potential products,
uncertainty exists as to whether such products will be accepted in the United
States or foreign markets. A number of factors may affect the rate and overall
market acceptance of the Combined Companies' potential products, including the
safety and efficacy results in clinical trials of such products, the rate
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of adoption of use of such products by health care practitioners, the perceived
effectiveness of such products, the timing of market entry of such products
relative to competitive products, the availability of alternative technologies,
the means and frequency of administration of such products, the availability of
third party reimbursement and the extent of the marketing and sales efforts by
the Combined Companies, their collaborative partners and third-party
distributors or agents retained by the Combined Companies. There can be no
assurance that any of the Combined Companies' products will gain acceptance in
the market. See "Seragen--Business."
Lack of Manufacturing Capability; Reliance on Third-Party Manufacturers;
Reliance on Marathon. Ligand currently has no manufacturing facilities and,
accordingly, relies on third parties, including its collaborative partners, for
clinical or commercial production of any compounds under consideration as
products. Ligand has constructed and is currently validating a pilot
manufacturing capability in accordance with current Good Manufacturing Practices
("cGMP") in order to produce sufficient quantities of products for preclinical
testing and initial clinical trials. If Ligand is unable to develop or contract
on acceptable terms for manufacturing services, Ligand's ability to conduct
preclinical testing and human clinical trials will be adversely affected,
resulting in the delay of submission of products for regulatory approval and
delay of initiation of new development programs, which in turn could materially
impair Ligand's competitive position. Although drugs acting through IRs and
STATs have been manufactured on a commercial scale by other companies, there can
be no assurance that Ligand will be able to manufacture its products on a
commercial scale or that such products can be manufactured by Ligand or any
other party on behalf of Ligand at costs or in quantities to make commercially
viable products.
Seragen has no independent manufacturing and clinical operations and,
under the Service Agreement, depends on Marathon's ability to provide certain
services relating to product research, development, manufacturing, clinical
trials, quality control and quality assurance. The Marathon employees providing
such services are comprised primarily of former employees of Seragen. The
Service Agreement expires January 31, 1999. While the terms of the Service
Agreement provide that BU, which indirectly owns Marathon and has assigned its
rights under the Service Agreement to Marathon, may terminate the agreement if
annual losses exceed $9.0 million and if, after notice, Seragen fails to
reimburse BU for any losses in excess of such amount, BU has agreed to forbear
from any such termination prior to the Merger. The Closing is a condition to the
closing of the asset purchase by Ligand from Marathon contemplated by the Option
and Purchase Agreement. It is currently anticipated that the Closing will occur
in advance of the closing of such asset purchase. If this is the case, the
Combined Companies will be required to comply with the terms of the Service
Agreement, including payment of fees under such agreement following the Closing.
If the Closing does not occur prior to January 31, 1999, either Ligand or
Seragen may, pursuant to the Extension Option Agreement, extend the term of the
Service Agreement. If neither Ligand nor Seragen so elects, the Service
Agreement will terminate on January 31, 1999. Failure to comply with such terms
or termination of the Service Agreement prior to the Closing or the closing of
the asset purchase would have a material adverse effect on the operations of
Seragen. In addition, Seragen, and its manufacturing service provider, Marathon,
have never engaged in large-scale manufacturing. Seragen regularly contracts
with a variety of third parties in addition to Marathon for testing and
manufacturing services, some of which services will be essential to Seragen.
Generally, these contracts may be terminated at any time by these third parties.
See "Seragen--Business."
No Assurance That Exclusive Relationships Will Continue. Ligand and
Seragen have entered into exclusive relationships relating to the in-licensing
of technology with certain companies, academic institutions and scientists. The
agreements with these companies, institutions and scientists expire at various
times or under various circumstances. In addition, some of these agreements
require Ligand or Seragen to achieve certain product development milestones to
maintain the exclusivity of their respective licenses. There can be no assurance
that the Combined Companies will desire or be able to continue these
relationships upon the expiration of the current agreements or find suitable
replacements for them or that the Combined Companies will meet all of the
milestones required to maintain their exclusive licenses. Ligand is unable to
ascertain the impact of the loss of the services or relationship with, or of the
exclusivity of the license from, any of these companies, institutions or
scientists and any such loss may have a material adverse effect on the Combined
Companies. See "Seragen--Business."
Attraction and Retention of Key Employees. Seragen is highly dependent on
the principal members of its scientific and management staff as well as certain
members of the scientific and management staff of Marathon, which provides to
Seragen certain services relating to product research, development, clinical
trials, quality control
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and quality assurance. The loss of one or more of these employees by Seragen or
Marathon could have a material adverse effect on Seragen's ability to satisfy
certain conditions in connection with the closing of the Merger, which could
delay or prevent the Merger from closing, or to obtain Final FDA Approval, which
could delay or prevent the payment of the Milestone Consideration once the
Merger has closed.
In addition, the Combined Companies will be highly dependent on the
principal members of their scientific and management staff, the loss of whose
services might impede the achievement of development objectives and may have a
material adverse effect on the Combined Companies. Ligand is currently
experiencing a period of rapid growth which requires the hiring of significant
numbers of scientific, management and operational personnel. Recruiting,
retaining and replacing qualified management, operations and scientific
personnel to perform research and development work in the future will be
critical to the Combined Companies' success. There can be no assurance that the
Combined Companies will be able to attract, retain or replace such personnel on
acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies, universities and other research institutions for such
personnel, and the failure to do so could have a material adverse effect on the
Combined Companies. See "Seragen--Business--Employees."
Uncertainty of Patent Protection; Dependence on Proprietary Technology.
The patent positions of pharmaceutical and biopharmaceutical firms, including
Seragen and Ligand, are uncertain and involve complex legal and technical
questions for which important legal principles are largely unresolved. In
addition, the coverage sought in a patent application can be significantly
reduced before or after a patent is issued. This uncertain situation is also
affected by revisions to the United States patent law adopted in recent years to
give effect to international accords to which the United States has become a
party. The extent to which such changes in law will affect the operations of the
Combined Companies cannot be ascertained. In addition, there is currently
pending before Congress legislation providing for other changes to the patent
law which may adversely affect pharmaceutical and biopharmaceutical firms. If
such pending legislation is adopted, the extent to which such changes would
affect the operations of the Combined Companies cannot be ascertained, but such
changes could have a material adverse effect on the Combined Companies.
The Combined Companies' success will depend in part on their ability to
obtain and keep patent protection for their technology both in the United States
and other countries. A number of pharmaceutical and biotechnology companies and
research and academic institutions have developed technologies, filed patent
applications or received patents on various technologies that may be related to
the Combined Companies' business. Some of these patent applications, patents or
technologies may conflict with the Combined Companies' technologies or patent
applications. Any such conflict could limit the scope of the patents, if any,
that the Combined Companies may be able to obtain or result in the denial of the
Combined Companies' patent applications. In addition, if patents that cover the
Combined Companies' activities are issued to other companies, there can be no
assurance that the Combined Companies would be able to obtain licenses to such
patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology. Each of Ligand and Seragen has had from time to time and
may have in the future discussions with their current and potential
collaborators regarding the scope and validity of their respective patent and
other proprietary rights to their technologies. If a collaborator or other party
were successful in having substantial patent rights of the Combined Companies
determined to be invalid, it could adversely affect the ability of the Combined
Companies to retain existing collaborations beyond their expiration or, where
contractually permitted, encourage their termination. Such a determination could
also adversely affect the Combined Companies' ability to enter into new
collaborations. If any disputes should arise in the future with respect to the
rights in any technology developed with a collaborator or with respect to other
matters involving the collaboration, there could be delays in the achievement of
milestones or receipt of milestone payments or research revenues, or
interruptions or termination of collaborative research and development and
commercialization of certain potential products, and litigation or arbitration
could result. Any of the foregoing matters could be time consuming and expensive
and could have a material adverse effect on the Combined Companies.
Ligand owns or has exclusively licensed over 150 currently pending patent
applications in the United States relating to Ligand's technology, as well as
foreign counterparts of certain of these applications in many countries. There
can be no assurance that patents will issue from any of these applications or,
if patents do issue, that the claims allowed will be sufficient to protect
Ligand's technology. In addition, Ligand is the owner or exclusive licensee of
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rights covered by approximately 200 worldwide patents issued or allowed to it or
to The Salk Institute, Baylor College of Medicine and other licensors.
Intellectual property that will be acquired from Seragen by Ligand under the
Merger will add approximately 70 patents issued worldwide to the Ligand patent
estate. Certain patents and technology used by competitors of the Combined
Companies may infringe on the proprietary rights of the Combined Companies.
There can be no assurance that any patents issued to the Combined Companies or
to licensors of the Combined Companies' technology will not be challenged,
invalidated, circumvented or rendered unenforceable based on, among other
things, subsequently discovered prior art, lack of entitlement to the priority
of an earlier, related application, or failure to comply with the written
description, best mode, enablement or other applicable requirements, or that the
rights granted under any such patents will provide significant proprietary
protection or commercial advantage to the Combined Companies. The invalidation,
circumvention or unenforceability of any of the Combined Companies' patent
protection could have a material adverse effect on the Combined Companies.
The commercial success of the Combined Companies will also depend in part
on the Combined Companies' not infringing patents issued to competitors and not
breaching technology licenses that cover technology used in the Combined
Companies' products. It is uncertain whether any third party patents will
require the Combined Companies to develop alternative technology or to alter
their products or processes, obtain licenses or cease certain activities. If any
such licenses are required, there can be no assurance that the Combined
Companies will be able to obtain such licenses on commercially favorable terms,
if at all. Failure by the Combined Companies to obtain a license to any
technology that they may require to commercialize their products could have a
material adverse effect on the Combined Companies. Litigation, which could
result in substantial cost to, and have a material adverse effect on, the
Combined Companies, may also be necessary to enforce any patents issued or
licensed to the Combined Companies or to determine the scope and validity of
third-party proprietary rights. There can be no assurance that the Combined
Companies' patents or patent applications, if issued, or those of their
licensors, would be held valid by a court or that a competitor's technology or
product would be found to infringe such patents. If any of their competitors
have filed patent applications in the United States which claim technology also
invented by the Combined Companies, the Combined Companies may be required to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office ("PTO") in order to determine priority of invention and, thus,
the right to a patent for the technology, which could result in substantial cost
to, and have a material adverse effect on, the Combined Companies.
Ligand has learned that a United States patent has been issued to, and
foreign counterparts have been filed by, Hoffman LaRoche ("Roche") that include
claims to a formulation of 9-cis-Retinoic acid (Panretin) and use of that
compound to treat epithelial cancers. Ligand had previously filed an application
which has an earlier filing date than the Roche patent and which has claims that
Ligand believes are broader than but overlap in part with claims under the Roche
patent. Ligand is currently investigating the scope and validity of the Roche
patent to determine its impact upon the Panretin capsules and gel products. The
PTO has informed Ligand that the overlapping claims are patentable to Ligand and
initiated an interference proceeding to determine whether Ligand or Roche is
entitled to a patent by having been first to invent the common subject matter.
Ligand cannot be assured of a favorable outcome in the interference proceeding
because of factors not known at this time upon which the outcome may depend. In
addition, the interference proceeding may delay the decision of the PTO
regarding Ligand's application with respect to claims covering the Panretin
capsules and gel products. While Ligand believes that the Roche patent does not
cover the use of Panretin capsules and gel to treat leukemias such as APL and
sarcomas such as KS, or the treatment of skin diseases such as psoriasis, if
Ligand does not prevail in the interference proceeding, the Roche patent might
block Ligand's use of Panretin capsules and gel in certain cancers, and Ligand
may not be able to obtain patent protection for the Panretin capsules and gel
products. Failure to obtain patent protection for these products could have a
material adverse effect on the Combined Companies.
Seragen is aware of two patents issued to the National Cancer Institute,
U.S. Patents 4,892,827 and 5,082,927 (the "Pastan Patents"), which relate to
Fusion Proteins similar to those of Seragen, in which the cytotoxic agent is
pseudomonas exotoxin. Certain competitors of Seragen, including certain large
pharmaceutical companies, are known to have been engaged, at least in the past,
in the development of Fusion Proteins under the Pastan Patents as potential
therapeutic products for some of the same diseases which Seragen is targeting.
Seragen is unable to assess the effect that such efforts may have on Seragen's
competitive position or business.
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Ligand and Seragen also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
their respective competitive positions. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
or otherwise gain access to or disclose such information regarding Ligand or
Seragen. It is Ligand's and Seragen's policy to require their employees, certain
contractors, consultants, including members of their Scientific Advisory Boards,
and parties to collaborative agreements to execute confidentiality agreements
upon the commencement of employment or consulting relationships or a
collaboration with Ligand or Seragen. There can be no assurance that these
agreements will not be breached, that they will provide meaningful protection of
trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information, or that such trade secrets will not otherwise
become known or be independently discovered by Ligand's or Seragen's
competitors. See "Seragen--Business."
Extensive Government Regulation; No Assurance of Regulatory Approval. The
manufacturing and marketing of Ligand's and Seragen's products and their ongoing
research and development activities are subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. Prior to marketing, any drug developed by Ligand or Seragen must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process mandated by the FDA and equivalent foreign authorities. These
processes can take a number of years and require the expenditure of substantial
resources.
The steps required before Ligand's or Seragen's pharmaceutical agents or
biological products may be marketed in the United States include (i) preclinical
laboratory and animal tests, (ii) the submission to the FDA of an
Investigational New Drug ("IND") application, which must become effective before
human clinical trials may commence, (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug, (iv) the
submission of an NDA (in the case of a pharmaceutical agent) or a BLA (in the
case of a biological product) and (v) FDA approval of either the NDA or BLA
prior to any commercial sale or shipment of the product. An NDA or BLA may be
subject to payment of a drug use fee unless such fee is waived by the FDA. In
addition, a company must annually pay user fees for each approved product and
manufacturing establishment. Moreover, each domestic drug manufacturing
establishment must be registered with the FDA and, in California, with the Food
and Drug Branch of California. Domestic manufacturing establishments are subject
to preapproved inspections by the FDA prior to marketing approval and then to
biennial inspections and must comply with cGMP. To supply products for use in
the United States, foreign manufacturing establishments must comply with cGMP
and are subject to periodic inspection by the FDA or by regulatory authorities
in such countries under reciprocal agreements with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the safety and efficacy of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA.
Clinical trials involve the administration of the product to healthy
volunteers or to patients identified as having the condition for which the
product is being tested. The product is administered under the supervision of a
qualified principal investigator. Clinical trials are conducted in accordance
with protocols previously submitted to the FDA as part of the IND that detail
the objectives of the study, the parameters used to monitor safety and the
efficacy criteria that are being evaluated. Each clinical study is conducted
under the auspices of an Institutional Review Board ("IRB") at the institution
at which the study is conducted. The IRB considers, among other things, ethical
factors, the safety of the human subjects and the possible liability risk for
the institution.
Clinical trials are typically conducted in three sequential phases that
may overlap. In Phase I, the initial introduction of the product into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and clinical pharmacology.
Phase II involves studies in a limited patient population to determine the
efficacy of the product for specific targeted indications, to determine dosage
tolerance and optimal dosage and to identify possible adverse side effects and
safety risks. Once a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
evaluate clinical efficacy further and to further test for safety with an
expanded patient population at multiple clinical study sites. The FDA reviews
both the clinical plans and the results of the trials and may discontinue the
trials at any time if there are significant safety issues.
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The results of the preclinical tests and clinical trials are submitted to
the FDA for marketing approval in the form of either an NDA or a BLA. The
testing and approval process is likely to require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. The approval process is affected by a number of factors,
including the severity of the disease, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials.
Additional animal studies or clinical trials may be requested during the FDA
review process and may delay marketing approval. After FDA approval for the
initial indications, further clinical trials would be necessary to gain approval
for the use of the product for any additional indications. The FDA may also
require post-marketing testing to monitor for adverse effects, which can involve
significant expense.
The results of preclinical studies and initial clinical trials are not
necessarily predictive of results that will be obtained from large-scale
clinical trials, and there can be no assurance that clinical trials of any
product under development will demonstrate the safety and efficacy of such
product or will result in a marketable product. The safety and efficacy of a
therapeutic product under development by the Combined Companies must be
supported by extensive data from clinical trials. A number of companies have
suffered significant setbacks in advanced clinical trials, despite promising
results in earlier trials. The failure to demonstrate adequately the safety and
efficacy of a therapeutic product under development would delay or prevent
regulatory approval of the product and could have a material adverse effect on
the Combined Companies.
For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in existing
regulations could have a material adverse effect on the Combined Companies.
For marketing outside the United States before FDA approval to market,
the Combined Companies must submit an export permit application to the FDA. The
Combined Companies also will be subject to foreign regulatory requirements
governing human clinical trials and marketing approval for drugs. The
requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country and there can be
no assurance that the Combined Companies or any of their partners will meet and
sustain any such requirements.
The time required for completing such testing and obtaining such
approvals is uncertain, and there is no assurance that any such approvals will
be obtained. The Combined Companies or their collaborative partners may decide
to replace a compound in testing with a modified or optimized compound, thus
extending the test period. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA review of each submitted new drug application or product license
application. Similar delays may also be encountered in other countries. There
can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any products developed by the Combined Companies.
Moreover, prior to receiving FDA or equivalent foreign authority approval to
market their products, the Combined Companies may be required to demonstrate
that their products represent improved forms of treatment over existing
therapies. If regulatory approval of a product is granted, such approval may
entail limitations on the indicated uses for which the product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer and such manufacturer's manufacturing facilities are subject to
continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product or a manufacturer or its facility may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. Any of the foregoing could have a material adverse
effect on the Combined Companies. See "Seragen--Business."
Dependence on Third-Party Reimbursement and Health Care Reform. The
Combined Companies' commercial success will be heavily dependent upon the
availability of reimbursement for the use of any products developed by the
Combined Companies or their collaborative partners. There can be no assurance
that Medicare and other third-party payors will authorize or otherwise budget
reimbursement for the prescription of any of the Combined Companies' potential
products and any failure to do so could have a material adverse effect on the
Combined Companies. Additionally, third-party payors, including Medicare, are
increasingly challenging the prices charged for medical products and services
and may require additional cost-benefit analysis data from the Combined
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Companies in order to demonstrate the cost-effectiveness of their products.
There can be no assurance that the Combined Companies will be able to provide
such data in order to gain market acceptance of their products with respect to
pricing and reimbursement.
In the United States and in many foreign countries, it is likely that
there will continue to be a number of governmental proposals to control pricing
and profitability of prescription pharmaceuticals. In addition, increasing
emphasis on managed health care and the concurrent growth of organizations such
as health maintenance organizations, which could significantly influence the
purchase of health care services and products, may result in lower prices for
the Combined Companies' products. Cost control initiatives could decrease the
price that the Combined Companies or any of their collaborative partners or
other licensees receive for any drugs they may discover or develop in the future
and, by preventing the recovery of development costs, which could be
substantial, and an appropriate profit margin, could have a material adverse
effect on the Combined Companies. Further, to the extent that cost control
initiatives have a material adverse effect on the Combined Companies'
collaborative partners, the partners' ability to commercialize their products
and, as a result, the Combined Companies' ability to realize royalties may be
adversely affected. Furthermore, government regulations govern or influence the
reimbursement to health care providers of fees and capital equipment costs in
connection with medical treatment of certain patients. If any actions are taken
in the United States by federal and/or state governments or in foreign countries
by foreign governments to limit or restrict such reimbursements with respect to
the Combined Companies' or their partners' proposed or future products, such
actions could have a material adverse effect on the prospects for sales of the
Combined Companies' or their partners' products. There can be no assurance that
actions taken by governmental authorities, if any, with regard to health care
reform will not have a material adverse effect on the Combined Companies.
Product Liability and Insurance Risks. Ligand's and Seragen's respective
businesses expose them to potential product liability risks which are inherent
in the testing, manufacturing and marketing of human therapeutic products.
Certain of the compounds that Ligand and Seragen are investigating could be
injurious to humans. For example, retinoids as a class are known to contain
compounds which can cause birth defects. Each of Ligand and Seragen currently
has limited product liability insurance. There can be no assurance that the
Combined Companies will be able to maintain such insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. Ligand expects that the Combined Companies will attempt to procure
additional insurance when their products progress to a later stage of
development and if any rights to later-stage products are in-licensed in the
future. There can be no assurance that the Combined Companies will be able to
obtain such insurance on economically satisfactory terms, if at all. If the
Combined Companies are unable to obtain such insurance or to the extent that
product liability insurance, if available, does not cover potential claims, the
Combined Companies will be required to self-insure against the risks associated
with such claims. A successful product liability claim or series of claims
brought against the Combined Companies could have a material adverse effect on
the Combined Companies.
Use of Hazardous Materials. Ligand's and Seragen's respective research
and development programs involve the controlled use of hazardous materials,
chemicals and various radioactive compounds. For example, retinoids as a class
are known to contain compounds which can cause birth defects. Although each of
Ligand and Seragen believes that its current safety procedures for handling and
disposing of such materials, chemicals and compounds comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of any accident, the Combined Companies could be held liable for any
damages that result and any such liability could be significant. In addition,
the Combined Companies may incur substantial costs to comply with environmental
regulations. Any such liability or compliance costs could have a material
adverse effect on the Combined Companies.
Volatility of Stock Price. The market prices for securities of emerging
companies, including Ligand, have been highly volatile, and the stock market
from time to time has experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies. Factors
such as results of clinical trials and delays in manufacturing or clinical trial
plans of the Combined Companies, fluctuations in the Combined Companies'
operating results, disputes or disagreements by the Combined Companies with
their collaborative partners, market reaction to announcements by other
biotechnology or pharmaceutical companies,
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failures or unexpected delays in manufacturing or in obtaining regulatory
approvals of FDA or advisory panel recommendations by the Combined Companies,
developments or disputes as to the Combined Companies' patent or other
proprietary rights, loss of the Combined Companies' key personnel, litigation
involving the Combined Companies or their technology, public concern as to the
safety of drugs developed by the Combined Companies and general market
conditions could cause the Combined Companies' operating results to be below the
expectations of market analysts and investors, which could have a material
adverse effect on the prevailing market price of Ligand's Common Stock.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many companies in the biopharmaceutical industry and that often
have been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations, may
adversely affect the market price of Ligand's stock. In the past, following
periods of volatility in the market price of the securities of companies in the
biotechnology industry, securities class action litigation has often been
instituted against those companies. Such litigation, if instituted against
Ligand, could result in substantial costs and a diversion of management
attention and resources, which would have a material adverse effect on the
Combined Companies regardless of the outcome of the litigation.
Absence of Cash Dividends. No cash dividends have been paid on Ligand's
Common Stock to date, and Ligand does not anticipate paying cash dividends in
the foreseeable future. In addition, the terms of future financings to be
entered into by the Combined Companies may restrict the payment of dividends on
Ligand Common Stock.
Effect of Shareholder Rights Plan and Certain Anti-Takeover Provisions.
In September 1996, the Ligand Board adopted a preferred shares rights plan (the
"Shareholder Rights Plan") which provides for a dividend distribution of one
preferred share purchase right (a "Right") on each outstanding share of Ligand
Common Stock. Each Right entitles stockholders to buy 1/1000th of a share of
Ligand Series A Participating Preferred Stock at an exercise price of $100 per
1/1000th of a share of Ligand Series A Participating Preferred Stock, subject to
adjustment. The Rights will become exercisable following the tenth day after a
person or group announces acquisition of 20% or more of Ligand Common Stock, or
announces commencement of a tender offer, the consummation of which would result
in ownership by the person or group of 20% or more of Ligand Common Stock.
Ligand will be entitled to redeem the Rights at $0.01 per Right at any time on
or before the earlier of the tenth day following acquisition by a person or
group of 20% or more of Ligand Common Stock and September 13, 2006.
Ligand's Amended and Restated Certificate of Incorporation (the "Ligand
Certificate") includes a provision that requires the approval of the holders of
66 2/3% of Ligand's voting stock as a condition to a merger or certain other
business transactions with, or proposed by, a holder of 15% or more of Ligand's
voting stock, except in cases where certain directors approve the transaction or
certain minimum price criteria and other procedural requirements are met (the
"Fair Price Provision"). The Ligand Certificate also requires that any action
required or permitted to be taken by stockholders of Ligand must be effected at
a duly called annual or special meeting of stockholders and may not be effected
by any consent in writing. In addition, special meetings of the stockholders of
Ligand may be called only by the Ligand Board, the Chairman of the Board or the
President of Ligand or by any person or persons holding shares representing at
least 10% of the outstanding Ligand Common Stock. The Shareholder Rights Plan,
the Fair Price Provision and other charter provisions may discourage certain
types of transactions involving an actual or potential change in control of
Ligand, including transactions in which the stockholders might otherwise receive
a premium for their shares over then current market prices, and may limit the
ability of the stockholders to approve transactions that they may deem to be in
their best interests. In addition, the Ligand Board has the authority to fix the
rights and preferences of and issue shares of preferred stock, which may have
the effect of delaying or preventing a change in control of Ligand without
action by the stockholders.
Potential Adverse Market Impact of Shares of Ligand Common Stock Eligible
for Future Sale. Sales of a substantial number of shares of Ligand Common Stock
in the public market could adversely affect the market price of Ligand Common
Stock. As of March 31, 1998, there were approximately 38,621,882 shares of
Ligand Common Stock outstanding. Of these shares, approximately 31,951,621,
excluding shares subject to contractual restrictions
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in effect or held by affiliates of Ligand, were eligible for resale in the
public market without restriction. In addition, approximately 1,620,503 shares
are subject to registration rights. Certain parties entitled to receive Ligand
Common Stock under the Merger Agreement have agreed not to sell any shares of
Ligand Common Stock for a period of at least 90 days after the issuance of such
stock. See "Description of the Merger--Lock-up Agreements."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Certain of Ligand's or
Seragen's internal computer systems are not Year 2000 compliant, and Ligand and
Seragen utilize third-party equipment and software that may not be Year 2000
compliant. Ligand has commenced taking actions to correct or convert such
internal systems and is in the early stages of conducting an audit of its
third-party suppliers as to the Year 2000 compliance of their systems. Ligand
does not believe that the cost of these actions will have a material adverse
effect on the Combined Companies' respective businesses, financial conditions or
operating results. However, there can be no assurance that a failure of the
Combined Companies' internal computer systems or of third-party equipment or
software used by such company, or of systems maintained by the Combined
Companies' suppliers, to be Year 2000 compliant will not have a material adverse
effect on the Combined Companies. In addition, there can be no assurance that
adverse changes in the purchasing patterns of the Combined Companies' potential
customers as a result of Year 2000 issues affecting such customers will not have
a material adverse effect on the Combined Companies' businesses, financial
conditions or results of operations. These expenditures may result in reduced
funds available to purchase the Combined Companies' respective products which
could have a material adverse effect on the Combined Companies' businesses,
financial conditions and operating results.
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THE MERGER
BACKGROUND OF THE MERGER
Seragen is a biotechnology company engaged in the discovery, research and
development of fusion protein products for human therapeutic applications. Since
1985, Seragen has focused its efforts and resources on research and development
of its fusion protein technology. Seragen's Fusion Proteins were developed using
proprietary technology and have potential applications in a wide range of human
diseases.
To date, Seragen has not generated any revenues from the sale of fusion
protein products, and Seragen does not expect to receive any such revenues in
1998. In order to finance its development efforts, Seragen completed an initial
public offering of Seragen Common Stock in April 1992, a second public offering
of Seragen Common Stock in March 1993, and thereafter a series of private
placement financings.
Seragen's current cash position may not be sufficient to meet its
financial obligations and allow it to continue its operations except by virtue
of the forbearance on the part of BU and Marathon with respect to the collection
of amounts due to them from Seragen under the Service Agreement. In addition,
Seragen's ability to commercialize DAB(389)IL-2 on an economically viable basis
is unlikely as a result of Seragen's obligations to third parties. In light of
these business considerations, the Seragen Board has been for some time seeking
ways to improve stockholder value, to sustain Seragen's ongoing business
operations, and to preserve its intellectual property assets.
In November 1996, the Seragen Board hired Mr. Prior, Mr. Crane and Ms.
Chen, a team which specializes in the management of financially-troubled
biotechnology companies, to explore alternatives for maximizing value for
Seragen's stockholders. At the time Mr. Prior, Mr. Crane and Ms. Chen were
hired, Seragen had approximately $3.5 million in cash on hand, with a payable
due to Ajinomoto on March 31, 1997, in the amount of $4.3 million. In addition,
Seragen's operations at November 1996 were proceeding at a level that the New
Management Team calculated would result in a net cash burn rate for the twelve
months beginning November 1996 of approximately $20.0 million not including
amounts owed by Seragen under its license agreement with Ajinimoto. The Seragen
Board directed the New Management Team to explore all alternatives for
maximizing shareholder value, including a restructuring of the company and its
financial obligations or a possible sale or merger of the company.
Upon the recommendation of the New Management Team, in February 1997, the
Seragen Board authorized the sale of Seragen's operating division to BU pursuant
to the Service Agreement and an Asset Purchase Agreement dated as of February
14, 1997 by and between Seragen and BU, as a means to reduce Seragen's cash
requirements with minimal disruption to Seragen's ongoing operations. The sale
of Seragen's operating division was completed on December 31, 1997. See
"Seragen--Seragen's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Seragen--Certain Transactions."
Beginning in early 1997, the New Management Team pursued strategic
alternatives for Seragen, and members of the New Management Team held meetings,
both in the United States and abroad, with various investment banks and
biotechnology and pharmaceutical companies to consider the feasibility of such
alternatives. In April 1997, Seragen retained Lehman Brothers as its financial
adviser for the purpose of providing additional assistance in the
identification, analysis, structuring, negotiation and effectuation of strategic
alternatives that might be available to Seragen.
The Seragen Board and the New Management Team undertook efforts to
identify new sources of financing for Seragen. On the recommendation of Lehman
Brothers, Seragen in July 1997 engaged Shoreline Pacific Institutional Finance
("Shoreline Pacific") to assist it in securing additional equity or debt
financing and identifying other strategic alternatives for Seragen. Ultimately,
the New Management Team and the Seragen Board concluded that the availability of
additional financing to Seragen was doubtful, and in any event not possible
without unacceptable dilution to Seragen's existing stockholders.
The Seragen Board and the New Management Team explored opportunities for
additional strategic partnerships that would support the development and
commercialization of Seragen's proprietary technology. As
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part of these efforts, on July 31, 1997, Seragen entered into a licensing
arrangement with USSC with respect to development and testing of Seragen's
DAB(389)EGF molecule for restenosis in connection with angioplasty procedures
the ("USSC License Agreement"). See "--Effects of the Merger on the Interests of
Certain Persons--Interests of United States Surgical Corporation,"
"Seragen--Seragen's Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Seragen--Certain Transactions." The New
Management Team also had discussions with a number of other companies regarding
corporate collaboration opportunities. None of these discussions, however,
proved productive.
The New Management Team undertook efforts to renegotiate certain of
Seragen's key contractual arrangements. These efforts resulted in the execution
of an amendment, dated April 7, 1997 (the "April 7 Amendment"), to Seragen's
existing contractual arrangement with Lilly, an amendment, dated June 1, 1997,
to the terms of Seragen's existing license from Ajinomoto and amendments dated
August 6, 1997 and November 18, 1997 to the terms of Seragen's existing license
agreements with Harvard College and Boston Medical Center (formerly University
Hospital), respectively. See "Seragen--Seragen's Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Within a short period after the signing of the April 7 Amendment, Lilly
raised with Seragen the possibility of Lilly's assigning or subcontracting
certain of its rights and obligations under its agreements with Seragen to
Ligand as part of a larger collaborative arrangement that Lilly was negotiating
with Ligand. Seragen's management expressed misgivings regarding such an
assignment or subcontracting. Discussions between Lilly and Seragen regarding
the proposed assignment or subcontracting of Lilly's rights and obligations to
Ligand continued for some time.
In late June 1997, Lilly suggested to Seragen the possibility of a
three-party transaction, of unspecified terms, among Lilly, Ligand and Seragen.
For purposes of discussing such a transaction, Lilly invited Seragen management
to visit Lilly's offices in Indianapolis, Indiana on July 2, 1997.
Representatives of Ligand also were present at Lilly's offices. The Seragen
representatives made a presentation to the Ligand representatives regarding
Seragen's technologies, products and clinical trial status.
In August 1997, Ligand informed Seragen that it was interested in
learning more about Seragen's technology. Accordingly, on August 18, 1997,
Ligand representatives visited Seragen's facilities in Hopkinton, Massachusetts,
and conducted interviews of Seragen management, technical and clinical personnel
and reviewed clinical reports with respect to Seragen's ongoing clinical trials
of its products.
On August 30, 1997, Messrs. Prior and Crane met with Mr. Robinson and
Paul V. Maier, Senior Vice President and Chief Financial Officer of Ligand ("Mr.
Maier"), in Dallas, Texas. The meeting involved general discussions of the value
of Seragen in the context of an acquisition. The Seragen representatives
provided the Ligand representatives with information regarding Seragen's capital
and financial structure.
On October 15 and 16, 1997, the New Management Team met with Mr. Robinson
and Mr. Maier in San Diego, California. At the meeting, Seragen's
representatives provided Ligand with detailed financial information regarding
Seragen and Marathon. There were further discussions regarding the appropriate
valuation of Seragen in connection with a possible acquisition by Ligand.
On November 25, 1997, Lilly and Ligand entered into agreements providing
for a collaborative arrangement between the two companies.
In December 1997, representatives of Seragen met with representatives of
Ligand to discuss the possible acquisition of Seragen by Ligand in more detail.
In meetings held on December 4 and 19, 1997, in New York City, the parties
discussed valuation of Seragen and Marathon for purposes of an acquisition by
Ligand. The December 19 meeting was terminated without a consensus being
reached.
On December 31, 1997, Mr. Prior and Mr. Robinson met in San Diego,
California, to attempt to reach agreement as to price and terms for the
acquisition by Ligand of Seragen. After discussion, Mr. Prior and
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Mr. Robinson reached tentative agreement on certain price and terms subject to
input from their respective management teams.
On January 21, 1998, representatives of Seragen and Ligand met in San
Francisco, California. Ligand presented a proposal for its acquisition of
Seragen and Marathon in exchange for shares of Ligand stock to be valued at a
minimum price, which price was in excess of the then-current market price for
Ligand Common Stock. The Seragen representatives rejected the proposal.
From February 18 through 20, 1998, Seragen and Ligand representatives met
in San Diego, California. Tentative agreement was reached between the Seragen
and Ligand representatives for an acquisition by Ligand of Seragen and Marathon
for aggregate consideration in the amount of $75.0 million. During and following
this meeting, Messrs. Prior and Crane began, in order to permit a portion of the
merger consideration offered by Ligand to be paid to holders of Seragen Common
Stock, to seek agreements from certain of Seragen's preferred stockholders,
creditors and obligees to accept amounts in connection with a possible merger of
Seragen with Ligand that would be less than the full amounts to which such
persons would be entitled to receive from Seragen pursuant to their existing
contractual and other rights.
During the period January through March 1998, the New Management Team
continued to pursue other financing and strategic alternatives. In this regard,
members of the New Management Team held a number of meetings with various
investment banks and biotechnology and pharmaceutical companies in an effort to
develop and explore possible alternatives.
On March 26, 1998, the Seragen Board held a meeting by conference
telephone. At the meeting, Mr. Prior and Mr. Crane updated the board on the
progress of negotiations with Ligand.
Representatives of Seragen and Ligand conducted further negotiations
regarding the proposed acquisition transaction throughout March and April 1998.
On March 18, 1998, legal counsel to Ligand circulated an initial draft of a
definitive merger agreement. On April 2 and 3, 1998, Messrs. Robinson, Maier and
Respess and Ligand's outside legal counsel met with representatives of Seragen
and Seragen's legal counsel in Hopkinton, Massachusetts to review and negotiate
the draft merger agreement. Following these meetings, further due diligence
discussions and negotiations with respect to the terms of the Merger Agreement
and related documentation took place by telephone between representatives of
Ligand and Seragen. From April 18 through 23, 1998, representatives of Ligand
and Seragen and their respective legal counsel met in San Diego, California to
conduct further negotiations with respect to the terms of the Merger Agreement
and related documentation.
The Seragen Board discussed the Merger Agreement, and the transactions
contemplated thereby, at a special meeting of the Seragen Board held in Boston,
Massachusetts, on April 26, 1998. The New Management Team updated the Seragen
Board on its efforts to identify new sources of financing and strategic
alternatives for Seragen. The New Management Team gave a presentation to the
Seragen Board which reviewed materials previously provided to the Seragen Board
regarding the terms of the proposed transaction with Ligand as they existed at
the time of the meeting. Mr. Robinson and other representatives of Ligand
provided the Seragen Board with a presentation regarding Ligand's business,
financial condition and technology. Representatives of Lehman Brothers provided
information regarding the fairness, from a financial point of view, to the
holders of Seragen Common Stock of the proposed transaction with Ligand. The
Seragen Board discussed allocation of the merger consideration offered by Ligand
among Seragen's common stockholders, preferred stockholders, creditors and
obligees. The Seragen Board authorized, by a unanimous vote, the New Management
Team to proceed with the negotiation of the Merger Agreement and related
documents and with negotiations with Seragen's preferred stockholders, creditors
and obligees with a goal of obtaining the agreement of such persons to accept
payments in connection with the consummation of the proposed Merger that would
be less than the full amounts that such persons would otherwise be entitled to
receive from Seragen. See "Description of the Merger--Recommendation of the
Seragen Board; Factors Considered."
On April 29, 1998, Messrs. Robinson, Maier and Respess gave a
presentation to the Ligand Board at a regularly scheduled meeting which reviewed
materials previously delivered to the members of the Ligand Board and discussed
the proposed merger with Seragen and related transactions. Following a
discussion, the Ligand Board
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authorized, by a unanimous vote, Ligand management to proceed with the execution
and delivery of the Merger Agreement and related documents, subject to the
satisfactory resolution of outstanding issues with Seragen, Lilly and certain
stockholders of Seragen.
On May 1, 1998, the Seragen Board held a special meeting by conference
telephone to discuss the Merger Agreement and the transactions contemplated
thereby. Seragen management updated the Seragen Board on further developments in
the negotiations with Ligand, remaining issues with Ligand, and the proposed
agreement among Seragen's preferred stockholders, creditors and obligees
regarding allocation of the proceeds to be paid by Ligand in connection with the
proposed transaction. Representatives of Lehman Brothers participating in the
call provided an opinion that the consideration to be received by holders of
Seragen Common Stock in connection with the proposed Ligand transaction was
fair, from a financial point of view, to such stockholders. See "--Description
of the Merger--Opinion of Lehman Brothers Inc." Following discussion, the
Seragen Board authorized, by a unanimous vote, Seragen management to proceed
with the execution and delivery of the Merger Agreement and related documents,
subject to the resolution of outstanding issues with Ligand in a manner
satisfactory to Seragen management. See "--Description of the
Merger--Recommendation of the Seragen Board; Factors Considered."
During the 10 days following the May 1, 1998 meeting of the Seragen
Board, representatives of Ligand and Seragen continued to negotiate with respect
to issues remaining open between the parties. In addition, Lilly, Ligand and
Seragen pursued negotiations relating to the restructuring of Seragen's and
Ligand's existing arrangements with Lilly to take account of the proposed
Merger.
On May 11, 1998, upon the resolution of various open issues, Seragen and
Ligand entered into the Merger Agreement and other documents related to the
Merger Agreement were executed and delivered by the parties thereto, and Ligand
and Seragen made a public announcement with respect to the execution and
delivery of the Merger Agreement and related transactions.
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DESCRIPTION OF THE MERGER
GENERAL
The Merger Agreement provides that the Merger Sub will merge with and
into Seragen. As a result of the Merger, the separate corporate existence of the
Merger Sub will cease and Seragen will become a direct wholly owned subsidiary
of Ligand. The Merger will take place as promptly as practicable after the
adoption and approval of the Merger Agreement, the approval of the Merger by the
stockholders of Seragen and the satisfaction or waiver of the other conditions
to the Merger set forth in the Merger Agreement. See "The Merger Agreement."
EFFECTS OF THE MERGER
Ligand, Merger Sub and Seragen will cause the Merger to be consummated by
filing a Certificate of Merger (or like instrument) with the Secretary of State
of the State of Delaware, in accordance with the relevant provisions of
applicable law. At the Effective Time, the effect of the Merger will be as
provided in the applicable provisions of the DGCL. All the property, rights,
privileges, powers and franchises of Seragen and Merger Sub will vest in the
Surviving Corporation, and all debts, liabilities and duties of Seragen and
Merger Sub will become the debts, liabilities and duties of the Surviving
Corporation.
RECOMMENDATION OF THE SERAGEN BOARD; FACTORS CONSIDERED
The Seragen Board unanimously approved the Merger Agreement as fair to
and in the best interests of the stockholders of Seragen. The Seragen Board
unanimously recommends that the Seragen stockholders vote FOR the Merger
Agreement and the Merger. The Seragen Board believes that the Merger represents
an attractive opportunity that will enable stockholders of Seragen to
participate in the enhanced value of the Surviving Corporation, including the
combined technology base and increased scientific and management skills
resulting from the Merger. In reaching this conclusion, the Seragen Board
considered a number of factors, including the following:
1. Broad CTCL product pipeline. The Seragen Board believes that the
Merger will position Seragen's DAB(389)IL-2 product with other complementary
products being developed by Ligand for CTCL. These products may also have
potential as treatments for other non-Hodgkin's lymphomas. Ligand is currently
conducting three Phase II/III and pivotal Phase III clinical trials in CTCL with
Targretin gel and Phase II/III clinical trials in CTCL with Targretin capsules.
As a result, the Seragen Board believes that the drug candidates for CTCL to be
offered by the Combined Companies following the Merger will give physicians a
broad spectrum of possible drugs to offer CTCL patients and strengthen the
market position of each of the Combined Companies' CTCL drugs over the market
position that would be available to either Ligand or Seragen individually.
2. Specialty sales force. The Combined Companies, with three products
intended to treat CTCL, plan to develop a specialty sales force that will focus
on physicians treating this disease.
3. Enhanced drug discovery and design programs. The Seragen Board
believes that Seragen will benefit from Ligand's drug discovery and design
programs, which are complementary to those maintained by Seragen. The potential
diversity of resulting products should, the Seragen Board believes, produce a
more competitive company in the biopharmaceutical industry.
4. Increased financial resources. The Seragen Board believes that
Seragen's proprietary fusion protein technologies will benefit from the
increased financial resources that will be available through Ligand for product
development, clinical trials and marketing of Seragen's DAB(389)IL-2 product and
Seragen's other proprietary technologies. Seragen's need to fund further
research, development and clinical trials is significant. Financial resources
currently available to Seragen are not, however, sufficient to support such
activities. If Seragen does not consummate the Merger, a financing or other
transactions, Seragen's current cash position may not be sufficient to meet its
financial obligations at current levels beyond July 1998 unless BU and Marathon
continue to forbear from collecting amounts due to them from Seragen under the
Service Agreement. See "Seragen--Seragen's Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and "Seragen--Certain
Transactions."
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5. Uncertain business outlook. Seragen's ability to commercialize
DAB(389)IL-2 on an economically viable basis is unlikely. A number of
considerations affect Seragen's ability to successfully commercialize
DAB(389)IL-2, including: the currently-projected sales levels for the product;
the prices that Seragen will receive for the product from Lilly, Seragen's
marketing partner for DAB(389)IL-2 for cancer indications; the royalties Seragen
must pay to third parties for technology licenses relevant to DAB(389)IL-2;
Seragen's obligation to repay out of sales proceeds otherwise payable to Seragen
a $5.0 million advance provided by Lilly to Seragen against future sales of
Seragen products; and Seragen's manufacturing costs for DAB(389)IL-2. The
Seragen Board believes that the Combined Companies will be better positioned to
successfully commercialize DAB(389)IL-2 and execute desired business strategies
with respect to that product and other Seragen proprietary technologies. The
Seragen Board expects that, among other things, the arrangements between Lilly
and Ligand, as modified in connection with the execution of the Merger
Agreement, and the purchase of the assets of Marathon by Ligand pursuant to the
Option and Purchase Agreement, will contribute significantly to the ability of
the Combined Companies to proceed with the successful commercialization of
DAB(389)IL-2 and other Seragen products.
6. Less dependence on any one product. The Seragen Board believes that
the Merger will decrease the risk normally associated with emerging
biotechnology companies because the Combined Companies will, once combined, be
less dependent on the success of any single product than Seragen otherwise would
have been. The cost of the failure of a single product would be spread over a
larger product base, potentially reducing the risk to former Seragen
stockholders, while permitting former Seragen stockholders, as stockholders of
Ligand, to benefit, although in diluted form, from the upside potential that the
depth and breadth of the Combined Companies' technology, product portfolio and
financial strength may offer.
7. Lack of alternative opportunities. The Seragen Board believes that
Seragen was unlikely to identify an alternative business combination or other
opportunity that would provide the same likelihood of return on investment to
holders of Seragen Capital Stock as that offered by the Merger.
Additional financing. In November 1996, Seragen assembled the New
Management Team to undertake significant efforts to identify alternatives to
maintain Seragen's viability. On the basis of the New Management Team's contacts
with prospective equity and debt investors, the Seragen Board concluded that
additional financing was unlikely to be available to Seragen except upon terms
that would, in the view of the Seragen Board, have resulted in unacceptable
dilution to Seragen's existing stockholders. In addition, it was the opinion of
the Seragen Board that, even upon those terms proposed by potential providers of
additional financing, the successful completion of such financing would have
been in serious doubt.
New collaborative arrangements. The New Management Team met with a
number of companies regarding a possible collaborative arrangement or strategic
alliance. None of these discussions, however, proved productive. Among concerns
cited by prospective strategic partners contacted by the New Management Team
were constraints on successful marketing of DAB(389)IL-2 for non-cancer
indications created by Seragen's existing contractual arrangements with Lilly,
particularly the provisions in Seragen's agreements with Lilly which provide
Lilly with protection against any dilution of its DAB(389)IL-2 profits that
might result from use of DAB(389)IL-2 sold for non-cancer indications for cancer
indications, and the apparent side effect profile for Seragen's fusion protein
technology generally. On the basis of the outcome of the New Management Team's
discussions with prospective strategic partners, the Seragen Board concluded
that Seragen was unlikely to be able to enter into additional collaborative
arrangements or strategic alliances, on acceptable terms, for the further
development and commercialization of its DAB(389)IL-2 product or for the
development and commercialization of its other proprietary molecules.
Bankruptcy. The Seragen Board and the New Management Team considered
the advisability of a voluntary bankruptcy filing by Seragen as a means to
maximize shareholder value. The Seragen Board and the New Management Team
determined that there were a number of risks and uncertainties associated with a
bankruptcy, including uncertainties as to the ability of Seragen to finance its
operations during the pendency of a bankruptcy proceeding and uncertainties
regarding the status of certain of Seragen's agreements with third parties in a
bankruptcy context and claims that could be made against the bankruptcy estate
with respect thereto. In addition, the Seragen Board and the New Management Team
believed it unlikely that preferred shareholders, creditors and obligees of
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Seragen whose claims would rank senior to those of holders of Seragen Common
Stock in bankruptcy would agree in the context of a bankruptcy to accept less
than the full amounts to which they were entitled, thereby reducing the
likelihood that assets would remain for allocation to holders of Seragen Common
Stock. Accordingly, the Seragen Board and the New Management Team determined
that a bankruptcy would be unlikely to maximize value for holders of Seragen
Common Stock.
Sale or merger. The New Management Team also met with a number of
companies other than Ligand regarding a possible sale or merger of Seragen.
While some of these companies expressed initial interest in pursuing an
acquisition of Seragen, none of them proposed terms, including price, that the
New Management Team and the Seragen Board deemed an acceptable alternative to
the terms of the Merger.
8. Favorable and fair terms of the Merger. The Seragen Board concluded
that, given the significant business and other obstacles confronting Seragen,
the Merger Consideration is a favorable and fair price for holders of Seragen
Capital Stock, including holders of Seragen Common Stock. In concluding that the
Merger Consideration for which provision is made in the Merger Agreement is
favorable and fair, the Seragen Board considered the fact that the Milestone
Consideration will be payable on the Milestone Date only in the event Final FDA
Approval is received on or before the Second Closing Anniversary or, if Final
FDA Approval is not received by the Second Closing Anniversary, Ligand has not
satisfied certain obligations to undertake activities to obtain Final FDA
Approval. The Seragen Board concluded that the Merger Consideration is fair and
favorable even after allowing for the contingent nature of the Milestone
Consideration, since the value of Seragen would be severely compromised if Final
FDA Approval were not to be forthcoming on a timely basis.
9. Willingness of Preferred Shareholders, Creditors and Obligees to
Accept Discounts. In connection with the negotiation of the Merger Agreement and
related agreements, and in order to facilitate the Merger, certain preferred
shareholders, creditors and obligees of Seragen agreed to accept the right to
receive Merger Consideration as full and complete satisfaction of their claims
against Seragen. See "The Merger--Description of the Merger--Effect of the
Merger on the Interests of Certain Persons" and "--Accord Agreement" and "The
Merger Agreement--Merger Consideration." The amount of Merger Consideration
allocated to such preferred shareholders, creditors and obligees constitutes
what the Seragen management expects to be a discount of from 25% to 40% (with
the exact amount of the discount depending on the date of the Closing and the
amount of Seragen's payables as of the Closing) on amounts otherwise owed by
Seragen to such persons. In addition, such preferred shareholders and certain
such creditors and obligees have agreed to accept the right to receive Milestone
Consideration, as opposed to the right to receive Closing Consideration, as
partial payment for their claims, thereby subjecting what Seragen management
expects to be from 80% to 90% of their right to receive Merger Consideration to
the contingency associated with the Milestone Consideration and also, in the
likely event the Milestone Consideration does not become payable by the time of
the Closing, to some delay. See "The Merger -- Description of the Merger --
Effect of the Merger on the Interests of Certain Persons" and "-- Accord
Agreement" and "The Merger Agreement -- Merger Consideration." The Seragen Board
concluded that (i) the agreements reached with said preferred shareholders,
creditors and obligees would result in substantial benefit to holders of Seragen
Common Stock by reducing, in the context of the Merger, the claims to Merger
Consideration ranking senior to the rights of the Seragen Common Stock, thereby
freeing up Merger Consideration for distribution to holders of Seragen Common
Stock and (ii) that such arrangements would be unlikely to be available
otherwise than in connection with the Merger or a similar transaction.
The foregoing discussion of the factors considered by the Seragen Board
is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the Merger, the Seragen Board
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determinations.
OPINION OF LEHMAN BROTHERS INC.
Lehman Brothers has acted as financial advisor to Seragen in connection
with the Merger. As part of its role as financial advisor to Seragen, Lehman
Brothers rendered to the Seragen Board an opinion as to the fairness, from a
financial point of view, to holders of Seragen Common Stock of the consideration
to be offered to such common stockholders in the Merger.
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The full text of Lehman Brothers' written opinion, dated May 1, 1998, is
included as Appendix A to this Proxy Statement/Prospectus (the "Opinion") and is
incorporated herein by reference. Stockholders may read the Opinion for a
discussion of assumptions made, matters considered and limitations on the review
undertaken by Lehman Brothers in rendering its Opinion. The summary of the
Opinion set forth in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such Opinion.
No limitations were imposed by Seragen on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
the Opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Seragen Board as to the form of the consideration to be
offered to Seragen's common stockholders in the Merger, which was determined
through arm's-length negotiations between the parties. In arriving at the
Opinion, Lehman Brothers did not ascribe a specific range of value to Seragen,
but made its determination as to the fairness, from a financial point of view,
of the consideration to be offered to Seragen's common stockholders in the
Merger on the basis of the financial and comparative analyses described below.
The Opinion is for the use and benefit of the Seragen Board and was rendered to
the Seragen Board in connection with its consideration of the Merger. The
Opinion is not intended to be and does not constitute a recommendation to any
common stockholder of Seragen as to how such common stockholder should vote with
respect to the Merger. Lehman Brothers was not requested to opine to, and the
Opinion does not address, (i) Seragen's underlying business decision to proceed
with or effect the Merger or (ii) the fairness of the allocation of the
aggregate consideration to be paid by Ligand among the common stockholders of
Seragen and the other intended recipients.
In arriving at the Opinion, Lehman Brothers reviewed and analyzed: (1)
the Merger Agreement and the specific terms of the Merger, including the fact
that the Milestone Consideration will be paid by Ligand only if Final FDA
Approval is received on or before the Second Closing Anniversary, (2) publicly
available information concerning Seragen and Ligand that Lehman Brothers
believed to be relevant to its analysis, including Seragen's Registration
Statement on Form 10-K for the year ended December 31, 1997 and Ligand's
Registration Statement on Form 10-K for the year ended December 31, 1997, (3)
financial and operating information with respect to the business, operations and
prospects of Seragen and Ligand furnished to Lehman Brothers by Seragen and
Ligand, respectively, (4) a trading history of Seragen Common Stock from January
4, 1995 to April 30, 1998 and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant, (5) a trading history of
Ligand Common Stock from May 1, 1997 to April 30, 1998 and a comparison of that
trading history with those of other companies that Lehman Brothers deemed
relevant, (6) a comparison of the historical financial results and present
financial condition of Seragen with those of other companies that Lehman
Brothers deemed relevant, (7) a comparison of the historical financial results
and present financial condition of Ligand with those of other companies that
Lehman Brothers deemed relevant, (8) a comparison of the financial terms of the
Merger with the financial terms of certain other transactions that Lehman
Brothers deemed relevant, (9) the results of efforts to solicit indications of
interest and proposals from third parties with respect to the purchase of,
merger or other business combination with Seragen and (10) Seragen's current
cash flow forecast and limited cash position, its ability to meet short-term
liquidity requirements and the potential alternatives available to Seragen to
fund such requirements. In addition, Lehman Brothers had discussions with the
managements of Seragen and Ligand concerning their business, operations, assets,
financial condition and prospects and undertook such other studies, analyses and
investigations as Lehman Brothers deemed appropriate.
In arriving at the Opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of the managements of Seragen
and Ligand that they were not aware of any facts or circumstances that would
make such information materially inaccurate or misleading. With respect to the
financial projections of Seragen and Ligand, upon advice of Seragen, Lehman
Brothers assumed that such projections were reasonably prepared on a basis
reflecting the best then available estimates and judgments of the managements of
Seragen and Ligand as to the future financial performance of Seragen and Ligand.
In arriving at its Opinion, Lehman Brothers did not conduct a physical
inspection of the properties and facilities of Ligand and did not make or obtain
any evaluations or appraisals of the assets or liabilities of Seragen or Ligand.
The Opinion was necessarily based upon market, economic and other conditions as
they existed on, and could be evaluated as of, the date of the Opinion.
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In connection with the preparation and delivery of its Opinion to the
Seragen Board, Lehman Brothers performed a variety of financial and comparative
analyses, as described below. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at the Opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create an incomplete or misleading view of the
process underlying the Opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Seragen's and Ligand's
control. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. Additionally,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Transaction Terms. The total consideration to be paid by Ligand in the
Merger is $67 million, $30 million upon initial closing and, subject to the
conditions described below, $37 million in Milestone Consideration. Lehman
Brothers' analysis is based on the assumption that, of this total consideration,
the amount to be received in the Merger by holders of Seragen Common Stock
(other than BU with respect to 3,360,625 shares of Seragen Common Stock held by
it, which shares of Seragen Common Stock are the subject of provisions set forth
in the Accord and Satisfaction Agreement dated May 11, 1998 among Seragen,
Seragen Technology, Inc. ("STI") and certain creditors and obligees of Seragen
(the "Accord Agreement")) is comprised of (a) $0.50 in Ligand Common Stock
(valued at the average closing price of Ligand Common Stock on the Nasdaq
National Market for the five trading days prior to the announcement of the
Merger) per share of Seragen Common Stock upon receipt of the Closing
Consideration and (b) $0.23 in cash or Ligand Common Stock (valued at the
average closing price of Ligand Common Stock on the Nasdaq National Market for
the ten trading days immediately preceding the date of issuance of such Ligand
Common Stock), at Ligand's option, per share of Seragen Common Stock upon
receipt of the Milestone Consideration, for a total of $0.73 per share. The
Milestone Consideration will be paid by Ligand only if Final FDA Approval is
received on or before the Second Closing Anniversary, unless Final FDA Approval
is not received by the Second Closing Anniversary and Ligand has failed to
perform certain obligations under the Merger Agreement to undertake activities
to obtain Final FDA Approval.
Historical Stock Price Performance of Seragen and of Ligand. Lehman
Brothers reviewed Seragen's stock price performance for the twelve months
preceding the Opinion and noted that Seragen's stock price had fluctuated over
that period from a high of $1.50 to a low of $0.23, and was trading on April 30,
1998 at a price of $0.38, below where it traded one year earlier. Lehman
Brothers also compared Seragen's stock price performance during the period
January 4, 1995 to April 30, 1998 to a weighted average of the stock prices of
certain publicly traded biotechnology companies and to the AMEX Biotechnology
Index. The companies that Lehman Brothers considered included Anergen, Inc.,
AutoImmune Inc., BioCryst Pharmaceuticals, Inc., Cytel Corporation, ImmuLogic
Pharmaceutical Corporation, La Jolla Pharmaceutical Company, NeoRx Corporation,
and VIMRx Pharmaceuticals Inc. (the "Comparable Biotechnology Companies").
Lehman Brothers noted that Seragen's stock price had declined 92.1% compared to
a decline of 20.4% for the Comparable Biotechnology Companies and an increase of
112.5% in the AMEX Biotechnology Index since January 4, 1995. Lehman Brothers
also reviewed Ligand's stock price performance for the twelve months preceding
the Opinion and noted that Ligand's stock price had fluctuated over that period
from a high of $18.375 to a low of $10.00, and was trading on April 30, 1998 at
a price of $14.50.
Comparable Public Company Analysis of Seragen and of Ligand. Lehman
Brothers compared the historical, financial and operating performance of the
Comparable Biotechnology Companies with the historical, financial and operating
performance of Seragen and of certain publicly traded comparable signal
transduction companies with that of Ligand, based upon information that was
publicly available at that time and based upon information provided to Lehman
Brothers by the managements of Seragen and Ligand. The comparable companies that
Lehman Brothers considered for Ligand included ARIAD Pharmaceuticals, Inc.,
Cadus Pharmaceutical Corporation, ICOS Corporation, Onyx Pharmaceuticals, Inc.,
and SUGEN, Inc. (the "Comparable Signal Transduction Companies"). Lehman
Brothers examined both the market value of the total outstanding common equity
(the "Market Value") and the
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Market Value plus Debt minus Cash (the "Technology Value") of the Comparable
Biotechnology Companies on a primary and fully-diluted basis. "Debt" equals
long- and short-term debt and the current portion of long-term debt and capital
lease obligations, and for Seragen includes preferred stock, Canadian affiliate
put option liability, amounts payable to USSC and the redemption liability on
Seragen Series C Preferred Stock. "Cash" equals cash and cash equivalents plus
marketable securities. For Seragen, Lehman Brothers noted that at $0.73, the
proposed consideration per common share assuming the Milestone Consideration was
paid, the Market Value for Seragen of $21.0 million was lower than the range of
$23.6 million to $119.9 million, and was lower than the mean and median of $70.6
million and $63.4 million, respectively, for the Comparable Biotechnology
Companies. Lehman Brothers also assumed that $0.73 is the proposed consideration
per common share, assuming the Milestone Consideration is paid. Therefore, the
Technology Value for Seragen of $44.8 million was within the range of ($11.6)
million to $95.3 million for the Comparable Biotechnology Companies and was
above the mean and median of $40.9 million and $40.9 million, respectively, for
the Comparable Biotechnology Companies. Lehman Brothers also examined both the
latest twelve month net burn rate ("LTM Net Burn Rate") and the years of cash
remaining ("Years of Cash") for such comparable companies. The LTM Net Burn Rate
is calculated as net loss plus depreciation and amortization expense, less
capital expenditures, and for Seragen is calculated based on Seragen
management's estimate of the current monthly burn rate of $0.3 million plus $4.3
million in annual expenses under the Marathon service agreement. Years of Cash
is calculated as Cash divided by LTM Net Burn Rate. Lehman Brothers noted that
Seragen's Years of Cash was 0.6 years, lower than the range of 1.0 years to 6.0
years and lower than the mean and median of 3.1 years and 3.0 years,
respectively, for the Comparable Biotechnology Companies.
For Ligand, Lehman Brothers noted that the Market Value for Ligand of
$618.2 million was higher than the range of $98.3 million to $618.1 million, and
higher than the mean and median of $134.3 million and $115.4 million,
respectively, for the Comparable Signal Transduction Companies (this calculation
excluded ICOS Corporation because its Market Value was significantly higher than
the Market Value of the other Comparable Signal Transduction Companies). Lehman
Brothers also noted that the Technology Value for Ligand of $586.0 million was
within the range of $65.2 million to $592.9 million for the Comparable Signal
Transduction Companies and was higher than the mean and median of $98.7 million
and $86.4 million, respectively, for the Comparable Signal Transduction
Companies (this calculation excluded ICOS Corporation because its Technology
Value was significantly higher than the Technology Value of the other Comparable
Signal Transduction Companies). Lehman Brothers also noted that Ligand's Years
of Cash was 2.7 years, within the range of 1.5 years to 6.4 years, lower than
the mean of 2.8 years and higher than the median of 2.2 years for the Comparable
Signal Transduction Companies.
However, because of the inherent differences between the business,
operations and prospects of Seragen and Ligand and the businesses, operations,
technology and prospects of the Comparable Biotechnology Companies or Comparable
Signal Transduction Companies, as the case may be, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis but rather also made qualitative judgments concerning
differences between the financial and operating characteristics and prospects of
Seragen and Ligand and the Comparable Biotechnology Companies or Comparable
Signal Transduction Companies, as the case may be, that would affect the public
trading values of each.
Cash Flow Analysis of DAB(389)IL-2 for Seragen. Lehman Brothers performed
a cash flow analysis based upon Seragen management's projected financial
performance of Seragen's DAB(389)IL-2 for CTCL. This analysis was based upon
projections prepared by Lilly and provided to Lehman Brothers by Seragen's
management for each year through 2004 of Seragen's net royalties from Lilly's
sales of DAB(389)IL-2 less royalty expenses payable by Seragen and payments to
Marathon. Lehman Brothers excluded the costs of operating Seragen and revenues
from non-CTCL indications for DAB(389)IL-2, such as psoriasis and rheumatoid
arthritis, from its analysis. Based on these assumptions, on a pre-tax basis,
the net cash flow to Seragen from DAB(389)IL-2 for CTCL is projected to be
negative in each year between 1999 and 2004, for a cumulative loss of $18.25
million during this period.
Discounted Cash Flow Analysis for Ligand. Lehman Brothers performed a
discounted cash flow analysis based upon Ligand's projected financial
performance under two scenarios: (a) using Ligand's management projections
through fiscal year 2000 (the "Management Case") and (b) using a recent publicly
available equity research report on Ligand dated January 6, 1998 (the "Equity
Research Case").
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Lehman Brothers discounted to present value the projected stream of
after-tax cash flows and the terminal year value (the "Terminal Value") of the
business. Terminal Value was based upon multiples of projected fiscal 2000 or
2003 earnings before interest and taxes ("EBIT") , as the case may be, ranging
from 16x to 20x. In performing this analysis, Lehman Brothers used a range of
discount rates from 30% to 40%, which were chosen based on several assumptions
regarding factors such as the inflation rate, interest rates, the inherent
business risk in Ligand's operations as well as in the signal transduction and
biotechnology industry as a whole, and the cost of capital to Ligand. The
imputed value per share of Ligand's common stock resulting from this analysis
ranged from $12.60 to $19.12 under the Management Case, and ranged from $12.66
to $23.38 under the Equity Research Case.
Comparable Transaction Analysis for Seragen. Lehman Brothers compared the
financial terms of certain recent merger transactions which Lehman Brothers
considered relevant with the financial terms of the Merger, based upon
information that was publicly available at the time and based upon information
provided to Lehman Brothers by Seragen's management. The transactions that
Lehman Brothers considered comparable to the Merger included 19 merger
transactions that have occurred in the biotechnology industry since 1993 (the
"Comparable Transactions"). The Comparable Transactions are: Baxter
International Inc./Somatogen, Inc., Arris Pharmaceutical Corporation/Sequana
Therapeutics, Inc., Cell Genesys, Inc./Somatix Therapy Corporation, American
Home Products Corporation/Genetics Institute, Inc., Medarex, Inc./Houston
Biotechnology Incorporated, Genzyme Corporation/Neozyme II Corporation, Elan
Corporation, plc/Athena Neurosciences, Inc., North American Biologicals,
Inc./Univax Biologics, Inc., Sandoz Ltd./Genetic Therapy, Inc., Genetics
Institute, Inc./SciGenics, Inc., Cytogen Corporation/Cellcor, Inc., Chiron
Corporation/Viagene Inc., Ligand Pharmaceuticals Incorporated/Glycomed
Incorporated, Glaxo Plc/Affymax N.V., Amgen Inc./Synergen, Inc., NeXagen,
Inc./Vestar, Inc., Genzyme Corporation/BioSurface Technology, Inc., Eli Lilly
and Company/Sphinx Pharmaceuticals Corporation, and Bio-Technology General
Corp./Gynex Pharmaceuticals, Inc. Lehman Brothers calculated the transaction
value per share for shares purchased directly from stockholders of the target
company (the "Merger Purchase Price Per Share"). The mean, median, high and low
Merger Purchase Price Per Share for these transactions was then compared to the
target's stock price one day and one month prior to the announcement of the
transaction and to the target's latest twelve month high and low stock price to
calculate the premium over such stock prices (the "Premium"). The mean, median,
high and low Premiums one day prior to the transaction announcement were 37.1%,
35.8%, 108.7% and (13.8%), respectively, in the Comparable Transactions. Lehman
Brothers noted that the consideration including the Milestone Consideration
represented a 92.1% Premium over Seragen's stock price of $0.38 on April 30,
1998 and was within the range of the Comparable Transactions and above the mean
and median of the Comparable Transactions. Lehman Brothers also noted that the
consideration excluding the Milestone Consideration represented a 31.6% Premium
over Seragen's stock price of $0.38 on April 30, 1998 and was within the range
of the Comparable Transactions and below the mean and median of the Comparable
Transactions. The mean, median, high and low Premiums one month prior to the
transaction announcement were 40.4%, 32.3%, 100.0% and (15.8%), respectively, in
the Comparable Transactions. Lehman Brothers noted that the consideration
including the Milestone Consideration represented an 73.8% Premium over
Seragen's closing stock price of $0.42 one month prior to April 30, 1998 and was
within the range of the Comparable Transactions and above the mean and median of
the Comparable Transactions. Lehman Brothers also noted that the consideration
excluding the Milestone Consideration represented a 19.0% Premium over Seragen's
closing stock price of $0.42 one month prior to April 30, 1998 and was within
the range of the Comparable Transactions and above the mean and median of the
Comparable Transactions.
However, because the reasons for and the circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations, technology and the
prospects of Seragen and the business, operations, technology and prospects of
the selected acquired companies analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, but rather also made qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
that would affect the acquisition values of Seragen and such acquired companies.
Analysis of Public Offerings by Biotechnology Companies. Lehman Brothers
reviewed the current financing environment for biotechnology companies, based on
a review of, among other things, public follow-on equity offerings since January
1997. Lehman Brothers noted that the mean, median, high and low values of the
discount of the offer price per share to the share price one day before filing
were (3.7%), (6.2%), 32.6% and (38.5%),
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respectively. Lehman Brothers also noted that nine public follow-on offerings
for biotechnology companies were completed during the first four months of 1997
as compared to three during the first four months of 1998.
Lehman Brothers is an internationally recognized investment banking firm
and in connection with its investment banking activities is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities and private placements, and in
valuations for corporate and other purposes. The Seragen Board selected Lehman
Brothers as its investment banker because of Lehman Brothers' expertise,
reputation and familiarity with biotechnology and pharmaceutical companies and
because its investment banking professionals have substantial experience in
transactions similar to the Merger.
As compensation for its services in connection with the merger, Seragen
contracted to pay Lehman Brothers a fee equal to 2.00 percent of the
consideration involved in such sale of Seragen if and when and in such form as
such consideration is paid by Ligand, with such fee to be reduced in certain
circumstances. Pursuant to the Accord Agreement, Lehman Brothers subsequently
agreed to reduce its fees and accept the right to receive 3.39113385 percent of
the Stakeholder Closing Consideration (as defined in the Merger Agreement) and
3.39113385 percent of the Stakeholder Milestone Consideration (as defined in the
Merger Agreement) as full and complete satisfaction of Seragen's obligations
with respect thereto. Seragen will also reimburse Lehman Brothers for its
reasonable out-of-pocket expenses and has agreed to indemnify Lehman Brothers
against certain liabilities that may arise in connection with its engagement. In
the ordinary course of its business, Lehman Brothers may trade in the securities
of Seragen and Ligand for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
SIGNIFICANT ASSUMPTIONS UNDERLYING FORECASTS
Significant operating performance assumptions included in the financial
forecast of Seragen are (1) successful commercialization of Seragen's lead
molecule, DAB(389)IL-2, and the receipt of funds necessary to support the
commercialization of DAB(389)IL-2 and (ii) rationalization of research and
development programs synergistic with a potential merger partner's product
development infrastructure and overall business strategy. Significant operating
performance assumptions included in the financial forecast of Ligand are (i)
successful commercialization of Ligand's cancer compounds currently in human
clinical trials and (ii) successful commercialization of in-licensed later-stage
products focused on cancer and women's health.
Significant assumptions underlying a financial forecast of the Combined
Companies take into account (i) financial resources needed to further develop
the Combined Companies' products and (ii) the avoidance of near-term dependence
on accessing additional financing in the difficult capital market environment
for biotechnology companies.
The forecasts were based on numerous variables and assumptions that are
inherently uncertain and beyond the control of Ligand and Seragen, including,
without limitation, factors related to general economic, regulatory and
competitive conditions. For example, neither Seragen nor Ligand currently has
any material products revenues. Product revenues in the United States will
commence only upon FDA approval of any of the Combined Companies' products, the
receipt and timing of which are highly uncertain. Accordingly, actual results
could vary significantly from those set forth in such forecasts.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences to Ligand, Seragen and the holders of Seragen Common Stock as a
result of the exchange of Seragen Common Stock for Ligand Common Stock and cash
in the Merger. It is intended to provide only a general summary and does not
address all federal income tax consequences that may be relevant to particular
Seragen stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, foreign stockholders, or
stockholders who received stock pursuant to stock option plans, stock purchase
plans or other compensatory arrangements. In addition, the following discussion
does not address the tax consequences of transactions effectuated prior to or
after the Merger
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(whether or not such transactions are in connection with the Merger) including,
without limitation, the consequences of transactions with certain holders of the
Seragen preferred stock, the conversion of any Seragen preferred stock into
Seragen Common Stock, the exercise of options, warrants or similar rights to
purchase stock, or the exchange, assumption or substitution of options, warrants
or similar rights to purchase Seragen Common Stock for rights to purchase Ligand
Common Stock. Furthermore, no foreign, state or local tax considerations are
addressed herein. The discussion does not include the tax consequences to
Seragen or to any employee of Seragen with respect to any payment which Seragen
is obligated to make to such employee in connection with the performance of
services. Finally, the discussion does not address the tax consequences to any
person receiving payments from Ligand and/or Seragen other than with respect to
his or her Seragen Common Stock.
This discussion is based on legal authorities in existence as of the date
hereof. No assurances can be given that future legislation, regulations,
administrative pronouncements or court decisions will not significantly change
the law and materially affect the conclusions expressed herein. Any such change,
even though made after consummation of the Merger, could be applied
retroactively. In addition, certain federal income tax laws relating to the
treatment and reporting of transactions involving contingent future payments are
complex and uncertain. Moreover, there can be no assurance that the Internal
Revenue Service will not attempt to apply the tax law in a manner different from
that discussed below.
IN LIGHT OF THE ABOVE, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND RELATED
TRANSACTIONS, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER AND SUCH RELATED TRANSACTIONS.
Recognition of Gain or Loss from Sale of Seragen Stock
For federal income tax purposes, it is anticipated that the surrender of
shares of Seragen Common Stock in the Merger in exchange for the Merger
Consideration will be treated as a sale by the Seragen stockholders in which
they must recognize capital gain or loss. As a result, each Seragen stockholder
will be required to recognize and report capital gain or loss on the sale in an
amount equal to the difference between the "amount realized" by the stockholder
and such stockholder's basis in the Seragen Common Stock surrendered. For this
purpose, the amount realized will include the sum of the cash and the fair
market value of the Ligand Common Stock received at the time of the Merger and
the Milestone Consideration (not including the portion of the Milestone
Consideration treated as "original issue discount" as discussed below).
The gain or loss recognized on the sale of the Seragen Common Stock will
be treated as a capital gain or loss provided that the Seragen Common Stock was
held as a capital asset. The capital gain or loss will be long-term if the stock
was held for more than 18 months, mid-term if held for more than 12 but less
than 18 months and short term if held for less than 12 months. The right to
deduct capital losses is subject to substantial limitations.
The installment method is not available with respect to sales of
marketable securities such as the Seragen Common Stock.
Basis and Holding Period of Ligand Stock
The basis of the Ligand Common Stock received by the Seragen stockholders
on the Effective Date of the Merger will be equal to the fair market value of
such stock on the date of the Merger. Such Ligand Common Stock will have a
holding period commencing as of the date of the Merger.
Original Issue Discount
A portion of the Milestone Consideration will be treated as original
issue discount which must be treated as ordinary interest income for federal
income tax purposes. In general, original issue discount is the excess of the
"stated redemption price" at maturity of a debt instrument (including the
promise to pay the Milestone Consideration) over the "issue price" of such
instrument. For this purpose, the stated redemption price at maturity is
generally the
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total amount payable under the debt instrument (other than interest which is
payable, at least annually, at fixed, regular intervals). Because of the
contingent nature of the obligation to pay the Milestone Consideration, the
stated redemption price at maturity will not be knowable until such time as the
contingency is met and will be equal to the amount which becomes payable.
Applicable Treasury Regulations provide that if a substantial amount of
the debt instruments in an issue are issued in exchange for property which is
publicly traded on an established securities market (such as the Seragen Common
Stock), the issue price of the debt instruments is the fair market value of the
publicly traded property on the issue date. In addition, the Treasury
Regulations provide that where the debt instrument is issued as part of an
"investment unit," the investment unit is deemed to have an issue price equal to
the value of the publicly traded property and such issue price for the unit must
then be allocated between the Ligand Common Stock and the Milestone
Consideration in proportion to their respective values. While not entirely free
from doubt, Ligand believes and will report the transaction on the basis that a
substantial amount of the Milestone Consideration was issued for Seragen Common
Stock and that the Seragen Common Stock is publicly traded property within the
meaning of the Regulations. In addition, the issuance of Ligand Common Stock and
obligation to pay the Milestone Consideration in exchange for the Seragen Common
Stock constitutes an investment unit. Therefore, the issue price of the Ligand
Common Stock and the Milestone Consideration to the Seragen stockholders will be
equal to the fair market value of the Seragen Common Stock surrendered (reduced
by the cash, if any, received by the Seragen stockholder with respect to such
Share). This issue price will then be allocated to the Ligand Common Stock and
the Milestone Consideration on the basis of the relationship of their respective
fair market values. The issue price thus determined and allocated to the
Milestone Consideration will apply to all Seragen stockholders.
Ligand will be required to make a determination of the fair market value
of the Seragen Common Stock, the Ligand Common Stock and the obligation to pay
the Milestone Consideration in order to determine the issue price of the debt
instrument under the rules discussed above. Ligand currently anticipates that it
will determine the value of the Seragen Common Stock and the Ligand Common Stock
by reference to their reported trading prices at or about the time of the Merger
and that the value of the Milestone Consideration received with respect to each
share of Seragen Common Stock will be the excess of the value of the share of
Seragen Common Stock over the value of the fractional share of Ligand Common
Stock received in exchange for such share. However, circumstances could arise
which would make determinations of value in such anticipated fashion impossible
or unrealistic. In such event, Ligand will make its determination based on its
evaluation of all relevant facts and circumstances.
Based on the above, the original issue discount attributable to the
obligation to pay the Milestone Consideration will be the excess of the
Milestone Consideration ultimately payable over the issue price as determined
above. The time at which the original issue discount will be includable in
income by the Seragen stockholders will depend upon numerous determinations
which are required to be made by Ligand, including the comparable yield at which
it would be able to obtain a comparable, non-contingent loan, and a reasonable
prospective payment schedule. In addition, there is significant uncertainty in
the manner in which the Treasury Regulations apply to this type of debt
instrument. However, Ligand anticipates that, as a result of its determinations,
each Seragen shareholder will be required to include in income each year an
amount of original issue discount determined by applying the comparable yield
determined by Ligand to the adjusted issue price (which will be equal to the
issue price plus all original issue discount previously taken into account) of
the Milestone Consideration. At such time as the Milestone Consideration is
actually paid to the Seragen stockholders, the excess of the payment received
over the sum of the issue price and the amount of original issue discount
included in income for prior years will also be treated as original issue
discount taxable as ordinary income.
If the failure of the contingency results in no amount becoming payable
in respect of the Milestone Consideration, which will be known no later than two
years from the Effective Date of the Merger, then each Seragen stockholder will
be entitled to an ordinary deduction equal to any amount of original issue
discount included in income in prior years.
Ligand will be required to file certain information statements with the
Internal Revenue Service (the "IRS") setting forth, among other things, its
determination of the issue price of the Milestone Consideration. Ligand must
also provide each Seragen stockholder with information concerning certain
determinations it makes with respect to
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the time for inclusion of the original issue discount and an information
statement setting forth the amount of the original issue discount in the year
that such amount is includable in income of the recipient. Ligand will prepare
such statements in a manner consistent with the foregoing discussion. Each
Seragen stockholder receiving a payment with respect to the Milestone
Consideration will be required under applicable Treasury Regulations to report
original issue discount consistent with Ligand's determinations unless the
Seragen stockholder has made an explicit disclosure on a statement attached to
his or her federal income tax return for the current year that such stockholder
will file in accordance with determinations different from those made by Ligand.
Basis and Holding Period of Milestone Consideration
The Seragen stockholders will have an initial basis in their right to
receive the Milestone Consideration equal to the fair market value of such right
(which Ligand believes will be equal to the issue price of the debt instrument
as discussed above). The basis in the right will be increased from time to time
to include any original issue discount included in the income of the holder
which is not offset by a deduction as discussed above. Each Seragen stockholder
will have a holding period with respect to his or her right to the Milestone
Consideration which commences at the date of the Merger.
In the event that the Milestone Consideration does not become payable,
the Seragen stockholders will be entitled to treat the amount of their basis as
a bad debt loss which is deductible as a short-term capital loss, subject to
substantial limitations applicable to the deduction of capital losses.
Utilization of Net Operating Losses
Ligand and Seragen have substantial accumulated net operating loss
("NOL"), tax credit and capital loss carryovers ("Tax Carryovers") which are
available to reduce federal income tax liabilities in future taxable years.
These carryovers were accumulated in years which have not yet been reviewed by
the IRS, and there is no assurance that the IRS will not successfully contend
upon audit that these carryovers should be reduced. In addition, Sections 382
and 383 of the Internal Revenue Code of 1986, as amended (the "Code"), impose
limitations on the use of Tax Carryovers following an "ownership change" as
defined in Section 382.
Where there has been an ownership change, an annual limitation is imposed
on the amount of taxable income in subsequent years which can be offset by Tax
Carryovers accumulated prior to the ownership change. Any portion of the annual
limitation not offset in one year is added to the annual limitation for the next
year. The annual limitation is generally an amount equal to the value of the
corporation immediately prior to the ownership change multiplied by the highest
"long-term tax-exempt rate" in effect for the month in which the ownership
change occurred (which is 5.15% for transactions occurring in June 1998). For
this purpose, the value of the corporation generally means the value of the
stock of the corporation reduced by certain capital contributions and
nonbusiness assets. The reduction for capital contributions is limited to those
contributions made as part of a plan a principal purpose of which is to increase
the annual limitation under Code Section 382 following a change of ownership.
However, the Code creates a presumption that, except to the extent provided in
regulations, any capital contribution received within two-years prior to the
ownership change was received pursuant to such a plan. The value of the
corporation must also be reduced by the fair market value of any nonbusiness
assets if the loss corporation has substantial nonbusiness assets immediately
after the ownership change. Regulations have not been issued with respect to the
reduction for capital contributions, the definition of nonbusiness assets or
other aspects of this rule.
Seragen will undergo an ownership change at the time of the Merger.
Because the impact of an ownership change on the ability of a corporation to
utilize Tax Carryovers involves inherently factual questions, some of which
cannot be currently known (including the future profitability of Seragen and/or
Ligand), the extent to which the ownership change occurring as a result of the
Merger will materially affect the ability of Seragen and/or Ligand to utilize
their NOLs cannot be predicted with any certainty. However, because of the size
of the Seragen losses, a significant portion of its Tax Carryovers will not be
available to offset future income from any source. In addition, it is possible
that Ligand will elect to treat the purchase of the Seragen stock as a purchase
of the assets of Seragen. In such case, no NOLs of Seragen would be available to
offset future income after the date of the deemed asset
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purchase. The Merger, combined with the other transactions (including future
transactions), could also result in Ligand undergoing an ownership change.
ACCOUNTING TREATMENT
For financial reporting purposes, the Merger will be recorded using the
purchase method of accounting. Accordingly, the purchase price consisting of the
fair value of Ligand Common Stock and cash payments, transaction expenses and
liabilities assumed by Ligand will be allocated to the tangible and intangible
assets acquired based on their estimated fair values at the Effective Time.
Ligand has assigned the estimated total cost to the fair value of net assets
acquired, including $30.0 million to in-process technology. Ligand will record a
one-time, non-cash charge to operations for the $30.0 million of in-process
technology immediately following completion of the Merger. See "Pro Forma
Financial Statements."
EFFECT OF THE MERGER ON THE INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Seragen Board with respect to
the Merger Agreement and the transactions contemplated thereby, holders of
Seragen Capital Stock should be aware that certain members of Seragen's
management and the Seragen Board have interests in the Merger that are in
addition to the interest of the Seragen stockholders in general. These interests
arise from, among other things, voting agreements and related irrevocable
proxies, employment agreements, benefit plans, the terms of classes and series
of Seragen Capital Stock other than Seragen Common Stock, outstanding debt
obligations of Seragen, provisions for the purchase by Ligand of the assets of
Marathon and certain other matters. The Seragen Board was aware of these
interests and took these interests into account in approving the Merger
Agreement and the transactions contemplated thereby.
Voting Agreements. As of July 2, 1998, directors and executive officers
of Seragen, BU, Leon C. Hirsch ("Mr. Hirsch"), Turi Josefsen ("Ms. Josefsen")
and Lilly may be deemed to be beneficial owners of approximately 57% by voting
power of the outstanding Seragen Capital Stock. As a condition to Ligand's
willingness to enter into the Merger Agreement, the directors and executive
officers of Seragen, certain other affiliates of Seragen, and Lilly agreed to
enter into agreements with Ligand to vote the shares of Seragen Capital Stock
over which they have voting control in favor of the Merger Agreement, the Merger
and any matter that could reasonably be expected to facilitate the Merger. The
directors and executive officers of Seragen, BU, BU Holding, Mr. Hirsch, Ms.
Josefsen and Lilly have entered into such agreements and, in connection
therewith, have granted irrevocable proxies to Messrs. Robinson and Respess
covering approximately 57% by voting power of the outstanding Seragen Capital
Stock as of the Seragen Record Date. See "The Merger--Description of the
Merger--Stockholder Voting Agreement and Irrevocable Proxy to Vote Seragen, Inc.
Stock."
Employment of Dr. Nichols. In connection with the execution of the Merger
Agreement, Ligand intends to offer employment to Dr. Nichols to serve as
President and Chief Technology Officer of Seragen on terms substantially
similar to those set forth in the Amended and Restated Employment Agreement
between Seragen and Dr. Nichols, dated September 22, 1997, as amended February
23, 1998.
Asset Value Realization Bonuses. Under the terms of their respective
employment agreements with Seragen, Mr. Prior, Chairman, Chief Executive
Officer, Treasurer and a director of Seragen, Dr. Nichols, President, Chief
Technology Officer and Secretary and a director of Seragen, Mr. Crane, Vice
President and Chief Financial Officer of Seragen, and Ms. Chen, Vice President
of Business Development of Seragen, are entitled to receive payments in the
event of certain transactions that may be deemed a "change in ownership" of
Seragen. See "Seragen--Certain Transactions." These provisions reflect one
aspect of the negotiated terms upon which the team of Mr. Prior, Mr. Crane and
Ms. Chen agreed to provide its specialized services to Seragen relating to the
management and potential disposition or sale of financially troubled
biotechnology companies. The terms were also extended, at the recommendation of
Mr. Prior, to Dr. Nichols to induce her to remain with Seragen following the
change of management in November 1996. A "change in ownership" includes: (i) any
acquisition of all or substantially all of Seragen's equity securities or
operating assets, whether by way of merger, sale of assets, stock purchase,
tender offer or otherwise; or (ii) the sale or out-licensing of the majority (in
value) of Seragen's technology assets. In this event, each of the aforenamed
persons is entitled to receive an "Asset Value Realization Bonus" equal to, in
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Mr. Prior's case, 8.50%, in Dr. Nichols' case, 2.75%, in Mr. Crane's case,
2.75%, and in Ms. Chen's case, 2.00% of the net proceeds from the change in
ownership transaction. The amount that Seragen must pay the aforenamed persons
is reduced by the amount of gain recognized by each such person as a result of
his or her sale of Seragen Common Stock acquired as a result of exercise of
options (or deemed sale in certain circumstances when he or she is able to, but
does not, sell).
The Merger will constitute a change in ownership for purposes of the
aforesaid employment agreements. Each of Mr. Prior, Dr. Nichols, Mr. Crane and
Ms. Chen has agreed, pursuant to the Accord Agreement, to accept the right to
receive the Merger Consideration allocated to him or her in the Merger
Agreement, which amount Seragen management expects to be approximately 25% to
40% (depending on the date of the Closing and the amount of Seragen's payables
as of the Closing) less than the amount of Asset Value Realization Bonus to
which each of the aforesaid persons would be entitled under the existing terms
of his or her employment agreements with Seragen, as full and complete
satisfaction for claims that he or she may have to receive an Asset Value
Realization Bonus in respect of the Merger.
Stock Option Plans. Vesting of all stock options outstanding under
Seragen's existing stock option plans, including Seragen's 1992 Long Term
Incentive Plan (the "1992 Incentive Plan") and 1992 Non-Employee Director
Non-Qualified Stock Option Plan (the "Directors Plan"), will be accelerated so
that all stock options outstanding under such plans will become fully
exercisable immediately prior to consummation of the Merger. Options not
previously exercised will expire as of the Effective Time. Mr. Prior, Dr.
Nichols, Mr. Crane and Ms. Chen hold stock options outstanding under the 1992
Incentive Plan. Gerald S.J. Cassidy ("Mr. Cassidy"), Kenneth G. Condon ("Mr.
Condon") and Norman A. Jacobs ("Mr. Jacobs"), all of whom are directors of
Seragen, hold stock options outstanding under the Directors Plan. Each of Mr.
Prior, Dr. Nichols, Mr. Crane and Ms. Chen has agreed, pursuant to the Accord
Agreement, to accept the right to receive the Merger Consideration allocated to
him or her in the Merger Agreement as full and complete satisfaction for claims
that he or she may have in respect of stock options issued to him or her by
Seragen other than options qualifying as incentive stock options for purposes of
the Code. See "Seragen--Certain Transactions."
Terms of Classes and Series of Stock Other than Seragen Common Stock.
Seragen currently has 23,800 shares of Seragen Series B Preferred Stock
outstanding, and Seragen's affiliate STI currently has 23,800 shares of its
Class B Common Stock outstanding.
BU is the beneficial owner of 11,800 shares of Seragen Series B Preferred
Stock and 11,800 shares of STI's Class B Common Stock; and John R. Silber, Ph.D.
("Dr. Silber") and Mr. Condon, both directors of Seragen, are officers of BU.
Mr. Cassidy and his spouse, Loretta P. Cassidy ("Mrs. Cassidy") are the record
owners of 2,000 shares of Seragen Series B Preferred Stock and 2,000 shares of
STI's Class B Common Stock; and Mr. Cassidy is a director of Seragen.
The terms of the Seragen Series B Preferred Stock and STI's Class B
Common Stock are described in "Seragen--Executive Compensation and Other
Employment Matters--Compensation Committee Interlocks and Insider
Participation." Pursuant to the terms of the Seragen Series B Preferred Stock
and the STI Class B Common Stock, holders thereof do not, until they convert
their Seragen Series B Preferred Stock into shares of Seragen Common Stock,
directly benefit from increases in the market price of Seragen Common Stock or
directly suffer from decreases in the market price of Seragen Common Stock. In
addition, Seragen may, at its option, redeem the Seragen Series B Preferred
Stock (and with it shares of the STI Class B Common Stock) at any time for cash.
Each of the holders of outstanding shares of Seragen Series B Preferred
Stock and STI Class B Common Stock has agreed to accept the right to receive
consideration allocated to him or her in the Merger Agreement, which amount
Seragen management expects to be approximately 25% to 40% (depending on the date
of the Closing and the amount of Seragen's payables as of the Closing) less than
the amounts to which each of the aforesaid persons would be entitled under the
terms of the Seragen Series B Preferred Stock, as full and complete satisfaction
for all claims that he or she may have against Seragen in connection with his or
her shares of Seragen Series B Preferred Stock and STI Class B Common Stock and,
at the Effective Time, to surrender his or her shares of Seragen Series B
Preferred Stock and STI Class B Common Stock for cancellation.
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Outstanding Debt Obligations of Seragen. As of July 2, 1998, Seragen was
indebted to Seragen LLC, an indirect wholly owned subsidiary of BU ("BU
Holding"), in the amount of $4,530,461 in respect of shares of Seragen Series C
Preferred Stock that on March 30, 1998, converted automatically in accordance
with their terms into the right to receive cash in the amount of $1,150 per
share. See "Seragen--Seragen's Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Seragen--Certain Transactions." BU has
agreed to accept the right to receive the Merger Consideration allocated to it
in the Merger Agreement, which amount is substantially less than the amounts to
which it would otherwise be entitled in respect of the debt obligation described
in this paragraph and the 3,360,625 shares of Seragen Common Stock issued to it
upon the March 30, 1998 conversion of the Seragen Series C Preferred Stock, as
full and complete satisfaction of its claim as set forth in this paragraph and
all claims it may have with respect to Merger Consideration by virtue of the
3,360,625 shares of Seragen Common Stock issued to it in connection with the
March 30, 1998 conversion of the Seragen Series C Preferred Stock. See "--Accord
Agreement" and "The Merger Agreement--Merger Consideration".
As of July 2, 1998, Seragen was obligated pursuant to the Service
Agreement to pay to BU $4,840,629 for accrued but unpaid "Technology Service
Fees" (as such term is defined in the Service Agreement) relating to the period
February 14, 1997, through December 31, 1997, and to Marathon, a wholly owned,
indirect subsidiary of BU, $2,236,059 for accrued but unpaid Technology Service
Fees relating to the period January 1, 1998, through June 30, 1998. Additional
Technology Service Fees are due from Seragen to Marathon for the period from
July 1, 1998, and such fees will continue to accrue under the Service Agreement
until it is terminated in accordance with its terms. See "Seragen--Seragen's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Seragen--Certain Transactions." BU and Marathon have agreed to
accept the right to receive the amounts allocated to them in the Merger
Agreement as full and complete satisfaction of their claims as set forth in this
paragraph. See "--Accord Agreement" and "The Merger Agreement--Merger
Consideration".
Dr. Silber and Mr. Condon, both of whom are Seragen directors, are
officers of BU. In addition, Mr. Condon is the manager of Marathon and Ms. Chen,
who is Vice President of Business Development at Seragen, serves, pursuant to an
arrangement between Seragen and Marathon, as the Chief Executive Officer of
Marathon.
Purchase of Marathon Assets by Ligand. Pursuant to the Option and
Purchase Agreement, Ligand has agreed to purchase the assets of Marathon. See
"--Option and Purchase Agreement." The Option and Purchase Agreement was entered
into simultaneously with, and as a condition to, the execution and delivery of
the Merger Agreement by the parties thereto. Under the terms of the Option and
Purchase Agreement, either party thereto may terminate such agreement upon,
among other things, the termination of the Merger Agreement.
As noted above, Marathon is a wholly owned, indirect subsidiary of BU.
Dr. Silber and Mr. Condon, both of whom are Seragen directors, are officers of
BU. In addition, Mr. Condon is the manager of Marathon and Ms. Chen, who is Vice
President of Business Development at Seragen, serves, pursuant to an arrangement
between Seragen and Marathon, as the Chief Executive Officer of Marathon.
Warrants. The GATX Warrant will be assumed by Ligand pursuant to the
Merger Agreement. Ligand will also assume warrants to purchase up to 281,751
shares of Seragen Common Stock (at an exercise price of $10.00 per share) to the
extent such warrants are not terminated by their terms as a result of the
effectiveness of the Merger. Of these warrants, warrants to purchase 7,500
shares of Seragen Common Stock are held by Dr. Silber and his wife.
Interests of Lilly. As of July 2, 1998, Lilly owned approximately 1.79
million shares of Seragen Common Stock. In addition, Seragen and Lilly had
entered into a strategic alliance in 1994 to develop DAB(389)IL-2 for cancer.
Through this alliance, as amended in April 1997, Lilly has exclusive worldwide
rights to develop and promote DAB(389)IL-2 for the treatment of cancer, as well
as to serve as Seragen's sole distributor for intravenous and intramuscular
formulations of DAB(389)IL-2 for cancer indications, except in certain Asian
countries. Lilly also has the right to serve as Seragen's sole distributor for
intravenous and intramuscular formulations of DAB(389)IL-2 for non-cancer
indications except in certain Asian countries and member countries of the
European Union. In November 1997, Ligand and Lilly entered into a strategic
alliance for the discovery and development of products based upon Ligand's IR
technology. In connection with this strategic alliance, Lilly purchased
2,176,279 shares of Ligand Common Stock.
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Pursuant to the Lilly Agreement (as defined below) Lilly has agreed to
assign to Ligand its rights and obligations under the Seragen Agreements upon
Governmental Approval or the Closing, whichever occurs first. Pursuant to the
Letter Agreement, Seragen has consented to such assignment so long as, if the
Closing has not occurred, Ligand is in compliance with its obligations under the
Merger Agreement to use its best efforts to effect consummation of the Merger.
Lilly will receive certain payments from Ligand in the event of such assignment.
See "--Agreements among Lilly, Ligand and Seragen." Lilly also entered into an
agreement with Ligand whereby it has agreed to vote the shares of Seragen
Capital Stock over which it has voting control in favor of the Merger Agreement,
the Merger and any matter that could reasonably be expected to facilitate the
Merger, and in connection therewith, has, in connection with certain other
shareholders of Seragen, granted irrevocable proxies to Messrs. Robinson and
Respess covering approximately 57% by voting power of the outstanding Seragen
Capital Stock. See "The Merger--Description of the Merger--Stockholder Voting
Agreements and Irrevocable Proxies to Vote Seragen, Inc. Stock."
Interests of United States Surgical Corporation. On July 31, 1997,
Seragen entered into an agreement with USSC (the "USSC License Agreement")
granting USSC an option on worldwide rights to Seragen's EGF Fusion Protein for
restenosis in cardiovascular applications. Pursuant to the USSC License
Agreement, USSC made an initial payment to Seragen of $5.0 million on July 31,
1997. Under the USSC License Agreement, USSC is entitled to acquire an exclusive
license to the EGF Fusion Protein technology, at any time during a 15-month
evaluation period, upon the payment to Seragen of an additional $5.0 million. In
addition, Seragen issued to USSC a warrant for the purchase of 500,000 shares of
Seragen Common Stock at a purchase price of $0.5625 per share. In the event USSC
elects not to exercise the option, Seragen will be obligated to issue to USSC
$5.0 million of Seragen Common Stock. Pursuant to the Accord Agreement, USSC and
Seragen have agreed to terminate the USSC License Agreement and USSC has agreed
to accept the Merger Consideration allocated to it in the Merger Agreement as
full and complete satisfaction of its rights in connection with the USSC License
Agreement and the warrants issued in connection therewith.
Mr. Hirsch, who beneficially owns more than 5% of outstanding Seragen
Common Stock, is the Chairman of USSC and beneficially owns 7.8% of the common
stock of USSC. Ms. Josefsen, who beneficially owns more than 5% of outstanding
Seragen Common Stock, is a director of USSC and beneficially owns 1.8% of the
common stock of USSC. Dr. Silber, a director of Seragen, is a director of USSC
and beneficially owns .02% of the common stock of USSC.
STOCKHOLDER VOTING AGREEMENTS AND IRREVOCABLE PROXIES TO VOTE SERAGEN, INC.
STOCK
As a condition to Ligand's willingness to enter into the Merger
Agreement, the directors and executive officers of Seragen and certain of their
affiliates, certain other affiliates of Seragen, and Lilly agreed to enter into
agreements with Ligand to vote the shares of Seragen Capital Stock over which
they have voting control in favor of the Merger Agreement, the Merger and any
matter that could reasonably be expected to facilitate the Merger. Accordingly,
in connection with the execution of the Merger Agreement, each of BU, BU
Holding, Lilly, Mr. Hirsch, Ms. Josefson, Mr. Cassidy, Mrs. Cassidy, Mr. Prior,
Dr. Nichols, Ms. Chen, Mr. Crane, Mr. Condon, Mr. Jacobs and Dr. Silber
(collectively, the "Majority Stockholders") entered into a Stockholder Voting
Agreement, dated as of May 11, 1998 (each, a "Voting Agreement") with Ligand and
executed an Irrevocable Proxy To Vote Seragen, Inc. Stock (each, a "Proxy"),
dated as of May 11, 1998.
Under the Voting Agreements, each of the Majority Stockholders agrees to
vote all voting Seragen Capital Stock which such stockholder either currently
beneficially owns or subsequently acquires in favor of the Merger. Specifically,
each Majority Stockholder has agreed to vote or direct the vote of the
stockholder's shares of Seragen Capital Stock and other Seragen voting
securities in favor of the Merger Agreement and the Merger and against approval
of any proposal made in opposition to or in competition with the consummation of
the Merger. Each Majority Stockholder also has agreed that, in the event of the
filing of an involuntary bankruptcy against Seragen which is not initiated by
Ligand, the stockholder will vote or direct the stockholder's vote to call a
special meeting of stockholders and vote to elect members of the Seragen Board.
Except as set forth in the Accord Agreement, each of the Majority
Stockholders has further agreed not to transfer, sell, exchange, pledge or
otherwise dispose of or encumber any of such stockholder's shares, options or
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warrants to acquire Seragen Capital Stock, or any other shares of Seragen
Capital Stock or options or warrants to acquire Seragen Capital Stock which are
acquired after his or her execution of the Voting Agreement and prior to the
expiration of the term of the Voting Agreement. The term of each Voting
Agreement commenced on May 11, 1998 and expires upon the earlier of the (1) the
effective date of the Merger; (2) the termination of the Merger Agreement in
accordance with its terms pursuant to any of the following: (i) the mutual
consent of the Ligand Board, the Seragen Board and the Merger Sub Board; (ii)
termination by either Ligand or Seragen (A) if the Effective Time has not
occurred in a timely manner in accordance with the provisions of the Merger
Agreement and the Extension Option Agreement, (B) upon a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger or (C) if any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity would make
consummation of the Merger illegal; (iii) termination by Ligand as a result of
any action taken, or any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger, by any governmental entity, which
would: (A) prohibit Ligand's or the Surviving Corporation's ownership or
operation of all or any portion of the business of Seragen or (B) compel Ligand
or the Surviving Corporation to dispose of or hold separate all or a portion of
the business or assets of Seragen or Ligand as a result of the Merger; (iv)
termination by Ligand as a result of any uncured material breach of any
representation, warranty, covenant or agreement contained in the Merger
Agreement on the part of Seragen (except where Seragen has willfully breached a
representation, warranty, covenant or agreement); (v) termination by Seragen as
a result of any uncured material breach of any representation, warranty,
covenant or agreement contained in the Merger Agreement on the part of Ligand or
Merger Sub; (vi) termination by Ligand as a result of Seragen's suffering a
Material Adverse Effect (other than in connection with the FDA's review of
DAB(389)IL-2 for CTCL) which could reasonably be expected to result in a
diminution of the value of Seragen by $5.0 million or more; or (vii) termination
by Seragen as a result of Ligand or Merger Sub becoming insolvent or seeking
protection under any bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or if any such proceeding is
instituted against Ligand or Merger Sub (and not dismissed within 60 days); or
(3) May 1, 2001.
Each of the Majority Stockholders has further agreed not to directly or
indirectly take any action to solicit, initiate or encourage the making of any
offer or proposal for a merger or other business combination involving Seragen
or the acquisition of a majority of the outstanding shares of Seragen Capital
Stock or assets of Seragen other than the Merger. Those certain Majority
Stockholders who are also members of the Seragen Board, however, may, in their
role as a member of the Seragen Board, engage in negotiations and related
activities in connection with unsolicited offers as permitted under the Merger
Agreement.
Each Proxy authorizes Messrs. Robinson and Respess to act as the granting
Majority Stockholder's attorney and proxy to vote all shares of Seragen Capital
Stock beneficially owned as of the date of the Proxy or acquired thereafter, in
the same manner as set forth in the Voting Agreement. The proxy holders may not
utilize the Proxy on any other matter except as set forth in the Voting
Agreement and Proxy. Each Proxy terminates automatically upon the earlier to
occur of (1) such date and time as the Merger will become effective in
accordance with the terms and provisions of the Merger Agreement; (2) the
termination of the Merger Agreement in accordance with its terms pursuant to any
of the following: (i) the mutual consent of the Ligand Board, the Seragen Board
and the Merger Sub Board; (ii) termination by either Ligand or Seragen (A) if
the Effective Time has not occurred in a timely manner in accordance with the
provisions of the Merger Agreement and the Extension Option Agreement, (B) upon
a final nonappealable order of a federal or state court in effect preventing
consummation of the Merger or (C) if any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity would make consummation of the Merger illegal; (iii)
termination by Ligand as a result of any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger, by any governmental entity, which would: (A) prohibit Ligand's or the
Surviving Corporation's ownership or operation of all or any portion of the
business of Seragen or (B) compel Ligand or the Surviving Corporation to dispose
of or hold separate all or a portion of the business or assets of Seragen or
Ligand as a result of the Merger; (iv) termination by Ligand as a result of any
uncured material breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement on the part of Seragen (except where Seragen
has willfully breached a representation, warranty, covenant or agreement); (v)
termination by Seragen as a result of any uncured material breach of any
representation, warranty, covenant or agreement contained in the Merger
Agreement on the part of Ligand or Merger Sub; (vi) termination by Ligand as a
result of Seragen's suffering a material adverse effect (other
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than in connection with the FDA's review of DAB(389)IL-2 for CTCL) which could
reasonably be expected to result in a diminution of the value of Seragen by $5.0
million or more; or (vii) termination by Seragen as a result of Ligand or Merger
Sub becoming insolvent or seeking protection under any bankruptcy, receivership,
trust deed, creditors arrangement, composition or comparable proceeding, or if
any such proceeding is instituted against Ligand or Merger Sub (and not
dismissed within 60 days); or (3) May 1, 2001.
Pursuant to the Voting Agreement and the Proxies, Messrs. Robinson and
Respess hold proxies to vote approximately 57% by voting power of the
outstanding shares of Seragen Capital Stock as of the Seragen Record Date.
OPTION AND PURCHASE AGREEMENT
Pursuant to the terms of the Option and Purchase Agreement, the Sellers
granted to Ligand an irrevocable option to purchase all of the Sellers' right,
title and interest in and to all assets, properties, rights, leases, fixtures,
accessories, claims, contracts and interests of Marathon that are used in or
pertain to Marathon's business and operations (the "Purchased Assets") upon the
terms and conditions set forth in the Option and Purchase Agreement (the
"Option"). The term of the Option will commence on the date of the Closing of
the Merger Agreement and will expire on the earlier of (i) December 24, 1998 or
(ii) the early termination of the Option and Purchase Agreement pursuant to its
termination provisions (the "Option Term").
The Option may be exercised by Ligand by delivering written notice (the
"Option Notice") to Marathon at any time prior to the expiration of the Option
Term. Such Option Notice will specify the proposed time and date of the Marathon
Closing (as defined herein), which will not be less than 30 days nor more than
40 days from the delivery of the Option Notice and which may be after the
expiration of the Option Term (the "Option Closing Date"). If Ligand does not
exercise the Option, the Marathon Closing will be on January 31, 1999 (subject
to extension pursuant to the Extension Option Agreement and subject to the terms
of the Option and Purchase Agreement).
In the event that the Marathon Closing does not occur for any reason
within 40 days from the date of Ligand's delivery of an Option Notice to
Marathon, the Option and Purchase Agreement will continue in full force and
effect until the earlier of (i) January 31, 1999 (which date is subject to
extension pursuant to the Extension Option Agreement) or such other date agreed
to by the parties; (ii) a successful Marathon Closing pursuant to Ligand's
delivery of an Option Notice to Marathon; or (iii) the early termination of the
Option and Purchase Agreement pursuant to the terms thereunder. The closing of
the transactions contemplated by the Option and Purchase Agreement (the
"Marathon Closing") will occur on the earlier of (i) the Option Closing Date if
Ligand exercises the Option or (ii) January 31, 1999 (which date is subject to
extension pursuant to the Extension Option Agreement) or such other time as the
parties may mutually agree (the "Marathon Closing Date").
The Purchased Assets do not include accounts receivable, notes, notes
receivables, cash, cash equivalents, minute books or certain other records of
Marathon (the "Excluded Assets"). As of the Marathon Closing Date, Ligand will
assume only those liabilities and obligations of Marathon as set forth in the
Option and Purchase Agreement (or schedules attached thereto) (the "Assumed
Liabilities").
As consideration for the grant of the Option, Ligand agreed to pay
Marathon an aggregate consideration of $3.0 million (the "Option Consideration")
in cash or Ligand Common Stock, such form of consideration to be at Ligand's
sole option, when and if the Milestone Consideration is paid under the terms of
the Merger Agreement. As consideration for the Purchased Assets, Ligand agreed
to assume the Assumed Liabilities and to pay Marathon an aggregate purchase
price of $5.0 million (the "Purchase Price"), in cash or Ligand Common Stock,
such form of consideration to be at Ligand's sole option, at the Marathon
Closing. The representations, warranties and covenants of the Sellers contained
or made in the Option and Purchase Agreement survive the execution and delivery
of the Option and Purchase Agreement and the Marathon Closing and continue for a
period of one year after the Marathon Closing Date; provided, however, that the
Sellers' representations and warranties regarding (A) (i) organization,
qualification and ownership, (ii) limited liability company power and authority,
(iii) validity of the Option and Purchase Agreement and documents contemplated
thereby, (iv) Marathon's capital structure and (v) the authority of 660
Corporation and 520 Commonwealth to enter into the Option and Purchase Agreement
and to consummate the
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transactions contemplated thereby survive indefinitely, (B) environmental
liability survive for a period of three years and (C) taxes survive until the
expiration of all applicable statutes of limitations. The Sellers agree, jointly
and severally, to indemnify, defend and hold harmless Ligand from all costs and
damages incurred in connection with, arising out of, resulting from or incident
to (i) any breach of any covenant, representation, warranty or agreement or any
inaccuracy of any representation made by any of the Sellers pursuant to the
Option and Purchase Agreement, (ii) any Excluded Assets or (iii) any liability
that is not an Assumed Liability. Ligand agrees to indemnify the Sellers from
all damages incurred in connection with, arising out of, resulting from or
incident to (i) any breach of any covenant, representation, warranty or
agreement or the inaccuracy of any representation made by Ligand pursuant to the
Option and Purchase Agreement or (ii) any liability relating to the Marathon
business arising on or after the Marathon Closing Date.
The obligations of both Ligand and the Sellers to effect the transactions
contemplated by the Option and Purchase Agreement are subject to the
satisfaction, at or before the Marathon Closing, of the following conditions:
(i) all representations and warranties of the parties being true and correct on
and as of the Marathon Closing Date, except as expressly provided otherwise, and
the parties having performed all agreements and covenants in a timely manner as
required prior to or on the Marathon Closing Date, (ii) no actions or
proceedings having been instituted or threatened that question the validity or
legality of the transactions contemplated under the Option and Purchase
Agreement, (iii) all permits, authorizations and consents from third parties and
governmental or regulatory authorities or other persons necessary or appropriate
to permit Ligand or the Sellers to perform their respective obligations having
been obtained, including the decision of the Attorney General of the
Commonwealth of Massachusetts not to take action to prevent the Merger, notice
of which was received on May 11, 1998, continuing to be effective as of the
Marathon Closing Date and (iv) the parties having executed and delivered the
documents required to be executed and delivered by such parties under the Option
and Purchase Agreement.
The Option and Purchase Agreement may be terminated at any time prior to
the Marathon Closing (i) by Ligand if there will be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated by the Option and Purchase
Agreement, by any governmental entity, which would prohibit Ligand's ownership
or operation of all or any portion of the Purchased Assets or compel Ligand to
dispose of or hold separate all or a portion of the Purchased Assets, and (ii)
by Ligand or Marathon if the Merger Agreement is terminated or for certain other
reasons set forth in detail in the Option and Purchase Agreement. No party will
have liability to the other parties in the event of the termination of the
Option and Purchase Agreement unless such party is in default under its
obligations thereunder, in which case the defaulting party will be liable to the
other parties for such default.
EXTENSION OPTION AGREEMENT
Pursuant to the Extension Option Agreement, the Sellers granted to each
of Ligand and Seragen an irrevocable option (the "Extension Option") to extend
the terms of both the Option and Purchase Agreement and the Service Agreement
(collectively, the "Agreement Term") for one or more additional 60-day periods
(each, an "Extension Term") upon the terms and conditions set forth in the
Extension Option Agreement. The Sellers' grant to Ligand of the Extension Option
was a condition to Ligand's execution of the Option and Purchase Agreement and
the Merger Agreement and the consummation of the transactions contemplated
thereby, and Sellers' grant to Seragen of the Extension Option was a condition
to Seragen's execution of the Merger Agreement and the consummation of the
transactions contemplated thereby.
Ligand has the right upon written notice to Marathon and Seragen to
exercise the Extension Option on or before the 30th day prior to the expiration
of the Agreement Term or the then-effective Extension Term, as the case may be
(each, a "Ligand Expiration Date"). In the event that Ligand fails at any time
to exercise the Extension Option prior to a Ligand Expiration Date, the
Extension Option immediately terminates with respect to Ligand. If, and only if,
Ligand fails to exercise the Extension Option prior to a Ligand Expiration Date,
Seragen has the right upon written notice to Marathon and Ligand to exercise the
Extension Option, (a) with respect to the Agreement Term, during the period from
the Ligand Expiration Date for such term to the end of the Agreement Term and,
(b) with respect to each Extension Term, (i) if Ligand has exercised the
Extension Option for such Extension Term, during the period from the Ligand
Expiration Date for such Extension Term to the end of such Extension Term, or,
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(ii) if Seragen has exercised the Extension Option for such Extension Term, at
any time on or before the tenth day prior to the expiration of such Extension
Term. Seragen may not exercise the Extension Option without the prior written
consent of the Sellers, which consent may be granted or withheld at the sole
discretion of the Sellers. If neither Ligand nor Seragen has exercised the
Extension Option prior to the end of the Agreement Term or any Extension Term,
the Extension Option immediately terminates at the end of such term.
The party exercising the Extension Option with respect to an Extension
Term will be responsible for all cash actually expended by Marathon during such
Extension Term less all cash revenues actually received by Marathon during such
Extension Term, subject to certain limitations as set forth in the Extension
Option Agreement. The Extension Option Agreement remains in effect until the
termination of the Extension Option with respect to both Ligand and Seragen,
unless (i) the Merger Agreement or the Option and Purchase Agreement is earlier
terminated or (ii) the Extension Option Agreement is earlier terminated by
written consent of each of the parties thereto.
SERAGEN BIOPHARMACEUTICALS LTD. SETTLEMENT AGREEMENT
In November 1995, Seragen entered into arrangements with Sofinov Societe
Financiere d'Innovation Inc., Societe Innovatech du Grand Montreal, MDS Health
Ventures Inc., Canadian Medical Discoveries Fund Inc., Royal Bank Capital
Corporation, and Health Care and Biotechnology Venture Fund (collectively, the
"Investor Shareholders") for the organization and capitalization of Seragen
Biopharmaceuticals Ltd./Seragen Biopharmaceutique Ltee ("Seragen Canada"). It
was envisioned that Seragen Canada would conduct certain clinical trials and
related product research and development work related to Seragen's proprietary
technology. Ultimately, it proved impractical for Seragen Canada to conduct such
activities.
Pursuant to the provisions of a Shareholders Agreement, dated November
22, 1995 (the "Seragen Canada Shareholders Agreement"), between Seragen, Seragen
Canada, and the Investor Shareholders, the Investor Shareholders have the option
to exercise one of three different put rights related to their Seragen Canada
shares after January 1, 1999, or earlier upon the occurrence of certain events.
See Note G to the Seragen Financial Statements. In view of the inactivity of
Seragen Canada, Seragen management entered into negotiations with the Investor
Shareholders regarding settlement of the Investor Shareholders' put rights and
other matters relating to Seragen Canada. At the conclusion of such
negotiations, Seragen, Seragen Canada and the Investor Shareholders entered into
a settlement agreement, dated as of May 1, 1998 (the "Seragen Canada Settlement
Agreement").
Under the terms of the Seragen Canada Settlement Agreement, the parties
are obligated to use their best efforts promptly (a) to effect the continuation
of Seragen Canada under the British Columbia Companies Act, (b) to reorganize
the capital of Seragen Canada to provide for two new classes of shares, being
Class C shares and Class D shares, and (c) to enter into an agreement providing
for the exchange by Seragen of its existing shares in Seragen Canada for Class C
shares and by the Investor Shareholders of their existing shares in Seragen
Canada for Class D shares and to consummate the transactions contemplated
thereby. Immediately following the consummation of the aforesaid exchange of
shares in the share capital of Seragen Canada, the Seragen Canada Settlement
Agreement requires Seragen Canada and each Investor Shareholder to enter into an
agreement providing for the redemption by Seragen Canada of the Investor
Shareholder's shares in the share capital of Seragen Canada (collectively, the
"Redemption Transactions"). The consideration to be delivered by Seragen Canada
in connection with each Redemption Transaction is an amount equal to (a)(i) the
cash, near cash, investments, and receivables of Seragen Canada as of the date
of the consummation of the Redemption Transactions, less (ii) identified
liabilities of Seragen Canada, reasonable out-of-pocket expenses incurred by
Seragen from May 1, 1997 in connection with the transactions contemplated by the
Seragen Canada Settlement Agreement up to a maximum of $100,000, and all costs
and expenses of Seragen and the Investor Shareholders incurred in connection
with the transactions contemplated by the Seragen Canada Settlement Agreement,
multiplied by (b) a fraction, (i) the numerator of which is the number of Class
D shares of Seragen Canada held by the Investor Shareholder and (ii) the
denominator of which is the total number of Class D shares of Seragen Canada
outstanding. The consummation of the Redemption Transactions is referred to
herein as the "Effective Closing." At the Effective Closing, Seragen Canada is
required to reimburse (a) Seragen for reasonable out-of-pocket expenses incurred
by Seragen from May 1, 1997, in connection with the transactions contemplated by
the Seragen Canada Settlement Agreement and (b) the Investor Shareholders for
all
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expenses incurred by them in connection with the transactions contemplated by
the Seragen Canada Settlement Agreement.
The obligation of the Investor Shareholders to consummate the Redemption
Transactions is subject to the satisfaction, at or prior to the Effective
Closing, of the following conditions: (a) all representations and warranties of
Seragen being true and correct as of the Effective Closing as though made at
such time (except for those representations and warranties made as of a
particular date and except for immaterial inaccuracies or changes), (b) Seragen
having performed all covenants to be performed by it at or prior to the
Effective Closing, (c) the receipt of all consents and approvals required to
consummate the contemplated transactions, (d) the absence of litigation
challenging the transactions, (e) the receipt of specified opinions of counsel
and other documents, (f) the reservation by Seragen of sufficient shares of its
common stock for the purposes of enabling Seragen to satisfy its obligations,
described below, to issue shares of its common stock to the Investor
Shareholders, (g) the entry by Seragen Canada into a guaranty and security
agreement in favor of the Investor Shareholders pursuant to which Seragen Canada
guarantees the performance by Seragen of its obligations to issue shares of its
common stock to the Investor Shareholders and in order to secure such guarantee
grants the Investor Shareholders a security interest in all of its assets, and
(h) the delivery by Seragen of releases in favor of Seragen Canada and the
Investor Shareholders releasing specified claims from the date of the Seragen
Canada Settlement Agreement through the Effective Closing. The obligation of
Seragen to consummate the Redemption Transactions is subject to the
satisfaction, at or prior to the Effective Closing, of the following conditions:
(a) all representations and warranties of the Investor Shareholders being true
and correct as of the Effective Closing as though made at such time (except for
those representation and warranties made as of a particular date and except for
immaterial inaccuracies or changes), (b) the Investor Shareholders having
performed all covenants to be performed by them at or prior to the Effective
Closing, (c) the receipt of all consents and approvals required to consummate
the contemplated transactions, (d) the absence of litigation challenging the
transactions, (e) the receipt of specified opinions of counsel and other
documents, and (f) the delivery by each of the Investor Shareholders of releases
in favor of Seragen Canada and Seragen releasing specified claims from the date
of the Seragen Canada Settlement Agreement through the Effective Closing.
Seragen Canada is not permitted to consummate the Effective Closing unless all
conditions to the obligations of the Investor Shareholders and Seragen to
consummate the Effective Closing have been satisfied or waived.
Pending the Effective Closing or the termination of the Seragen Canada
Settlement Agreement, (a) the Investor Shareholders have agreed to forbear from
exercising any and all rights that they may have under that certain Shareholders
Agreement, dated November 22, 1995 (the "Seragen Canada Shareholders
Agreement"), to require Seragen to purchase their shares in Seragen Canada and
from exercising certain warrants (the "Canadian Investor Warrants") that they
received in November 1995 to purchase shares of Seragen Common Stock, (b)
Seragen Canada has agreed to forbear from exercising any right or remedy that it
may have under that certain Technology Rights and Marketing Agreement, dated as
of November 21, 1995 (the "Seragen Canada Technology Agreement"), including any
right to terminate such agreement, (c) Seragen has agreed to forbear from
exercising any right or remedy that it may have under the Seragen Canada
Technology Agreement, including any right to terminate such agreement, and (d)
each of the parties to the Seragen Canada Settlement Agreement has agreed not to
assign any claims to be released pursuant to the provisions of the Seragen
Canada Settlement Agreement and not to transfer any Seragen Canada stock or
Canadian Investor Warrants held by it. Pending the Effective Closing or the
termination of the Seragen Canada Settlement Agreement, Seragen Canada is
required to be operated solely for the purposes of prosecuting and defending
suits by or against it, taking such steps as may be necessary to continue its
corporate existence and comply with law, discharging its liabilities, and
consummating the transactions contemplated by the Seragen Canada Settlement
Agreement, but not for the purpose of continuing the business for which it was
organized, disposing of its assets, or otherwise taking any actions otherwise
than as contemplated by the Seragen Canada Settlement Agreement.
Upon the Effective Closing, the Seragen Canada Shareholders Agreement and
the Canadian Investor Warrants will be automatically terminated. In addition,
releases made by Seragen in favor of the Investor Shareholders, by Seragen
Canada in favor of Seragen and the Investor Shareholders, and by the Investor
Shareholders in favor of Seragen relating to specified claims arising up to the
date of the Seragen Canada Settlement Agreement will become effective.
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The Seragen Canada Settlement Agreement provides for issuance by Seragen
of an aggregate of $2.4 million worth of its common stock upon the later to
occur of (a) the date of the Effective Closing and (b) the earliest to occur of
(i) the issuance by Seragen of additional shares of its capital stock in an
offering or series of offerings, public or private, with net proceeds to Seragen
of at least $10.0 million (a "Qualified Offering"), (ii) the consummation of a
disposition of Seragen, whether by way of a merger or otherwise, of
substantially all of Seragen's assets, and (iii) January 31, 1999, subject to
certain qualifications. Each Investor Shareholder is to receive that portion of
the aggregate number of shares issuable by Seragen that is equal to its ratable
share of the aggregate original investment of the Investor Shareholders in
Seragen Canada. For purposes of issuance of shares of Seragen's Common Stock to
the Investor Shareholders, such shares are to be valued, (a) if issued following
a Qualified Offering, at an amount per share equal to the pre-money valuation of
Seragen as indicated by the terms of the Qualified Offering plus the amount that
would be received by Seragen in the event that all in-the-money rights to
acquire shares of Seragen Common Stock were exercised, divided by the number of
shares of Seragen Common Stock issued and outstanding immediately prior to the
Qualified Offering plus the number of shares of Seragen Common Stock issuable
immediately prior to the Qualified Offering pursuant to all in-the-money rights
to acquire Seragen Common Stock, (b) if issued prior to a Qualified Offering, at
the average closing price per share of Seragen Common Stock for the 20
consecutive trading days ending on the day prior to the date of issuance, and,
(c) if issued in connection with a merger of a subsidiary of Ligand into Seragen
in which the aggregate per share consideration to be delivered to holders of
Seragen Common Stock, both fixed and contingent, is not less than $.73 or an
equivalent value, determined as specified, of Ligand Common Stock, at $.73 per
share. The Investor Shareholders are accorded certain registration rights with
respect to the shares of Seragen Common Stock to be issued to them.
The Investor Shareholders, individually and not jointly and severally,
indemnify Seragen and its affiliates from and against all losses, damages, costs
or expenses (including losses, damages, costs and expenses incurred by Seragen
and its affiliates in their capacity as a shareholder, creditor or obligee of
Seragen Canada and any losses, damages, costs or expenses arising from any
encumbrance on the rights granted by Seragen to Seragen Canada under the Seragen
Canada Technology Agreement) arising from (a) the organization, funding,
operation or any other act or activities of or relating to Seragen Canada
through the Effective Date and (b) the winding up, dissolution or liquidation of
Seragen Canada and the termination of Seragen Canada's rights under the Seragen
Canada Technology Agreement in connection therewith, but excluding losses,
damages, costs and expenses arising from agreements among Seragen, Seragen
Canada, and Lilly or any breach by Seragen of its representations, warranties
and covenants under the Seragen Canada Settlement Agreement. Seragen, for its
part, indemnifies Seragen Canada against losses, damages, costs and expenses
arising from agreements among Seragen, Seragen Canada, and Lilly. The
indemnification for which provision is made in the Seragen Canada Settlement
Agreement becomes effective only upon the Effective Closing.
The Seragen Canada Settlement Agreement may be terminated by Seragen, on
the one hand, or a majority of the Investor Shareholders, on the other, by 30
days' prior notice to the other party(ies) in the event the Effective Closing
has not occurred by July 9, 1998, and does not occur within the specified notice
period. No party, however, may terminate the Seragen Canada Settlement Agreement
if the failure of the Effective Closing to have timely occurred is attributable
to any material extent to such party's acts or failures to act. The Effective
Closing is expected by Seragen management to occur on or prior to July 31, 1998;
there can be no assurance, however, that the Effective Closing will occur.
ACCORD AGREEMENT
In connection with the execution and delivery of the Merger Agreement,
Seragen and STI entered into the Accord Agreement with the following creditors
and preferred shareholders of Seragen and STI: BU, BU Holding, Marathon, USSC,
Mr. Hirsch, Ms. Josefsen, Mr. Cassidy, Mrs. Cassidy, Mr. Prior, Dr. Nichols, Ms.
Chen, Mr. Crane, Shoreline Pacific, Lehman Brothers, 520 Commonwealth, and 660
Corporation (collectively, the "Compromising Claimants"). Pursuant to the Accord
Agreement, the Compromising Claimants agreed, in order to facilitate the Merger,
to accept the right to receive Merger Consideration in satisfaction of certain
of their claims against Seragen. The amount of Merger Consideration allocated to
Mr. Hirsch, Ms. Josefsen, Mr. Cassidy, Mrs. Cassidy, Mr. Prior, Dr. Nichols, Mr.
Crane, Ms. Chen, Shoreline Pacific, Lehman Brothers and, to the extent of its
claims arising from its holdings of (i) Seragen Series B Preferred Stock and
(ii) those shares of Seragen Common Stock issued, and those debt obligations of
Seragen owed, to it in connection with the conversion of the Seragen Series C
Preferred Stock, BU Holding (collecting, the "Discounted Claimants") under the
terms of the Merger Agreement constitutes what Seragen management expects to be
a discount of from 25% to 40% (with the exact amount of the discount depending
on the date of the Closing and the amount of Seragen's
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payables as of the Closing) on amounts otherwise owed by Seragen to such persons
in respect of their relevant claims. In addition, the Discounted Claimants have
agreed to accept Milestone Consideration, as opposed to the right to receive
Closing Consideration, as partial payment for their relevant claims, thereby
subjecting what Seragen management expects to be from 80% to 90% of the
Discounted Claimants' right to receive Merger Consideration to the contingency
associated with the Milestone Consideration and also, in the likely event the
Milestone Consideration does not become payable by the time of the Closing, to
some delay. See "The Merger Agreement--Merger Consideration."
The Accord Agreement provides that specified parties to the Accord
Agreement will accept the amount of Merger Consideration allocated to them in
the Merger Agreement as full and complete satisfaction for their specified
claims against Seragen and STI, as follows:
1. BU Holding, Mr. Hirsch, Ms. Josefsen, Mr. Cassidy and Mrs. Cassidy
agree to accept the right to receive the Merger Consideration allocated to them
as satisfaction of all claims that they may have against Seragen or STI with
respect to or arising under outstanding Seragen Series B Preferred Stock, STI
Class B Common Stock and the collateral assignment of patents made by STI in
favor of holders of STI Class B Common Stock to secure its dividend obligations
in respect of outstanding STI Class B Common Stock (the "Collateral Assignment
of Patents"), and, at the Closing, to surrender their shares of Seragen Series B
Preferred Stock and STI Class B Common Stock for cancellation and effect the
release of the Collateral Assignment of Patents.
2. BU Holding agrees to accept the right to receive the Merger
Consideration allocated to it as satisfaction of all claims that it may have to
a cash payment in the amount of $4.6 million arising from the automatic
conversion of Seragen's outstanding Seragen Series C Preferred Stock that
occurred on March 30, 1998. In addition, BU Holding agrees to surrender to
Seragen, at the Closing and without additional consideration, 3,360,625 shares
of Seragen Common Stock held by BU Holding as a result of the automatic
conversion of Seragen Series C Preferred Stock.
3. BU Holding, Mr. Hirsch, Ms. Josefsen, Mr. Cassidy, Mrs. Cassidy, and
USSC agree to accept the right to receive the Merger Consideration allocated to
them as satisfaction of all claims that they may have with respect to
outstanding warrants that they each hold for the purchase of the Seragen Common
Stock and, at the Closing, to surrender their warrants for termination and
cancellation.
4. BU agrees to accept the right to receive the Merger Consideration
allocated to it as satisfaction of all claims that it may have for all fees,
royalties and other amounts payable to it under the Technology Purchase and
Royalty Agreement, dated January 28, 1988, between BU and Seragen (the
"Technology Agreement").
5. BU agrees to accept the right to receive the Merger Consideration
allocated to it as satisfaction of all claims that it may have for fees and
other amounts payable to it under the Service Agreement for the period from
February 14, 1997 through December 31, 1997.
6. Marathon agrees to accept the right to receive the Merger
Consideration allocated to it as satisfaction of all claims that it may have for
fees and other amounts payable to it under the Service Agreement for the period
from January 1, 1998 through the Merger Closing.
7. USSC agrees to accept the right to receive the Merger Consideration
allocated to it as satisfaction of all claims (including, without limitation,
any right to receive shares of Seragen Common Stock), that it may have under the
USSC License Agreement and, in connection therewith, agrees to the termination
of such agreement and all claims underlying such Agreement as of the Merger
Closing.
8. Mr. Prior, Dr. Nichols, Ms. Chen and Mr. Crane agree to accept the
right to receive the Merger Consideration allocated to them as satisfaction of
all claims that they may have under their respective employment agreements to
receive Asset Value Realization Bonus payments in connection with the Closing.
In addition, they agree to accept the right to receive the Merger Consideration
allocated to them as satisfaction of claims that they may have under
non-qualified stock options granted to them by Seragen and, at the Closing, to
surrender such stock
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options for termination and cancellation. Mr. Prior, Dr. Nichols, Ms. Chen and
Mr. Crane agree that at the Effective Time incentive stock options granted to
them by Seragen will, to the extent not exercised at or prior to such time, be
deemed for all purposes to have been relinquished and surrendered unexercised to
Seragen and will thereafter be deemed terminated, extinguished and of no further
force or effect.
9. Lehman Brothers and Shoreline Pacific agree to accept the right to
receive the Merger Consideration allocated to them as satisfaction of all claims
that they may have to fees under their respective engagement letters with
Seragen in respect of the Closing. Seragen is required, however, to reimburse
Lehman Brothers at or before the Closing for out-of-pocket expenses incurred by
Lehman Brothers in connection with its prosecution of its engagement with
Seragen.
Seragen covenants not to alter the terms of the Merger Agreement relating
to the allocation of Merger Consideration or otherwise adversely affecting the
rights of any Compromising Claimant without the written consent of all of the
Compromising Claimants.
Each of the Compromising Claimants releases Seragen and STI and their
current and past directors, officers, employees, agents, representatives,
successors and assigns from any and all claims relating to any act, omission or
circumstance through the date of the Accord Agreement. The release does not,
however, extend to claims under the Merger Agreement or the Accord Agreement, to
claims for directors' or officers' indemnification, or to claims for unpaid
salary, reimbursable business expenses, severance, employee benefits, or the
like. The release becomes effective only upon the Merger Closing.
The Accord Agreement terminates only upon the termination of the Merger
Agreement.
Until the termination of the Accord Agreement, each of the parties
thereto agrees to forbear from exercising any right or remedy that is the
subject of the Accord Agreement or any stock option or warrant that any such
party may hold. Each Compromising Claimant further agrees not to assign,
transfer or encumber any right, title or interest it may have in (a) any claims
that it is settling, resolving or releasing pursuant to the Accord Agreement,
(b) any shares of Seragen Series B Preferred Stock, STI Class B Common Stock, or
any warrants or options issued by Seragen, or (c) any agreement to which it and
Seragen or STI are parties.
Each of the parties to the Accord Agreement gives certain representations
and warranties regarding its right and authority to enter into the Accord
Agreement.
Marathon and the other affiliates of BU that are parties to the Option
and Purchase Agreement (the "BU Parties") represent and warrant that each of the
representations and warranties made by the BU Parties in the Option and Purchase
Agreement are true and correct and agree to comply with the terms of the Option
and Purchase Agreement through the date of the Merger Closing.
Each of the Compromising Claimants other than Lehman Brothers and
Shoreline Pacific agrees to indemnify, up to each such Compromising Claimant's
pro rata share of a $1.0 million aggregate limit, the BU Parties against claims
made against them pursuant to certain representations and warranties made by the
BU Parties in the Option and Purchase Agreement through the Merger Closing, but
only to the extent such claims arise as a result of or relate to matters not
known to Mr. Condon or other officers of BU or its subsidiaries other than
Marathon.
Ligand and its successors and assigns are designated as intended
beneficiaries of the terms of the Accord Agreement.
AGREEMENTS AMONG LILLY, LIGAND AND SERAGEN
Seragen entered into a strategic alliance with Lilly in 1994 to develop
DAB(389)IL-2 for cancer. At that time, Lilly and Seragen entered into a Sales
and Distribution Agreement, which was subsequently amended (the "Sales
Agreement") and a Development Agreement, which was subsequently amended (the
"Development Agreement", and collectively with the Sales Agreement, the "Seragen
Agreements"). The Lilly alliance has provided Seragen with
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funding to take its first product through Phase III clinical trials for CTCL.
Through this alliance, as amended in April 1997, Lilly has exclusive worldwide
rights to develop and promote DAB(389)IL-2 for the treatment of cancer, as well
as to serve as Seragen's sole distributor for intravenous and intramuscular
formulations of DAB(389)IL-2 for cancer indications, except in certain Asian
countries. Lilly also has the right to serve as Seragen's sole distributor for
intravenous and intramuscular formulations of DAB(389)IL-2 for non-cancer
indications except in certain Asian countries and member countries of the
European Union.
In November 1997, Ligand and Lilly entered into a strategic alliance for
the discovery and development of products based upon Ligand's IR technology. The
collaboration focuses on products with broad applications across metabolic
diseases, including diabetes, obesity, dislipidemia, insulin resistance and
cardiovascular diseases associated with insulin resistance and obesity. Under
the alliance Lilly received worldwide, exclusive rights to Targretin and other
Ligand compounds and technology associated with the RXR receptor for use in the
treatment of all medical indications other than cancer and dermatology. Lilly
received additional rights to use Ligand technology to develop an RXR compound
in combination with a SERM in cancer. Ligand retained exclusive rights to
independently research, develop and commercialize Targretin and other RXR
compounds in the fields of cancer and dermatology. Lilly also received
worldwide, exclusive rights in certain areas to Ligand's PPAR technology, along
with rights to use PPAR research technology with the RXR technology. Lilly and
Ligand also intend to begin research programs aimed at discovering novel
compounds which therapeutically activate PPAR subtypes for treatment of
cardiovascular disease. Finally, Lilly received exclusive rights to Ligand's
HNF4 receptor and the obesity gene promoter technology. Ligand will receive
double-digit royalties on net sales of the most advanced products and
single-digit royalties on net sales of earlier-stage compounds. Ligand will also
receive milestone payments, royalties and options to obtain certain
co-development and co-promotion rights for the Lilly-selected RXR compound in
combination with a SERM.
Under the Option and Wholesale Purchase Agreement between Lilly and
Ligand entered into in November 1997 (the "Wholesale Agreement"), Ligand has the
option to obtain selected rights to DAB(389)IL-2. Should Ligand elect to obtain
selected rights to the product, Lilly could receive milestone payments of up to
$20.0 million in Ligand Common Stock. In the event that Ligand does not exercise
this product option, Ligand could sell an additional $20.0 million in equity to
Lilly at a 20% premium to the then market price, and Ligand would qualify for
certain additional royalties of up to 1.5% on Lilly's net sales of Ligand's
choice of Targretin, LGD1268 or LGD1324 (the "Cash/Royalty Option").
Letter Agreement among Lilly, Ligand and Seragen
As a condition to Ligand's willingness to enter into the Merger
Agreement, Lilly and Seragen agreed to enter into the Letter Agreement with
Ligand in which Seragen gave its consent to the assignment of the Seragen
Agreements by Lilly to Ligand in the following circumstances: (a) if the Closing
occurs prior to the receipt of Governmental Approval, or (b) if Governmental
Approval is received prior to the Closing and Ligand is in compliance with the
best efforts requirement under Section 5.9 of the Merger Agreement. Ligand is
deemed to be in compliance with Section 5.9 if Seragen fails to notify Ligand
and Lilly within two business days of receipt of Governmental Approval that
Ligand is not in compliance.
In addition, Seragen and Lilly agreed, pursuant to the Letter Agreement,
to amend the Seragen Agreements to provide for an amended milestone payment to
Seragen upon receipt of Governmental Approval of DAB(389)IL-2 in the United
States. Finally, Seragen agreed that it would, effective upon the assignment of
the Seragen Agreements, (a) release Lilly and Ligand from liabilities and
obligations arising from the execution and delivery of the Wholesale Agreement
and (b) release Lilly from liabilities and obligations arising from the sale and
use of DAB(389)IL-2 after the effective date of assignment.
Agreement between Lilly and Ligand (and following the Closing, Seragen)
An Agreement, dated May 11, 1998, was entered into between Lilly and
Ligand (and following the Closing, Seragen) (the "Lilly Agreement") providing
for the assignment, under certain circumstances, of Lilly's rights and
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obligations under the Seragen Agreements to Ligand and, in connection with that
assignment, restructured financial terms relating to DAB(389)IL-2.
Assignment of Seragen Agreement; Effect on the Wholesale Agreement. The
Lilly Agreement provides for the assignment of the Seragen Agreements if the
Closing occurs prior to the first Governmental Approval in a jurisdiction in
which Ligand or any affiliate or sublicensee of Ligand's elects to market
DAB(389)IL-2 (the "Regulatory Approval"). In addition, the Lilly Agreement gives
Ligand the right, within 15 days following receipt of the first Regulatory
Approval, to elect to proceed with the assignment of the Seragen Agreements. If
the first Regulatory Approval is received on or before January 31, 1999, Ligand
may also elect, within that time frame, to exercise the Cash/Royalty Option. If
the first Regulatory Approval is received after January 31, 1999, Ligand's only
option other than the assignment of the Seragen Agreements is to terminate the
Lilly Agreement (in which case the Wholesale Agreement will be deemed
terminated).
Ligand also has the option, if it is not in compliance with Section 5.9
of the Merger Agreement, to exercise certain options available to it under the
Wholesale Agreement. If the Merger Agreement is terminated prior to Regulatory
Approval, the Lilly Agreement will have no further force or effect and Ligand's
sole options will be as set forth in the Wholesale Agreement.
Payment of Preclinical, Clinical and Registration Expenses. Lilly agreed
to reimburse Ligand or Seragen, as the case may be depending in part on the
timing of the Closing, for certain costs incurred in connection with submission
of clinical data and the seeking of approvals for such submissions (the "Product
Costs") and amounts paid in relation to the completion of Seragen's CTCL
clinical protocols 04-11 and 04-14 following any Final FDA Approval.
Waiver of U.S. Approval Milestone. Lilly is obligated pursuant to the
Sales Agreement to provide Seragen with a milestone payment after first
Regulatory Approval of DAB(389)IL-2 in the United States (the "US Approval
Milestone"). Lilly and Ligand have agreed that Ligand will (on behalf of
Seragen) waive payment of the US Approval Milestone if such US Approval
Milestone becomes due and payable following the Closing. In the event that the
US Approval Milestone becomes due and payable on or prior to the Closing, Lilly
agreed to make timely payment of the US Approval Milestone and, following the
Closing, Ligand agreed to repay Lilly a portion of such milestone.
Ligand Payments to Lilly Upon Product Development and Commercial
Milestones. Ligand agreed to make payments to Lilly upon the achievement of
certain product development and commercial milestones. Ligand also agreed to
make additional payments to Lilly if the Seragen Agreements have been assigned
and thereafter the Merger Agreement is terminated. These milestone payments may
be made in the form of cash or Ligand Common Stock, as determined by Ligand in
its sole discretion.
Forgiveness of Bulk Prepayment. Pursuant to the Seragen Agreements, Lilly
paid to Seragen $5.0 million to be repaid via a credit against Bulk Sales Price
(as defined in the Seragen Agreements) due Seragen by Lilly under the Sales
Agreement (the "Bulk Prepayment"). Lilly has agreed that it will, following the
Closing, forgive the entire amount of the Bulk Prepayment.
Ligand Payment of Royalties to Lilly. Ligand agreed to pay Lilly
royalties based on worldwide net sales of DAB(389)IL-2 for all indications, with
no royalties due for sales made during calendar years 1998 and 1999, even if
sales are actually made during such calendar years.
Ligand Sublicense of Rights of Certain Territories. In lieu of, and not
in addition to, Ligand's obligation to pay royalties on net sales, in the event
that Ligand outlicenses rights to DAB(389)IL-2 in a territory other than North
America or Europe, Ligand agreed to pay Lilly a portion of the net upfront,
milestone, technology access or other cash payments received by Ligand from the
sublicensee and a portion of the net royalty payments received by Ligand.
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Lilly Fill/Finish of Product. Lilly agreed to perform the final
formulation, sterile filling, packaging and labeling of the bulk DAB(389)IL-2
supplied by Seragen or Ligand (the "Fill/Finish") for a period of five years
after the earlier of the date of first commercial sale of DAB(389)IL-2 or the
Closing.
Additional Agreements by Lilly. Until the earlier of the closing of the
Lilly Agreement or the termination of the Lilly Agreement under its terms, Lilly
agreed not to amend, terminate or agree to terminate the Seragen Agreements, or
take any action that would give rise to a right of termination by Seragen under
the Seragen Agreements or deliver the Option Termination Notice (as defined in
the Wholesale Agreement) without the prior written consent of Ligand, which
consent can be withheld at Ligand's sole discretion, unless and until Lilly's
costs and expenses exceed the sum of (a) $6.85 million and (b) Product Costs
(collectively, the "Cap"); provided, however, that Lilly will remain subject to
the restrictive provisions described herein if Ligand bears all costs and
expenses as described herein in excess of the Cap.
Termination. The Lilly Agreement will terminate (i) in the event that the
effective date of such agreement does not occur on or prior to January 31, 1999;
provided in the event that Ligand or Seragen has exercised the Extension Option
such date will be extended upon each exercise of the Extension Option to the
then-effective termination date of such Extension Option; or (ii) if the Merger
Agreement is terminated prior to the first commercial sale of DAB(389)IL-2 after
receipt of Regulatory Approval, on the date on which the Merger Agreement is
terminated.
LOCK-UP AGREEMENTS
In connection with the execution of the Merger Agreement, each of BU,
Lilly, Lehman Brothers and the executive officers of Seragen entered into
lock-up agreements with regard to Ligand Common Stock to be issued in the
Merger.
BU Lock-Up. BU has agreed that until the later of (i) the second
anniversary of the Effective Time and (ii) the first anniversary of the date of
such issuance, BU will not, without the prior written consent of Ligand,
directly or indirectly, sell, transfer or otherwise dispose of or offer or
contract to sell, transfer or otherwise dispose of ("Sell"), any of the portion
of the shares of Ligand Common Stock issued in the Merger to BU as Stakeholder
Closing Consideration or Stakeholder Milestone Consideration (each as defined
below). The restrictions against the disposition of Ligand Common Stock
described above do not apply to any Ligand Common Stock issued (i) as part or
all of the $3,769,863 of consideration due BU in accordance with the Merger
Agreement and the Accord Agreement, (ii) as part or all of the $2,132,329 of
consideration due Marathon in accordance with the Merger Agreement and the
Accord Agreement, and (iii) as consideration under the Option and Purchase
Agreement to the Sellers under that agreement.
Lilly Lock-Up. Lilly has agreed that through November 25, 1998 (the
"Initial Restricted Period"), neither Lilly nor any affiliate of Lilly will,
directly or indirectly, sell, offer to sell, contract to sell (including,
without limitation, any short sale) grant any option to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any such shares of Ligand Common Stock. In addition, Lilly agrees that during
the one-year period beginning as of the last day of the Initial Restricted
Period, neither Lilly nor any affiliate of Lilly will, directly or indirectly,
sell, offer to sell, contract to sell (including, without limitation, any short
sale) grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any of such shares of Ligand
Common Stock other than in compliance with the volume restrictions then set
forth under Rule 144 (or its successor rule) promulgated under the Act (even if
such volume limitations are not applicable to Lilly under such rule).
Seragen Financial Advisers' Lock-Ups. Lehman Brothers and Shoreline
Pacific have agreed that until 90 days following such issuance, they will
not, without the prior the written consent of Ligand Sell any of the shares of
Ligand Common Stock, of which, as a result of the Merger, each becomes the
beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act).
Management Lock-Up. Each of Mr. Prior, Mr. Crane, Dr. Nichols and Ms.
Chen (collectively, "Management"), has agreed that until 90 days following such
issuance, each of Management will not, without the
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prior written consent of Ligand, Sell one-half of the shares of the Ligand
Common Stock, of which, as a result of the Merger, each of Management becomes
the beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act),
including, without limitation, any shares of the Ligand Common Stock delivered
to the Escrow Agent (as defined below) pursuant to the Merger Agreement.
ESCROW AGREEMENTS
Stakeholder Escrow Agreement. The Stakeholder Escrow Agreement, to be
dated as of the Closing Date (the "Stakeholder Escrow Agreement"), will be
entered into by Lehman Brothers, Shoreline Pacific, BU Holding, Mr. Prior, Dr.
Nichols, Ms. Chen, Mr. Crane, Mr. Hirsch, Ms. Josefsen, Mr. Cassidy and Mrs.
Cassidy (collectively, the "Variable Company Stakeholders"), Ligand, Merger Sub,
Seragen and State Street Bank and Trust Company, a Massachusetts trust company,
or another escrow agent mutually acceptable to the parties ("Escrow Agent").
Pursuant to the terms of the Merger Agreement and subject to the execution of
the Stakeholder Escrow Agreement by the Variable Company Stakeholders, Ligand,
Merger Sub, Seragen and Escrow Agent, Ligand will be required to deliver to the
Escrow Agent (i) $200,000 in cash (out of the Closing Consideration) and (ii)
all revenues of Seragen, including without limitation, (a) returns of prepaid
deposits, insurance premiums, the remaining balance in any bank accounts or
other amounts and (b) any payments received from Lilly on or after the Closing
Date whether in respect of amounts reimbursed to Seragen by Lilly in the normal
course of business or one-time milestone payments, of any kind or nature that
are received after the Closing but would be required or permitted by generally
accepted accounting principles applied in a consistent manner with the past
practice of Seragen to be reflected as assets on a consolidated balance sheet
for Seragen and its subsidiaries as of the Closing Date (collectively,
"Preclosing Company Revenues"); provided revenues of Seragen derived from
Seragen's contracts with Lilly will only be included in Preclosing Company
Revenues (i) if, with respect to reimbursements, such reimbursements relate to
amounts actually paid by Seragen prior to the Effective Time or (ii) if, with
respect to the milestone due from Lilly upon Regulatory Approval of DAB(389)IL-2
in the United States, such milestone becomes due on or before the Closing Date
and is not paid on or before the Closing Date.
Ligand will be required to deliver to the Escrow Agent the $200,000 in
cash by the Closing Date, and, after the Closing Date, Ligand will be required
to cause the Surviving Corporation to promptly transmit all Preclosing Company
Revenues to the Escrow Agent as and when such Preclosing Company Revenues are
received by the Surviving Corporation. Within 15 business days after the end of
each calendar month, Ligand will be required to provide Mr. Crane and BU
Holding, as agents for the Variable Company Stakeholders (each, a "Stakeholder
Agent"), and the Escrow Agent with an accounting certified by the Chief
Financial Officer of Ligand of all Preclosing Company Revenues received by the
Surviving Corporation during such month. Within 15 business days after the end
of each calendar month, the Escrow Agent will be required to provide a statement
to each of the Stakeholder Agents describing any activities with respect to the
$200,000 in cash and the Preclosing Company Revenues (collectively, the
"Escrowed Amount"). The Escrow Agent will be required to invest the Escrowed
Amount in such current interest bearing account as the Stakeholder Agents
jointly instruct. In the absence of such instruction, the Escrow Agent has no
obligation to invest the Escrow Amount.
The Escrow Agent will be required to distribute the Escrowed Amount to
the Variable Company Stakeholders on the first business day after the 120th day
following the Closing Date in accordance with the percentages set forth in the
Stakeholder Escrow Agreement. If, before the 120th day following the Closing
Date, the Escrow Agent receives a notice from Ligand that there are outstanding
Preclosing Company Payables (as defined below), the Escrow Agent will be
required to withhold from distribution a portion of the Escrowed Amount equal to
the amount of the outstanding Preclosing Company Payables until the Escrow Agent
receives (i) a written statement from Ligand setting forth the amount and nature
of each Preclosing Company Payable and (ii) a true and complete copy of the
invoice and any other documentation supporting each such Preclosing Company
Payable, each of (i) and (ii) as certified by Ligand's chief financial officer
(a "Final Determination"). If either Stakeholder Agent disputes the Final
Determination within 30 days of receipt of such Final Determination, then the
Escrow Agent will not be permitted to distribute the Preclosing Company Payables
until such dispute has been settled and the Stakeholder Agent and Ligand have
provided the Escrow Agent with written notice of settlement or the Stakeholder
Agent or Ligand has provided the Escrow Agent with the final opinion of a court
or arbitration panel of competent
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jurisdiction from which no appeal can be taken setting forth the amount, if any,
to be paid in respect of the disputed Preclosing Company Payables.
Preclosing Company Payables will consist of all payables of Seragen from
the date of the Merger Agreement through the time of the Closing, including,
without limitation, (i) Seragen's severance obligations to its employees
terminated at or prior to the Closing (subject to such employees' execution of a
general release and waiver in a form reasonably acceptable to Seragen),
including, without limitation, its executive officers; (ii) premiums payable in
connection with an extension of the existing directors' and officers' liability
insurance of Seragen for two years following the Closing Date at a cost to
Seragen not to exceed $350,000; (iii) fees payable to Seragen's outside legal
counsel and accountants, but only upon delivery of a bill marked final from each
such counsel and accountant; and (iv) other expenses incurred in connection with
the Merger, other than fees (but not the expenses) of Shoreline Pacific and
Lehman Brothers; provided Preclosing Company Payables will not include
distributions of any Merger Consideration to be made to BU and Marathon which
are made in full and complete satisfaction of BU and Marathon payables under the
Service Agreement pursuant to the Accord Agreement.
Ligand, Merger Sub, Seragen and each of the Variable Company Stakeholders
will, jointly and severally, agree to indemnify the Escrow Agent from and
against any loss, liability or expense of any nature incurred by the Escrow
Agent arising out of or in connection with the Stakeholder Escrow Agreement or
the Escrow Agent's performance of its duties thereunder, unless such loss,
liability or expense is caused by the Escrow Agent's gross negligence, bad faith
or willful misconduct. Any dispute arising with respect to the Preclosing
Company Receivables or the Preclosing Company Payables will be required to be
settled by mutual written agreement of the parties concerned or to be submitted
to the Boston, Massachusetts office of a nationally recognized accounting firm
other than Ernst & Young LLP or Arthur Andersen LLP for resolution in accordance
with the procedures set forth in Section 5.13 of the Merger Agreement. All other
disputes will be required to be settled either by mutual written agreement of
the parties concerned or by binding arbitration, or by a final order, decree or
judgment of a court of competent jurisdiction in the United States.
Executive Escrow Agreement. An Executive Escrow Agreement (the "Executive
Escrow Agreement") will be entered into by Mr. Prior, Mr. Crane, Dr. Nichols
(each an "Executive," and collectively the "Executives"), Ligand, Merger Sub,
Seragen and Escrow Agent as of the Closing Date. Under the Executive Escrow
Agreement, Ligand will agree to deliver or to cause the Surviving Corporation to
deliver to the Escrow Agent on the Milestone Date, the following amounts: (i)
$319,000 (the "Prior Escrow Amount"), (ii) $66,900 (the "Nichols Escrow Amount")
and (iii) $20,000 (the "Crane Escrow Amount") (collectively, the Prior Escrow
Amount, the Nichols Escrow Amount and the Crane Escrow Amount referred to as the
"Executive Escrowed Amount"), such Executive Escrowed Amount to be paid out of
the Milestone Consideration. The Executive Escrow Amount will be used to
compensate Ligand or the Surviving Corporation for any tax liability that may
arise in connection with compensation paid to the Executives by Seragen.
RESALE OF LIGAND COMMON STOCK; AFFILIATES
The Ligand Common Stock to be issued to the Seragen stockholders pursuant
to the Merger Agreement will be freely transferable under the Act, except for
shares issued to any person who may be deemed to be an "affiliate" of Seragen or
Ligand within the meaning of Rule 145 under the Act ("Affiliate"). Persons who
may be deemed to be Affiliates of Seragen or Ligand generally include
individuals or entities that through one or more intermediaries, control, are
controlled by or are under common control with, respectively, Seragen or Ligand
and may include certain officers, directors and principal stockholders of,
respectively, Seragen or Ligand. Affiliates of Seragen or Ligand will not be
able to sell, pledge or otherwise transfer any Ligand Common Stock issued
pursuant to the Merger Agreement, except pursuant to an effective registration
statement or in compliance with Rule 145 or another exemption from the
registration requirements of the Act.
The certificates evidencing Ligand Common Stock issued to Affiliates of
Seragen or Ligand will bear a legend summarizing the restrictions on resale
imposed on their Ligand Common Stock.
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REGULATORY REQUIREMENTS
BU is a charitable, non-profit corporation. Its operations and
investments are subject to review and monitoring by the Attorney General of the
Commonwealth of Massachusetts. The Public Charities Division of the
Massachusetts Attorney General's office was notified by BU of the proposed
Merger and, in response to such notification, provided counsel to BU with a
letter, dated May 11, 1998, to the effect that it will not be taking action to
prevent the Merger.
Other than the effectiveness of the Registration Statement and the
decision of the Office of the Attorney General of the Commonwealth of
Massachusetts, Public Charities Division, not to take action to prevent the
Merger, notice of which was received on May 11, 1998, Seragen and Ligand are not
aware of any federal, state or foreign governmental or regulatory approval that
is required in order to consummate the Merger. Should any such approval be
required, it is currently contemplated that such approval would be sought.
APPRAISAL RIGHTS
Holders of record of Seragen Capital Stock who do not vote in favor of
the Merger Agreement and the Merger and who otherwise comply with the
requirements of Section 262 summarized herein will be entitled to appraisal
rights under the DGCL. A person having a beneficial interest in shares of
Seragen Capital Stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX
B. ALL REFERENCES IN THE SAID SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR
"HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF SERAGEN CAPITAL STOCK AS TO
WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Seragen Capital Stock ("Appraisal
Shares") who follow the procedures set forth in Section 262 will be entitled to
have their Appraisal Shares appraised by the Delaware Chancery Court and to
receive payment in cash of the "fair value" of such Appraisal Shares, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, as determined by such
court.
However, if demands for appraisal rights are made with respect to 10% or
more of the outstanding shares of Seragen Capital Stock, Ligand will have no
obligation to consummate the Merger and, if for this reason, or any other
reason, the Merger is not consummated, then no Seragen stockholder will be
entitled to appraisal rights.
Under Section 262, where a proposed merger is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, must notify each of its stockholders who was such on the
record date for such meeting with respect to shares to which appraisal rights
are available, that appraisal rights are so available, and must include in such
notice a copy of Section 262. This Proxy Statement/Prospectus constitutes such
notice to the holders of Appraisal Shares and the applicable statutory
provisions of the DGCL are attached to this Proxy Statement/Prospectus as
Appendix B. Any Seragen stockholder who wishes to exercise such appraisal rights
or who wishes to preserve his right to do so should review the following
discussion and Appendix B carefully, because failure to comply timely and
properly with the procedures specified will result in the loss of appraisal
rights under the DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS MUST (1) NOT VOTE IN FAVOR OF THE MERGER AGREEMENT AND (2) DELIVER TO
SERAGEN PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT THE SERAGEN MEETING TO BE
HELD ON AUGUST 12, 1998, A WRITTEN DEMAND FOR SUCH HOLDER'S APPRAISAL RIGHTS. A
HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS
MUST
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BE THE RECORD HOLDER OF SUCH APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE AND MUST CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD
UNTIL THE CONSUMMATION OF THE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES
WHO IS THE RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO
THE CONSUMMATION OF THE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF
SUCH APPRAISAL SHARES. A PROXY OR VOTE AGAINST THE APPROVAL OF THE MERGER
AGREEMENT DOES NOT IN ITSELF CONSTITUTE A DEMAND FOR APPRAISAL RIGHTS.
Only a holder of record of Appraisal Shares is entitled to assert
appraisal rights for the Appraisal Shares registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as such holder's name appears on such holder's stock
certificate. If the Appraisal Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Appraisal Shares are owned of record
by more than one person as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker who holds
Appraisal Shares as nominee for several beneficial owners may exercise appraisal
rights with respect to the Appraisal Shares held for one or more beneficial
owners while not exercising such rights with respect to the Appraisal Shares
held for other beneficial owners; in such case, the written demand should set
forth the number of Appraisal Shares as to which appraisal is sought. When no
number of Appraisal Shares is expressly mentioned, the demand will be presumed
to cover all Appraisal Shares held in the name of the record owner. Stockholders
who hold their Appraisal Shares in brokerage accounts or other nominee forms and
who wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO SERAGEN,
INC., 97 SOUTH STREET, HOPKINTON, MASSACHUSETTS 01748, ATTENTION: ROBERT W.
CRANE.
Within 10 days after the consummation of the Merger, the Surviving
Corporation will notify each stockholder who has properly asserted rights under
Section 262 and has not voted in favor of the Merger Agreement as of the date
the Merger became effective.
Within 120 days after the consummation of the Merger but not thereafter,
the Surviving Corporation or any stockholder who has complied with the statutory
requirements summarized above and who is otherwise entitled to appraisal rights
may file a petition in the Delaware Chancery Court demanding a determination of
the value of the Appraisal Shares. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262. Notwithstanding the foregoing, at any
time within 60 days after the consummation of the Merger any stockholder who has
complied with the requirements of Section 262 may withdraw his demand for
appraisal rights and accept the terms of the Merger.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of Appraisal Shares not voted in
favor of the Merger and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Appraisal Shares. Such
statements must be mailed to such requesting stockholder within 10 days after a
written request therefor has been received by the Surviving Corporation or
within 10 days after expiration of the period for delivery of demands for
appraisal prescribed by Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Appraisal Shares as
determined under Section 262 could
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be more than, the same as or less than the value of the consideration they would
receive pursuant to the Merger Agreement if they did not seek appraisal of their
Appraisal Shares and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court should be considered in the
appraisal proceedings. The Delaware Chancery Court will determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
Appraisal Shares have been appraised. The costs of the action may be determined
by the Delaware Chancery Court and taxed upon the parties as the Delaware
Chancery Court deems equitable. The Delaware Chancery Court may also order that
all or a portion of the expenses incurred by any stockholder in connection with
an appraisal, including, without limitation, reasonable attorneys fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger). If any stockholder who properly demands appraisal of his Appraisal
Shares under Section 262 fails to perfect, or effectively withdraws or loses,
his right to appraisal, as provided in the DGCL, the Appraisal Shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such Appraisal Shares in accordance with the Merger
Agreement. A stockholder will fail to perfect, or effectively lose or withdraw
his right to appraisal if, among other things, no petition for appraisal is
filed within 120 days after the consummation of the Merger, or if the
stockholder delivers to the Surviving Corporation a written withdrawal of his
demand for appraisal. Any such attempt to withdraw an appraisal demand more than
60 days after the consummation of the Merger will require the written approval
of the Surviving Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH
RESPECT TO SUCH APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF SECTION 262, SERAGEN STOCKHOLDERS
WHO ARE CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
See "Comparison of Rights of Holders of Ligand and Seragen Stockholders."
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Appendix C to this Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Seragen are urged to carefully read the Merger Agreement in its entirety for a
more complete description of the Merger. The Merger Agreement, rather than the
summary set forth herein, will control the terms of the Merger and the rights of
the parties and the stockholders of Seragen thereunder.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by the stockholders of Seragen and the satisfaction or waiver of the
other conditions to the Merger Agreement, Merger Sub will be merged with and
into Seragen. Upon consummation of the Merger, the separate corporate existence
of Merger Sub will end, and Seragen will continue as the surviving corporation
and as a wholly-owned subsidiary of Ligand.
CLOSING DATE AND EFFECTIVE TIME
Unless the Merger Agreement is terminated or the parties agree to another
time, the Closing will take place no later than five business days following the
satisfaction or waiver of the conditions set forth in Article VI of the Merger
Agreement. On the Closing Date, Ligand and Seragen will consummate the Merger by
filing a Certificate of Merger with the Secretary of State of the State of
Delaware. See "--Conditions to Closing."
CERTIFICATE; BYLAWS; DIRECTORS AND OFFICERS
The Merger Agreement provides that the Certificate of Incorporation and
the Bylaws of Merger Sub in effect immediately prior to the Effective Time will
become the Certificate of Incorporation and the Bylaws of the Surviving
Corporation. The Merger Agreement also provides that the directors and officers
of Merger Sub immediately prior to the Effective Time will become the directors
and officers of the Surviving Corporation.
MERGER CONSIDERATION
As consideration for Ligand's acquisition of Seragen through the Merger,
Ligand has agreed to pay to holders of shares of Seragen Capital Stock and
certain creditors and obligees of Seragen the Merger Consideration. The Merger
Consideration is to be paid as follows: (a) at the Closing, $30.0 million,
payable in the form of cash in the amount of $4.0 million and approximately
1,858,800 shares of Ligand Common Stock valued at $13.9875 per share (the
average closing price of the Ligand Common Stock on the Nasdaq National Market
for the five trading days prior to the announcement of the Merger) or $26.0
million in the aggregate; (b) in the event Final FDA Approval is received on or
before the Second Closing Anniversary, or in the event Final FDA Approval is not
received by the Second Closing Anniversary and Ligand has not satisfied certain
obligations to undertake activities to obtain Final FDA Approval, the Milestone
Consideration on the Milestone Date. The Milestone Consideration, if any, may be
paid in the form of cash, shares of Ligand Common Stock or a combination of both
as determined by Ligand in its sole discretion. Any shares of Ligand Common
Stock issued in satisfaction of the Milestone Consideration will be valued at
the average of the closing prices of Ligand Common Stock on the Nasdaq National
Market for the 10 trading days immediately preceding the date of issuance of
such Ligand Common Stock. Ligand may, in its sole discretion, increase the
amount of cash paid as Closing Consideration solely to cover certain amounts
payable by Seragen as of the Closing, in which case the Closing Consideration
payable in shares of Ligand Common Stock will be correspondingly reduced. In the
event Final FDA Approval has not been received by the Second Closing Anniversary
and Ligand has not breached certain obligations to undertake certain activities
to obtain Final FDA Approval, Ligand will be relieved of all obligations to pay
the Milestone Consideration.
In the event that Final FDA Approval is not obtained by the Closing Date,
and additional clinical tests and studies or other activities are necessary to
obtain Final FDA Approval, Ligand is obligated (i) to perform such activities so
as to facilitate the earliest possible receipt of Final FDA Approval, subject to
certain cost limitations,
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and (ii) to accept any Phase IV commitment based on (A) Seragen's CTCL clinical
protocols 04-11 and/or 04-14, or (B) substitute studies, subject to certain cost
limitations, if the FDA conditions Final FDA Approval on an accelerated basis
upon such commitment. Ligand has also agreed not to make any change prior to the
Milestone Date with respect to the manufacturing processes, standard operating
procedures, work force or facilities and equipment of the Surviving Corporation
or Marathon that could reasonably be expected to adversely affect the prospects
for, or delay, the receipt of Final FDA Approval. In addition, Ligand has agreed
to use "commercially reasonable efforts" (as defined in the Merger Agreement)
(i) to perform, or cause to be performed, all other tests, studies and other
activities and (ii) to take, or cause to be taken, all other actions, as are
necessary or appropriate to obtain Final FDA Approval by the Milestone Date.
Finally, Ligand must perform all of the activities described in this paragraph
in good scientific manner, and in compliance in all material respects with all
requirements of applicable laws, rules and regulations, and must proceed
diligently to obtain Final FDA Approval by allocating sufficient time, effort,
equipment, and skilled personnel to complete such activities successfully and
promptly.
Closing Consideration. The Closing Consideration is allocated under the
terms of the Merger Agreement as follows:
Closing Consideration Allocated to Holders of Seragen Common Stock.
Subject to the terms and conditions of the Merger Agreement, at the Effective
Time, holders of Seragen Common Stock entitled to receive Merger Consideration
will receive shares of Ligand Common Stock at a rate of 0.035746 shares of
Ligand Common Stock for each share of Seragen Common Stock. The number of shares
of Ligand Common Stock that holders of Seragen Common Stock will receive as
Closing Consideration will be automatically adjusted to reflect any stock
splits, dividends, stock combinations, reverse splits or similar changes in
Ligand Common Stock between the date of the Merger Agreement and the date Ligand
Common Stock included in the Closing Consideration is issued pursuant to the
Merger Agreement. No Closing Consideration will be allocable, except as
described below, in respect of the 3,360,625 shares of Seragen Common Stock
received by BU's subsidiary, BU Holding, in connection with the March 30, 1998
automatic conversion of Seragen Series C Preferred Stock held by BU Holding.
Closing Consideration Allocated to Holders of Seragen Series D
Preferred Stock. Certain Closing Consideration is allocated to holders of
Seragen Series D Preferred Stock. As of the date hereof, all shares of Seragen
Series D Preferred Stock have, however, been converted into shares of Seragen
Common Stock in accordance with their terms. Accordingly, no shares of Seragen
Series D Preferred Stock will be outstanding as of the Closing.
Allocation of Balance of Closing Consideration. The balance of the
Closing Consideration remaining after the distribution of Closing Consideration
to holders of Seragen Common Stock will be allocated as follows:
Escrow. A $200,000 amount of the cash portion of the Closing
Consideration will be placed in escrow pursuant to the Stakeholder Escrow
Agreement, to be held and applied in accordance with the terms of such agreement
to pay and satisfy specified obligations of Seragen. See "Description of the
Merger--Escrow Agreements--Stakeholder Escrow Agreement."
Preclosing Company Payables. The remaining cash will be
applied to the extent necessary, after application of all cash held by Seragen
at Closing, to pay and satisfy the Preclosing Company Payables as follows:
first, to obligees of Preclosing Company Payables other than the Executives, pro
rata; and, second, to the Executives, pro rata. In the event that the cash
portion of the Closing Consideration is not sufficient to satisfy the Preclosing
Company Payables of the Executives, such Preclosing Company Payables are
required to be satisfied using Ligand Common Stock deliverable as Closing
Consideration.
USSC. A $5,000,000 portion of the Closing Consideration is
required to be delivered to USSC in respect of USSC's claims under the USSC
License Agreement and its warrants for the purchase of Seragen Common Stock.
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BU. A $3,769,863 portion of the Closing Consideration is
required to be delivered to BU in respect of amounts owed by Seragen to BU as
Technology Service Fees under the Service Agreement for the period February 14,
1997, through December 31, 1997. A further $500,000 portion of the Closing
Consideration is required to be delivered to BU in respect of claims that BU and
BU Holding may have (a) to a cash payment in the amount of $4.6 million arising
from the March 30, 1998 automatic conversion of Seragen Series C Preferred Stock
held by BU's subsidiary BU Holding and (b) in respect of the 3,360,625 shares of
Seragen Common Stock issued to BU Holding in connection with the aforesaid
conversion.
Marathon. A $2,132,329 portion of the Closing Consideration is
required to be delivered to Marathon in respect of amounts owed by Seragen to
Marathon as Technology Service Fees under the Service Agreement for the period
January 1, 1998, through June 30, 1998.
Stakeholder Closing Consideration. Closing Consideration
remaining after the allocation of the foregoing amounts ("Stakeholder Closing
Consideration") is to be allocated as follows: (a) approximately 34.07 percent
of the Stakeholder Closing Consideration to BU Holding in respect of its claims
as owner of 11,800 shares of Seragen Series B Preferred Stock and certain
warrants; (b) approximately 20.21 percent of the Stakeholder Closing
Consideration to Mr. Hirsch in respect of his claims as owner of 7,000 shares of
Seragen Series B Preferred Stock and certain warrants; (c) approximately 8.66
percent of the Stakeholder Closing Consideration to Ms. Josefsen in respect of
her claims as owner of 3,000 shares of Seragen Series B Preferred Stock and
certain warrants; (d) approximately 5.78 percent of the Stakeholder Closing
Consideration to Mr. Cassidy and Mrs. Cassidy in respect of their claims as
owner of 2,000 shares of Seragen Series B Preferred Stock and certain warrants;
(e) approximately 3.39 percent of the Stakeholder Closing Consideration to
Lehman Brothers in respect of its claims for professional fees; (f)
approximately 1.70 percent of the Stakeholder Closing Consideration to Shoreline
Pacific in respect of its claims for professional fees; (g) approximately 13.92
percent of the Stakeholder Closing Consideration, subject to certain
qualifications, to Mr. Prior in respect of his claims under the terms of his
employment agreement with Seragen to receive an Asset Value Realization Bonus in
respect of the Merger and his claims with respect to certain stock options; (h)
approximately 4.50 percent of the Stakeholder Closing Consideration, subject to
certain qualifications, to Dr. Nichols in respect of her claims under the terms
of her employment agreement with Seragen to receive an Asset Value Realization
Bonus in respect of the Merger and her claims in respect of certain stock
options; (i) approximately 3.28 percent of the Stakeholder Closing
Consideration, subject to certain qualifications, to Ms. Chen in respect of her
claims under the terms of her employment agreement with Seragen to receive an
Asset Value Realization Bonus in respect of the Merger and her claims in respect
of certain stock options; and (j) approximately 4.50 percent of the Stakeholder
Closing Consideration, subject to certain qualifications, to Mr. Crane in
respect of his claims under the terms of his employment agreement with Seragen
to receive an Asset Value Realization Bonus in respect of the Merger and his
claims in respect of certain stock options.
Milestone Consideration. The Milestone Consideration is allocated under
the terms of the Merger Agreement as follows:
Milestone Consideration Allocated to Holders of Seragen Common
Stock. Subject to the terms and conditions of the Merger Agreement, at the
Milestone Date, if and only if the Milestone Consideration becomes payable,
holders of Seragen Common Stock entitled to receive Merger Consideration will
receive, for each share of Seragen Common Stock that they hold as of the
Effective Time, Milestone Consideration at the rate of $0.23 per share of
Seragen Common Stock. The number of shares of Ligand Common Stock that holders
of Seragen Common Stock will receive as Milestone Consideration will be
automatically adjusted to reflect any stock splits, dividends, stock
combinations, reverse splits or similar changes in Ligand Common Stock between
the date of the Merger Agreement and the date Ligand Common Stock included in
the Milestone Consideration, if any, is issued pursuant to the Merger Agreement.
No Milestone Consideration will be allocable, except as described below, in
respect of the 3,360,625 shares of Seragen Common Stock received by BU Holding
in connection with the March 30, 1998 automatic conversion of Seragen Series C
Preferred Stock held by BU Holding.
Milestone Consideration Allocated to Holders of Seragen Series D
Preferred Stock. Certain Milestone Consideration is allocated to holders of
Seragen Series D Preferred Stock. As of the date hereof, all shares of Seragen
Series D Preferred Stock have, however, been converted into shares of Seragen
Common Stock in
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accordance with their terms. Accordingly, no shares of Seragen Series D
Preferred Stock will be outstanding as of the Closing.
Allocation of Balance of Milestone Consideration. The balance of the
Milestone Consideration remaining after the distribution of Milestone
Consideration to holders of Seragen Common Stock will be allocated as follows:
BU and BU Holding. A $1,070,766 portion of the Milestone
Consideration is required to be delivered to BU in respect of amounts owed by
Seragen to BU as Technology Service Fees under the Service Agreement for the
period February 14, 1997, through December 31, 1997. A further $4,500,000
portion of the Milestone Consideration is required to be delivered to BU Holding
in respect of claims that BU and BU Holding may have (a) to a cash payment in
the amount of $4.6 million arising from the March 30, 1998 automatic conversion
of Seragen Series C Preferred Stock held by BU Holding and (b) in respect of the
3,360,625 shares of Seragen Common Stock issued to BU Holding in connection with
the aforesaid conversion.
Marathon. A portion of the Milestone Consideration equal to
the sum of (a) $103,730, plus (b) $11,780.82 multiplied by the number of days
elapsed between June 30, 1998 (exclusive of such date) and the Closing Date
(inclusive of such date) is required to be delivered to Marathon in respect of
amounts owed by Seragen to Marathon as Technology Service Fees under the Service
Agreement for the period January 1, 1998, through the Closing Date.
Stakeholder Milestone Consideration. Milestone Consideration
remaining after the allocation of the foregoing amounts ("Stakeholder Milestone
Consideration") is to be allocated as follows: (a) approximately 34.07 percent
of the Stakeholder Milestone Consideration to BU Holding in respect of its
claims as owner of 11,800 shares of Seragen Series B Preferred Stock and certain
warrants; (b) approximately 20.21 percent of the Stakeholder Milestone
Consideration to Mr. Hirsch in respect of his claims as owner of 7,000 shares of
Seragen Series B Preferred Stock and certain warrants; (c) approximately 8.66
percent of the Stakeholder Milestone Consideration to Ms. Josefsen in respect of
her claims as owner of 3,000 shares of Seragen Series B Preferred Stock and
certain warrants; (d) approximately 5.78 percent of the Stakeholder Milestone
Consideration to Mr. Cassidy and Mrs. Cassidy in respect of their claims as
owner of 2,000 shares of Seragen Series B Preferred Stock and certain warrants;
(e) approximately 3.39 percent of the Stakeholder Milestone Consideration to
Lehman Brothers in respect of its claims for professional fees; (f)
approximately 1.70 percent of the Stakeholder Milestone Consideration to
Shoreline Pacific in respect of its claims for professional fees; (g)
approximately 13.92 percent of the Stakeholder Milestone Consideration, subject
to certain qualifications, to Mr. Prior in respect of his claims under the terms
of his employment agreement with Seragen to receive an Asset Value Realization
Bonus in respect of the Merger and his claims with respect to certain stock
options; (h) approximately 4.50 percent of the Stakeholder Milestone
Consideration, subject to certain qualifications, to Dr. Nichols in respect of
her claims under the terms of her employment agreement with Seragen to receive
an Asset Value Realization Bonus in respect of the Merger and her claims in
respect of certain stock options; (i) approximately 3.28 percent of the
Stakeholder Milestone Consideration, subject to certain qualifications, to Ms.
Chen in respect of her claims under the terms of her employment agreement with
Seragen to receive an Asset Value Realization Bonus in respect of the Merger and
her claims in respect of certain stock options; and (j) approximately 4.50
percent of the Stakeholder Milestone Consideration, subject to certain
qualifications, to Mr. Crane in respect of his claims under the terms of his
employment agreement with Seragen to receive an Asset Value Realization Bonus in
respect of the Merger and his claims in respect of certain stock options.
Agreement by Compromising Claimants to Accept Merger Consideration;
Discounts Accepted by Discounted Claimants. Pursuant to the Accord Agreement,
the Compromising Claimants agreed, in order to facilitate the Merger, to accept
the right to receive Merger Consideration as specified above in satisfaction of
certain of their claims against Seragen. The amount of Merger Consideration
allocated to the Discounted Claimants under the terms of the Merger Agreement
constitutes what Seragen management expects to be a discount of from 25% to 40%
(with the exact amount of the discount depending on the date of the Closing and
the amount of Seragen's payables as of the Closing) on amounts otherwise owed by
Seragen to such persons in respect of their relevant claims. In addition, the
Discounted Claimants have agreed to accept Milestone Consideration, as opposed
to the right to receive Closing Consideration, as partial payment for a
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portion of their relevant claims, thereby subjecting what Seragen management
expects to be from 80% to 90% of the Discounted Claimants' right to receive
Merger Consideration to the contingency associated with the Milestone
Consideration and also, in the likely event the Milestone Consideration does not
become payable by the time of the Closing, to some delay. See "Description of
the Merger--Accord Agreement."
EXCHANGE OF CERTIFICATES
Prior to the Effective Time, Ligand will designate a bank or trust
company with assets of not less than $500 million to act as the Exchange Agent.
Ligand will make available to the Exchange Agent (i) the Closing Consideration
allocable to the holders of Seragen Common Stock on or before the Closing Date
and (ii) the Milestone Consideration, if any, allocable to the holders of
Seragen Common Stock on or before the Milestone Date.
Promptly after the Effective Time, the Surviving Corporation will cause
to be mailed to each holder of record of the Certificates (i) a letter of
transmittal (which will specify that delivery shall be effected, and risk of
loss and title to the Certificates is to pass, only upon delivery of the
Certificates to the Exchange Agent and is to be in such form and have such other
provisions as Ligand may reasonably specify) and (ii) instructions for effecting
the surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Ligand, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate will be entitled to receive
in exchange for the Certificate the portion of the Merger Consideration due such
holder as and when the Exchange Agent receives the Merger Consideration with
respect to the shares of Seragen Common Stock represented by such Certificate,
and the Certificate that such holder surrenders will be canceled. Subject to the
provision below, each outstanding Certificate that, prior to the Effective Time,
represented shares of Seragen Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the right to receive the
portion of the Merger Consideration due the holder of such Certificate as and
when the Exchange Agent receives the Merger Consideration with respect to the
shares of Company Common Stock represented by such Certificate.
No dividends or other distributions with respect to Ligand Common Stock
declared or made after the date such shares are to be distributed to the holders
of the Seragen Common Stock and with a record date after such date will be paid
to the holder of any outstanding Certificate with respect to the shares of
Ligand Common Stock represented by such outstanding Certificate until the holder
of record of such Certificate has surrendered such Certificate. Subject to
applicable law, following surrender of any such Certificate, there will be paid
to the record holder of the certificates representing whole shares of Ligand
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions payable with respect
to such whole shares of Ligand Common Stock with a record date after the date
such shares of Ligand Common Stock are to be delivered by Ligand to the Exchange
Agent for distribution to the holders of the Seragen Common Stock. The
provisions of the foregoing sentence are in addition to, and not by way of
limitation of, the valuation formulas set forth in the Merger Agreement for
determining the value of Ligand Common Stock issued as part of the Closing
Consideration and the Milestone Consideration, if any. See "The Merger
Agreement--Merger Consideration."
If any certificate for shares of Ligand Common Stock is to be issued in a
name other than the name under which the Certificate surrendered in exchange is
registered, such shares of Ligand Common Stock will be issued only if the
Certificate that is surrendered (i) is properly endorsed and otherwise in proper
form for transfer and (ii) the person requesting such exchange has paid to
Ligand or any agent designated by Ligand any transfer or other taxes required by
reason of the issuance of a certificate for shares of Ligand Common Stock in any
name other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Ligand or any agent designated by it that
such tax has been paid or is not payable.
FRACTIONAL SHARES
No fractional shares of Ligand Common Stock will be issued in connection
with the Merger, but in lieu thereof, each holder of shares of Seragen Capital
Stock who would otherwise be entitled to receive a fraction of a share of Ligand
Common Stock will receive from Ligand an amount of cash equal to the average
closing price of
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a share of Ligand Common Stock on the Nasdaq National Market for the five
consecutive days ending five trading days prior to (i) the day of the Closing
with respect to the Closing Consideration and (ii) the Milestone Date with
respect to the Milestone Consideration, multiplied by the fraction of a share of
Ligand Common Stock to which such holder would otherwise be entitled to receive.
CONDITIONS TO CLOSING
The obligations of Ligand and Seragen to consummate the Merger are each
subject to the satisfaction of the following conditions: (i) requisite approval
by Seragen's stockholders of the transactions contemplated in the Merger
Agreement; (ii) there having been obtained any and all governmental
authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws, the failure to comply with which
would be reasonably likely to have a Material Adverse Effect on Ligand or
Seragen or would be reasonably likely to subject any of Ligand, Seragen or any
of their respective directors or officers to substantial penalties or criminal
liability; (iii) the effectiveness under the Act of the Registration Statement;
(iv) there being no statute, rule, regulation, executive order, decree,
injunction or restraining order having been enacted, promulgated or enforced
(and not repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger (each
party agreeing to use its best efforts to have any such order, decree or
injunction lifted); (v) the approval upon notice of issuance for listing on the
Nasdaq National Market of the shares of Ligand Common Stock to be issued in the
Merger; and (vi) the decision of the Office of the Attorney General of the
Commonwealth of Massachusetts, Public Charities Division, not to take action to
prevent the Merger, notice of which was received on May 11, 1998, remaining in
full force and effect.
The obligations of Seragen to consummate the Merger are also subject to
the satisfaction of the following conditions: (i) the representations and
warranties of Ligand and Merger Sub contained in the Merger Agreement being true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by the Merger Agreement and except for those
representations and warranties which address matters only as of a particular
date (which must have been true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Ligand, and the delivery of a certificate to Seragen
signed on behalf of Ligand to such effect; (ii) Ligand and Merger Sub having
performed and complied with all of their respective covenants contained in the
Merger Agreement in all material respects on or before the Effective Time; (iii)
the receipt of all written consents, approvals and waivers other than those the
failure of which to obtain would not have a Material Adverse Effect on Ligand or
Merger Sub, as the case may be; and (iv) Seragen having received an opinion of
Brobeck, Phleger & Harrison LLP, counsel to Ligand and Merger Sub, in
substantially the form and substance previously provided to Seragen's counsel.
The obligations of Ligand and Merger Sub to consummate the Merger are
also subject to satisfaction of the following conditions: (i) the
representations and warranties of Seragen contained in the Merger Agreement
being true and correct in all material respects on and as of the Closing Date,
except for changes contemplated by the Merger Agreement and except for those
representations and warranties which address matters only as of a particular
date (which must have been true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Seragen or Ligand, and the delivery of a certificate
to Ligand and Merger Sub signed on behalf of Seragen to such effect; (ii)
Seragen having performed and complied with all of its covenants contained in the
Merger Agreement in all material respects on or before the Effective Time; (iii)
the receipt of all written consents, assignments, waivers or authorizations
other than those the failure of which to obtain would not have a Material
Adverse Effect on Seragen; (iv) Ligand having received an opinion of Covington &
Burling, counsel to Seragen, in substantially the form and substance previously
provided to Ligand's counsel; (v) Seragen having received bills marked as final
from each of its legal counsel and accountants; (vi) there not having occurred
any material adverse change in the business, assets (including intangible
assets), liabilities, financial condition or results of operations of Seragen
since March 31, 1998 (the date of the Company Balance Sheet) which could
reasonably be expected to result in a diminution of the
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value of Seragen by $5.0 million or more; provided, however, that any
developments, or the absence of developments, with respect to the FDA's review
of Seragen's BLA for DAB(389)IL-2 for CTCL will not be a condition to the
obligations of Ligand or Merger Sub under the Merger Agreement, and will not be
included in the determination of any adverse change with respect to Seragen;
(vii) the representations and warranties of Marathon contained in the Option and
Purchase Agreement being true and correct in all material respects on and as of
the Closing Date, except for changes contemplated by the Option and Purchase
Agreement and except for those representations and warranties which address
matters only as of a particular date (which must have been true and correct as
of such date), with the same force and effect as if made on and as of the
Closing Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on Marathon;
(viii) Marathon having performed or complied in all material respects with all
agreements and covenants required under the Option and Purchase Agreement, and
Ligand will have received a certificate to such effect signed by the chief
executive officer of Marathon; (ix) except as otherwise provided in Section
1.8(c) of the Merger Agreement, all Seragen options and warrants of Seragen
having terminated prior to the Closing; (x) the resignation of all of the
members of Seragen's Board and all of its officers; (xi) holders of not more
than 10% of the outstanding shares of Seragen Capital Stock having exercised
appraisal, dissenter's or similar rights under applicable law with respect to
such holders' shares of Seragen Capital Stock by virtue of the Merger, and no
other stockholder of Seragen having any continued right to exercise such
appraisal, dissenter's or similar rights; and (xii) the amendment or termination
of specified license agreements, royalty agreements, service agreements,
marketing and other agreements in a manner satisfactory to Ligand, to ensure
that (A) the consummation of the transactions contemplated under the Merger
Agreement will not constitute a breach by Seragen of such agreement or
assignment as of the Effective Time and (B) the existence of such agreements or
assignments as of the Effective Time will not constitute a breach by Seragen of
any of its representations, warranties, covenants or obligations under the
Merger Agreement.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the stockholders of Seragen, under
the following circumstances: (i) the Merger Agreement may be terminated by the
mutual consent of the Ligand Board, the Seragen Board and the Merger Sub Board;
(ii) either Ligand or Seragen may terminate the Merger Agreement (A) if the
Effective Time has not occurred on or before January 31, 1999; provided,
however, that the right to terminate the Merger Agreement under this provision
will not be available to any party whose willful failure to fulfill any
obligation under the Merger Agreement caused, or resulted in, the failure of the
Effective Time to occur on or before such date; and provided further, that in
the event either Ligand or Seragen has exercised the option under the Extension
Option Agreement such date will be extended upon each exercise of such option to
the then-effective termination of such option extension period, (B) upon a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger or (C) if any statute, rule, regulation or order is
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity that would make consummation of the Merger illegal; (iii)
Ligand may terminate the Merger Agreement if there is any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity which would: (A) prohibit
Ligand's or the Surviving Corporation's ownership or operation of all or any
portion of the business of Seragen or (B) compel Ligand or the Surviving
Corporation to dispose of or hold separate all or a portion of the business or
assets of Seragen or Ligand as a result of the Merger; (iv) Ligand may terminate
the Merger Agreement if it is not in material breach of its obligations under
the Merger Agreement and there has been a material breach of representation,
warranty, covenant or agreement contained in the Merger Agreement on the part of
Seragen and (A) such breach has not been cured within five business days after
written notice to Seragen (provided that, no cure period will be required for a
breach which by its nature cannot be cured), and (B) as a result of such breach
the conditions set forth in Section 6.3(a) or 6.3(b) of the Merger Agreement, as
the case may be, would not then be satisfied; (v) Seragen may terminate the
Merger Agreement if it is not in material breach of its obligations under the
Merger Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement on the part of
Ligand or Merger Sub and (A) such breach has not been cured within five business
days after written notice to Ligand (provided that, no cure period will be
required for a breach which by its nature cannot be cured), and (B) as a result
of such breach the conditions set forth in Section 6.2(a) or 6.2(b) of the
Merger Agreement, as the case may be, would not then be satisfied; (vi) Ligand
may terminate the Merger Agreement if Seragen suffers a Material
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Adverse Effect which could reasonably be expected to result in a diminution of
the value of Seragen by $5.0 million or more, provided, however, a Material
Adverse Effect will not include effects arising from the FDA's review of
DAB(389)IL-2 for CTCL; (vii) either Ligand or Seragen may terminate the Merger
Agreement if Seragen fails to obtain the requisite stockholder approval; (viii)
either Ligand or Seragen may terminate the Merger Agreement if at a meeting of
Seragen stockholders, such stockholders approve an acquisition proposal (see
"--Acquisition Proposals") (other than an acquisition proposal with Ligand);
(ix) Ligand may terminate the Merger Agreement if it is not in material breach
of its obligations under the Merger Agreement and if any Person other than
Ligand or any of Ligand's affiliates purchases a majority of the outstanding
shares of Seragen Common Stock; (x) either Ligand or Seragen may terminate the
Merger Agreement if the other becomes insolvent or seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against such
other party (and not dismissed within 60 days); provided, however, that Seragen
will not be deemed to be insolvent as a result of its failure to pay Marathon
under the Service Agreement for so long as Marathon and BU forbear from the
receipt of such payments or for any period that Marathon and BU are
contractually obligated to so forbear; (xi) Ligand may terminate the Merger
Agreement if it is not in material breach of its obligations under the Merger
Agreement and if the Seragen Board has (A) withdrawn its recommendation of the
Merger, (B) adversely changed its recommendation of the Merger, or (C)
recommended or approved any acceptance by Seragen's stockholders of any
acquisition proposal (other than an acquisition proposal made by Ligand or an
affiliate of Ligand); or (xii) Seragen may terminate the Merger Agreement if
Seragen has received an Acquisition Proposal (other than with respect to Ligand
or an affiliate of Ligand), which the Seragen Board determines, after
consultation with counsel, to recommend to the Seragen stockholders in order to
comply with the fiduciary duty of the Seragen Board.
EXPENSES; TERMINATION FEE
Both Ligand and Seragen will be responsible for paying their respective
fees and expenses incurred in connection with the Merger, including, without
limitation, all Third Party Expenses. Notwithstanding the foregoing, if (i)
Ligand terminates the Merger Agreement because Seragen becomes insolvent or
seeks protection under any bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or if any such proceeding is
instituted against Seragen and not dismissed within 60 days or (ii) Seragen
terminates the Merger Agreement because it has received an Acquisition Proposal
(other than with respect to Ligand or an affiliate of Ligand), which the Seragen
Board determines, after consultation with counsel, to recommend to the Seragen
stockholders in order to comply with the fiduciary duty of the Seragen Board,
then Seragen is obligated to pay Ligand a fee equal to $5.0 million plus 5% of
any additional value over the $67.0 million in Merger Consideration contemplated
under the Merger Agreement, realized by Seragen or its stockholders or its
creditors and obligees in connection with the consummation of an Acquisition
Proposal not related to Ligand or any of its affiliates. Such fee is, in
addition, to be increased by any Marathon losses assumed by Ligand in connection
with its exercise of its option under the Extension Option Agreement to extend
the term of the Merger Agreement and the Service Agreement beyond January 31,
1999.
ACQUISITION PROPOSALS
Seragen has agreed that it and its officers, directors, employees or
other agents will not, directly or indirectly, take any action to solicit,
initiate or encourage the making of any Acquisition Proposal. However, the
Seragen Board may engage in negotiations with, or disclose any information
relating to Seragen or afford access to the properties, books or records of
Seragen to, any person or entity that informs the Seragen Board that it is
considering making, or has made, an Acquisition Proposal. Until the Merger
Agreement is terminated, Seragen may not enter into any agreement to merge or
consolidate with, or sell a substantial portion of its assets to, any person or
entity. Seragen has the right to terminate the Merger Agreement if Seragen
receives an Acquisition Proposal which the Seragen Board determines, after
consultation with counsel, to recommend to the security holders of Seragen in
order to comply with the fiduciary duty of the Seragen Board. Seragen has agreed
to notify Ligand promptly after receipt of any Acquisition Proposal or any
request for information relating to Seragen in connection with an Acquisition
Proposal or for access to the properties, books or records of Seragen by any
person or entity that informs the Seragen Board that it is considering making,
or has made, an Acquisition Proposal.
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CONDUCT OF BUSINESS PENDING MERGER
During the period from the date of the Merger Agreement and continuing
until the earlier of the termination of the Merger Agreement and the Effective
Time, Seragen has agreed (except to the extent that Ligand may otherwise consent
in writing) to carry on its business in the usual, regular and ordinary course
in substantially the same manner as it had conducted its business prior to the
date of the Merger Agreement and, to the extent consistent with such business,
to use all reasonable efforts consistent with past practice and policies to
preserve intact its business organization, keep available the services of its
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, and others having business dealings with it,
all with the goal of preserving unimpaired its goodwill and ongoing businesses
at the Effective Time. Seragen has agreed to promptly notify Ligand of any event
or occurrence or emergency not in the ordinary course of its business, and any
material event involving or adversely affecting Seragen or its business.
Except as expressly contemplated by the Merger Agreement or the Accord
Agreement, Seragen has agreed not to do any of the following without the prior
written consent of Ligand: (i) enter into any commitment, activity or
transaction that creates an obligation that will continue to bind Seragen or any
of its subsidiaries after the Closing Date, which commitment, activity or
transaction is not in the ordinary course of business as conducted on Seragen's
condensed balance sheet as of March 31, 1998 and consistent with Seragen's past
practices; (ii) transfer to any person or entity any rights to "Company
Intellectual Property" (as defined in the Merger Agreement); (iii) enter into,
amend, willfully violate the terms of, fail to perform under or terminate any
material agreement, including, without limitation, any agreement pursuant to
which (A) any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any of Seragen's products or
drug candidates or (B) Seragen is granted exclusive rights in a geographical
area or field of use; (iv) amend or otherwise modify (or agree to do so), except
in the ordinary course of business consistent with Seragen's past practices, or
willfully violate the terms of, any of the material agreements set forth or
described in Seragen's disclosure schedules to the Merger Agreement; (v) amend
or otherwise modify (or agree to do so), or willfully violate the terms of, any
contracts, licenses and agreements to which Seragen or any of its subsidiaries
is a party currently in effect (A) with respect to Company Intellectual Property
licensed or offered to any third party or (B) pursuant to which a third party
has licensed or transferred any Company Intellectual Property to Seragen or to
any of its subsidiaries; (vi) settle or compromise, or agree to settle or
compromise, any suit or other litigation matter or matter in an arbitration
proceeding for any material amount (after taking into account any insurance
proceeds to which Seragen is entitled) or otherwise on terms which would have a
material adverse effect on Seragen; (vii) except as contemplated by the Accord
Agreement, declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Seragen
Capital Stock, or split, combine or reclassify any Seragen Capital Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Seragen Capital Stock, or repurchase, redeem
or otherwise acquire, directly or indirectly, any shares of Seragen Capital
Stock (or options, warrants or other rights exercisable therefor); (viii) grant,
deliver or sell or authorize or propose the issuance, grant, delivery or sale
of, or purchase or propose the purchase of, any shares of securities of Seragen,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities; except for (A) the issuance of shares of Seragen Capital
Stock upon exercise or conversion of options or warrants of Seragen outstanding
on the date of the Merger Agreement, (B) options required to be issued by
Seragen pursuant to employment or consultant agreements with certain key
executive officers and consultants in effect as of the date of the Merger
Agreement, or (C) additional options exercisable into not more than 200,000
shares of Seragen Common Stock, in the aggregate; (ix) cause or permit any
amendments to its Certificate of Incorporation or Bylaws; (x) acquire or agree
to acquire by merging or consolidating with, or by purchasing any assets or
equity securities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of Seragen; (xi) knowingly
fail in any material respect to comply with any laws, ordinances, regulations or
other governmental restrictions applicable to Seragen; (xii) sell, lease,
license or otherwise dispose of any of its properties or assets except in the
ordinary course of business and consistent with past practice; (xiii) make loans
or advances or incur any indebtedness for borrowed money or guarantee or
otherwise become responsible for any such indebtedness or guarantee such
indebtedness or issue or sell any of its debt securities or guarantee, endorse
or otherwise become responsible for the obligations of others; (xiv) grant any
severance or termination pay to any director, officer, employee or consultant,
except
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(A) payments made pursuant to written agreements outstanding as of the date of
the Merger Agreement or (B) other payments disclosed on the schedules to the
Merger Agreement; (xv) adopt or amend any employee benefit plan, program, policy
or arrangement, or enter into any employment contract, extend any employment
offer, pay or agree to pay any special bonus or special remuneration to any
director, employee or consultant in excess of an aggregate of $75,000, or
increase the salaries or wage rates of its employees, except pursuant to
payments under the Accord Agreement; (xvi) revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business and consistent
with past practice, so as to result in a material adverse effect to Seragen;
(xvii) pay, discharge or satisfy, in an amount in excess of $10,000 in any one
case, or $25,000 in the aggregate, any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements
(as defined in the Merger Agreement), other than fees and expenses incurred by
Seragen in connection with the Merger; (xviii) fail to pay taxes when due, make
or change any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, enter into any closing agreement, settle
any claim or assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of taxes to the extent that any of the foregoing would have a material adverse
effect on Seragen; (xix) enter into any strategic alliance, joint development or
joint marketing arrangement or agreement; (xx) fail to pay or otherwise satisfy
its monetary obligations as they become due, except such as are being contested
in good faith and except such obligations as are due under the Service
Agreement; (xxi) waive or commit to waive any rights with a value in excess of
$10,000 in any one case, or $25,000 in the aggregate; (xxii) cancel, modify,
reduce or renew at rates not substantially similar to those rates in recent
prior years any of its existing liability insurance, including without
limitation existing directors' and officers' liability insurance, except an
extension of the existing directors' and officers' liability insurance for two
years following the Closing Date at a cost to Seragen not to exceed $350,000,
which extension Seragen shall be free to obtain without the consent of Ligand or
Merger Sub; (xxiii) alter, or enter into any commitment to alter, Seragen's
interest in any corporation, association, joint venture, partnership or business
entity in which Seragen directly or indirectly holds an interest on the date of
the Merger Agreement; and (xxiv) take or agree to take any of the foregoing
actions or any other action that would prevent Seragen from performing or cause
Seragen not to perform its covenants under the Merger Agreement.
Except as expressly contemplated by the Merger Agreement, Ligand has
agreed not to do the following without prior written consent from Seragen: (i)
adopt any changes to the Ligand Certificate and Ligand's Amended and Restated
Bylaws (the "Ligand Bylaws") or (ii) take any action that would result in a
failure to maintain the trading of Ligand Common Stock on the Nasdaq National
Market without causing its Common Stock to be listed for trading on a national
securities exchange at or prior to the termination of its trading on the Nasdaq
National Market.
Ligand and Seragen have also agreed to give each other reasonable access
to their respective books and records, to notify each other with specific
material events and to use reasonable efforts to consult with each other before
making public announcements.
TREATMENT OF WARRANTS AND STOCK OPTIONS
At the Effective Time, the GATX Warrant will be assumed by Ligand in
accordance with the terms of such warrant. Ligand will also assume warrants to
purchase up to 281,751 shares of Seragen Common Stock (at an exercise price of
$10.00 per share) to the extent such warrants are not terminated by their terms
as a result of the effectiveness of the Merger. The remaining warrants to
purchase Seragen Capital Stock outstanding prior to the Merger will be
terminated immediately prior to the Merger.
All options or agreements entitling the holder to purchase capital stock
of Seragen will be completely accelerated prior to the Effective Time and will
expire on the Effective Time unless previously exercised. Ligand will not assume
any such options.
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DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that Ligand will cause the Surviving
Corporation to maintain without any reduction in scope or coverage the
indemnification provisions for present and former officers and directors
contained in Seragen's Restated Bylaws. In addition, Ligand will cause to be
maintained in effect for the remainder of its term the current policy of
directors' and officers' liability insurance maintained by Seragen. After the
expiration of such policy, Ligand will use its reasonable efforts to either
extend the current policy or cause the directors and officers of Seragen, as of
May 10, 1998, to be covered by directors' and officers' liability insurance
comparable to that maintained from time to time for the benefit of the directors
and officers of Ligand.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Seragen has made certain representations and
warranties concerning, among other things, corporate existence and power,
corporate authorization, governmental consents and approvals, noncontravention,
capitalization, subsidiaries and joint ventures, Commission filings, financial
statements, disclosure documents, absence of certain changes, no undisclosed
material liabilities, litigation, taxes, employee benefits, intellectual
property, labor matters, compliance with laws, real property and other leases,
environmental matters, finders' fees, opinions of financial advisors,
restrictions on business activities, title to properties, absence of liens and
encumbrances, insurance, agreements, contracts and commitments, interested party
transactions, minute books, relationships with suppliers and licensors, permits
and licenses, debarment, third party expenses, employees and distribution of
Merger Consideration. Ligand and Merger Sub also have made certain
representations and warranties concerning, among other things, corporate
existence and power, corporate authorization, SEC filings, financial statements,
absence of material adverse changes, litigation, subsidiaries and joint
ventures, compliance with laws and minute books.
All representations and warranties in the Merger Agreement will survive
the consummation of the Merger Agreement and will terminate on the third
anniversary of the Merger Agreement; provided, however, (i) that the
representations and warranties regarding Seragen's, Ligand's and Merger Sub's
corporate existence and power, corporate authorization and capital structure
will survive indefinitely after the Closing Date and (ii) Seragen's
representation and warranty regarding its taxes will survive the Closing Date
until the expiration of all applicable tax statutes of limitations plus one
year.
Ligand has the right to reduce the Milestone Consideration, if any, due
each of BU Holding, Mr. Prior, Dr. Nichols, Ms. Chen, Mr. Crane, Mr. Hirsch, Ms.
Josefsen, Mr. Cassidy and Mrs. Cassidy (each, an "Identified Company
Stakeholder") under the Merger Agreement by such Identified Company
Stakeholder's pro rata portion of all losses, damages, liabilities, obligations,
claims, demands, judgments, settlements, governmental investigations, taxes,
costs and expenses of any nature whatsoever, including the reasonable fees and
expenses of attorneys, accountants and consultants, incurred by Ligand that
result from, arise out of or are attributable to a breach of Seragen's
representations, warranties, covenants and agreements under the Merger Agreement
("Ligand Damages") up to an aggregate amount of $2.9 million above an initial
deductible amount of Ligand Damages of $250,000.
AMENDMENTS AND WAIVERS
Except as otherwise required by applicable law, prior to the Effective
Time, the Merger Agreement may be amended and any term of the Merger Agreement
may be waived by the parties thereto at any time by execution of an instrument
in writing signed on behalf of each of the parties to the Merger Agreement. As
permitted by DGCL Section 251(d), the parties to the Merger Agreement may amend
any term of the Merger Agreement prior to the effective time, provided that an
amendment made subsequent to the adoption of the Merger Agreement by the
stockholders of any constituent corporation may not (i) alter or change the
consideration with respect to such constituent corporation, (ii) alter or change
any term of the certificate of incorporation of the surviving corporation to be
effected by the merger or (iii) alter or change any of the terms and conditions
of the Merger Agreement if such alteration or change would adversely affect the
holders of any class or series thereof of such constituent corporation.
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CONFIDENTIALITY AGREEMENTS
In connection with the Merger, Ligand and Seragen entered into a
confidentiality agreement dated March 17, 1998 (the "Seragen Confidentiality
Agreement") pursuant to which the parties agreed not to disclose or use certain
confidential information of the other party. In the event that one of the
parties (the "Receiving Party") is requested pursuant to, or required by,
applicable law or regulation or by legal process to disclose any confidential
information or any other information concerning the other party (the "Disclosing
Party") or the Merger, such party will, to the extent not prohibited by law,
provide the Disclosing Party with prompt notice of such request or requirement
to enable the Disclosing Party to (i) seek an appropriate protective order or
other remedy, (ii) consult with the Receiving Party with respect to the
Disclosing Party's taking steps to resist or narrow the scope of such request or
legal process or (iii) waive compliance, in whole or in part, with the terms of
the Seragen Confidentiality Agreement. In the event that such protective order
or other remedy is not obtained, or the Disclosing Party waives compliance, in
whole or in part, with the terms of the Seragen Confidentiality Agreement, the
Receiving Party will use commercially reasonable efforts to disclose only that
portion of the confidential information that is legally required to be disclosed
and to ensure that all confidential information so disclosed will, to the extent
permitted by applicable law, be accorded confidential treatment. The Disclosing
Party represents and warrants that it may rightfully disclose or make available
any confidential information without violation of any contractual, legal,
fiduciary or other obligation and the Disclosing Party will indemnify and hold
harmless the Receiving Party against any and all damages, costs and expense
incurred by the Receiving Party in connection with the breach of such
representation and warranty. If either party determines that it does not wish to
proceed with the Merger, or in the event that the Merger is not consummated by
either party, the Receiving Party will, at the Disclosing Party's written
request, promptly deliver to the Disclosing Party all confidential information
of the Disclosing Party and, at the Receiving Party's election, return or
destroy all copies, reproductions, summaries, analyses or extracts thereof. In
the event of litigation relating to the Seragen Confidentiality Agreement, the
breaching party will reimburse the other party for its costs and expenses
incurred in connection with the litigation and the enforcement of the Seragen
Confidentiality Agreement.
Ligand entered into a confidentiality agreement with Marathon dated April
7, 1998, the terms of which were substantively identical to the terms of the
Seragen Confidentiality Agreement described above.
Ligand, Merger Sub and Seragen also entered into a confidentiality
agreement under the Merger Agreement whereby, except as and to the extent
required by law, Ligand, Merger Sub and Seragen agreed not to disclose or use,
and to direct their respective representatives not to disclose or use to the
detriment of the other parties, any Confidential Information (as defined below)
with respect to such other party furnished, or to be furnished, by such other
party or its representatives to the disclosing party or its representatives at
any time or in any manner other than in connection with the transaction
contemplated under the Merger Agreement. For purposes of the Merger Agreement,
"Confidential Information" means any information about Ligand, Merger Sub,
Seragen or any subsidiary or joint venture stamped "confidential" or identified
in writing as such promptly following its disclosure, unless (a) such
information is already known to the party receiving such information or its
representatives or to others not bound by a duty of confidentiality as
demonstrated by its written records or such information becomes publicly
available through no fault of the party receiving such information or its
representatives, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated by the Merger Agreement, or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings; provided that in cases
described above in (b) or (c), the non-disclosing party shall be informed of
such required disclosure prior to its disclosure and shall have the opportunity
to comment on any required disclosure so as to minimize the disclosure of
Confidential Information.
Upon termination of the Merger Agreement, the party receiving any such
Confidential Information will (a) return to the party disclosing the same, or
shall destroy in a manner satisfactory to such disclosing party, all tangible
forms of such Confidential Information, including any and all copies thereof,
and those portions of any documents, memoranda, notes, studies and analyses
prepared by or on behalf of the receiving party or any of its directors,
officers, employees, advisors or representatives that incorporate or are derived
from such Confidential Information, and (b) immediately cease, and will cause
its directors, officers, employees, advisors and representatives to cease,
88.
<PAGE> 95
use of such Confidential Information as well as any information or materials
that incorporate or are derived from such Confidential Information.
89.
<PAGE> 96
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of March 31, 1998 and the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1997 and the three months ended
March 31, 1998 give effect to the proposed Merger as of March 31, 1998 for the
pro forma condensed consolidated balance sheet and as of January 1, 1997 for the
pro forma condensed consolidated statements of operations.
The unaudited pro forma condensed consolidated financial statements are
based on historical financial statements of Ligand and Seragen, giving effect to
the proposed Merger applying the purchase method of accounting and the
assumptions and adjustments as discussed in the accompanying notes to the
unaudited pro forma condensed consolidated financial statements (see Note A).
These unaudited pro forma condensed consolidated financial statements have been
prepared by the management of Ligand based upon the consolidated financial
statements of Ligand and Seragen as of March 31, 1998 (unaudited) and for the
year ended December 31, 1997 and the three months ended March 31, 1998
(unaudited). The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and notes
thereto incorporated by reference or included elsewhere herein. The proposed
Merger requires the affirmative vote of the holders of a majority by voting
power of the outstanding Seragen Capital Stock. Certain stockholders of Seragen
have delivered to Ligand irrevocable proxies covering approximately 57% by
voting power of the outstanding Seragen Capital Stock. The unaudited pro forma
condensed consolidated financial statements are not necessarily indicative of
what actual results of operations would have been for the periods presented had
the transaction occurred on the dates indicated and do not purport to indicate
the results of future operations.
90.
<PAGE> 97
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Seragen
Pro Forma
Adjustments
Ligand Seragen (Note B)
--------- --------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term
investments .................................................. $ 61,782 $ 4,589 $ (4,589)(a)
Restricted cash ................................................ -- 200 (200)(a)
Other current assets ........................................... 2,042 1,721 (1,679)(b)
--------- --------- --------
Total current assets ........................................ 63,824 6,510 (6,468)
Restricted short-term investments .................................. 2,809 -- --
Property, plant and equipment, net ................................. 15,460 13 --
Deferred commission ................................................ -- 2,060 (2,060)(c)
Acquired technology ................................................ -- -- --
Other non-current assets ........................................... 7,360 9 --
--------- --------- --------
$ 89,453 $ 8,592 $ (8,528)
========= ========= ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other liabilities ......................... $ 8,915 $ 1,943 $ (264)(a)
(1,679)(b)
Related party payable .......................................... -- 5,888 (5,888)(d)
Dividend payable - Series B preferred stock .................... -- 3,528 (3,528)(d)
Preferred stock redemption liability ........................... -- 4,530 (4,530)(d)
Deferred revenue ............................................... 2,886 -- --
Current portion of obligations under capital
leases ...................................................... 2,723 -- --
Short-term obligation - Ajinomoto .............................. -- 800 (800)(e)
--------- --------- --------
Total current liabilities ................................... 14,524 16,689 (16,689)
Long-term obligations under capital leases
and equipment notes payable .................................... 8,574 -- --
Long-term obligation ............................................... -- 1,450 (1,350)(e)
Long-term contingent Merger obligations ............................ -- -- --
Deferred revenue - Lilly bulk purchase ............................. -- 5,000 (5,000)(e)
Deferred revenue - USSC option ..................................... -- 5,000 (5,000)(d)
Canadian affiliate put option ...................................... -- 2,400 (2,400)(d)
Convertible note and debentures .................................... 43,546 -- --
--------- --------- --------
Total liabilities .............................................. 66,644 30,539 (30,439)
--------- --------- --------
Stockholders' equity:
Paid-in capital ................................................ 312,451 187,998 21,346 (d)
Adjustment for unrealized losses on available
for sale securities ......................................... 1,642 -- --
Accumulated deficit ............................................ (291,284) (209,945) (2,060)(c)
(4,525)(a)
7,150 (e)
Total stockholders' equity .................................. 22,809 (21,947) 21,911
--------- --------- --------
$ 89,453 $ 8,592 $ (8,528)
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Merger
Seragen Pro Forma Merger
Pro Forma Adjustments Pro Forma
as Adjusted (Note C) As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash, cash equivalents and short-term
investments .................................................. $ -- $ (6,000)(a) $ 55,782
Restricted cash ................................................ -- -- --
Other current assets ........................................... 42 1,500 (b) 3,584
--------- --------- ---------
Total current assets ........................................ 42 (4,500) 59,366
Restricted short-term investments .................................. -- -- 2,809
Property, plant and equipment, net ................................. 13 15,000 (c) 30,473
Deferred commission ................................................ -- -- --
Acquired technology ................................................ -- 35,536 (d) 35,536
Other non-current assets ........................................... 9 -- 7,369
--------- --------- ---------
$ 64 $ 46,036 $ 135,553
========= ========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other liabilities ......................... $ -- $ -- $ 8,915
Related party payable .......................................... -- -- --
Dividend payable - Series B preferred stock .................... -- -- --
Preferred stock redemption liability ........................... -- -- --
Deferred revenue ............................................... -- -- 2,886
Current portion of obligations under capital
leases ...................................................... -- -- 2,723
Short-term obligation - Ajinomoto .............................. -- -- --
--------- --------- ---------
Total current liabilities ................................... 0 0 14,524
Long-term obligations under capital leases
and equipment notes payable .................................... -- -- 8,574
Long-term obligation ............................................... 100 -- 100
Long-term contingent Merger obligations ............................ -- 50,000 (e) 50,000
Deferred revenue - Lilly bulk purchase ............................. -- -- --
Deferred revenue - USSC option ..................................... -- -- --
Canadian affiliate put option ...................................... -- -- --
Convertible note and debentures .................................... -- -- 43,546
--------- --------- ---------
Total liabilities .............................................. 100 50,000 116,744
--------- --------- ---------
Stockholders' equity:
Paid-in capital ................................................ 209,344 (209,344)(f) 338,451
26,000 (f)
Adjustment for unrealized losses on available
for sale securities ......................................... -- -- 1,642
Accumulated deficit ............................................ (209,380) 209,380 (f) (321,284)
(30,000)(g)
--------- --------- ---------
Total stockholders' equity .................................. (36) (3,964) 18,809
--------- --------- ---------
$ 64 $ 46,036 $ 135,553
========= ========= =========
</TABLE>
See accompanying notes to Pro Forma
Condensed Consolidated Financial Statements
91.
<PAGE> 98
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
For the Three Months Ended March 31, 1998
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Merger
Pro Forma Merger
Adjustments Pro Forma
Ligand Seragen (Note D) As Adjusted
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties ........................... $ -- $ -- $ -- $ --
Unrelated parties ......................... 4,974 747 -- 5,721
Other ..................................... 92 -- -- 92
-------- -------- -------- --------
Total revenues ......................... 5,066 747 0 5,813
Costs and expenses:
Research and development and cost of
unrelated parties revenue .................... 14,907 2,242 150(a) 17,891
592(b)
Selling, general and administrative .......... 2,769 606 (117)(c) 3,258
-------- -------- -------- --------
Total operating expenses .................. 17,676 2,848 625 21,149
-------- -------- -------- --------
Loss from operations ...................... (12,610) (2,101) (625) (15,336)
Interest income .................................. 1,052 44 (127)(d) 969
Interest expense ................................. (1,982) -- -- (1,982)
-------- -------- -------- --------
Net loss ..................................... $(13,540) $ (2,057) $ (752) $(16,349)
======== ======== ======== ========
Basic and diluted net loss per share ......... $ (0.35) $ (0.40)
======== ========
Shares used in computing net loss per share ...... 38,565 40,424
======== ========
</TABLE>
- -----------------------
(1) Due to its non-recurring nature, a $30.0 million in-process technology
charge to be recorded by Ligand in conjunction with the proposed Merger for
the estimated fair value of the in-process technologies of Seragen is not
reflected in the above unaudited pro forma condensed consolidated statements
of operations.
See accompanying notes to Pro Forma
Condensed Consolidated Financial Statements
92.
<PAGE> 99
LIGAND PHARMACEUTICALS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(1)
For the Year Ended December 31, 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Merger
Pro Forma Pro Forma
Adjustments Reflecting
Ligand Seragen (Note D) Merger
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties ................................... $ 18,997 $ -- $ -- $ 18,997
Unrelated parties ................................. 32,284 4,714 -- 36,998
Other ............................................. 418 -- -- 418
--------- --------- --------- ---------
Total revenues ................................. 51,699 4,714 -- 56,413
--------- --------- --------- ---------
Costs and expenses:
Research and development and cost of unrelated
parties revenue .................................. 72,426 14,882 (598)(a) 89,079
2,369 (b)
Selling, general and administrative .................. 10,108 5,739 (800)(c) 15,047
Write-off of acquired in-process technology(2) ...... 64,970 -- -- 64,970
--------- --------- --------- ---------
Total operating expenses .......................... 147,504 20,621 971 169,096
--------- --------- --------- ---------
Loss from operations .............................. (95,805) (15,907) (971) (112,683)
Interest income .......................................... 3,743 127 (457)(d) 3,413
Interest expense ......................................... (8,088) (172) 172 (e) (8,088)
--------- --------- --------- ---------
Net loss before extraordinary income ................. $(100,150) $ (15,952) $ (1,256) $(117,358)
========= ========= ========= =========
Basic and diluted net loss per share ................. $ (3.02) $ (3.35)
========= =========
Shares used in computing net loss per share .............. 33,128 34,987
========= =========
</TABLE>
- ----------
(1) Due to its non-recurring nature, a $30.0 million in-process technology
charge to be recorded by Ligand in conjunction with the proposed Merger
for the estimated fair value of the in-process technologies of Seragen is
not reflected in the above unaudited pro forma condensed consolidated
statements of operations.
(2) Write-off of acquired in-process technology recorded by Ligand in 1997
related to Ligand's buyback of Allergan Ligand Retinoid Therapeutics,
Inc. ("ALRT").
See accompanying notes to Pro Forma
Condensed Consolidated Financial Statements
93.
<PAGE> 100
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
NOTE A
As consideration for Ligand's acquisition of Seragen through the Merger, Ligand
has agreed to pay to holders of Seragen Capital Stock and certain creditors and
obligees of Seragen pursuant to the terms of the Merger Agreement the Merger
Consideration, as follows:
1. At the Closing, the Closing Consideration, payable in the form of cash in
the amount of $4.0 million and approximately 1,858,800 shares of Ligand
Common Stock valued at $13.9875 per share (the average closing prices of
the Ligand Common Stock on the Nasdaq National Market for the five
trading days prior to the announcement of the Merger) or $26.0 million in
the aggregate. Ligand may, in its sole discretion, increase the amount of
cash paid as Closing Consideration solely to cover certain amounts
payable by Seragen as of the Closing, in which case the Closing
Consideration payable in shares of Ligand Common Stock will be
correspondingly reduced.
2. In the event Final FDA Approval is received on or before the Second
Closing Anniversary, or in the event Final FDA Approval is not received
by the Second Closing Anniversary and Ligand has not satisfied certain
obligations to undertake activities to obtain Final FDA Approval, the
Milestone Consideration on the Milestone Date. The Milestone
Consideration, if any, may be paid in the form of cash, shares of Ligand
Common Stock or a combination of both as determined by Ligand in its sole
discretion. In the event Final FDA Approval has not been received by the
Second Closing Anniversary and Ligand has not breached certain
obligations to undertake activities to obtain Final FDA Approval, Ligand
will be relieved of all obligations to pay the Milestone Consideration
(See Note E).
Simultaneously with the signing of the Merger Agreement, Ligand entered into the
Option and Purchase Agreement pursuant to which Ligand will acquire the
Purchased Assets from and assume the Assumed Liabilities of Marathon.
Ligand has also entered into the Letter Agreement and Lilly Agreement.
The total cost of the transaction is anticipated to be $82.0 million:
1. including
(a) $30 million payable at the Closing to
(i) creditors and obligees of Seragen pursuant to the terms of the
Merger Agreement and
(ii) holders of Seragen Capital Stock pursuant to the terms of the
Merger Agreement;
(b) $5 million payable for the purchase of the assets of Marathon under
the Option and Purchase Agreement no later than January 31, 1999, as
extended, and liabilities assumed pursuant to the terms of the Option
and Purchase Agreement;
(c) amounts payable after the Merger only in the event of, among other
things, receipt of Final FDA Approval of DAB(389)IL-2 (see Note E),
including
(i) $5.0 million payable to Lilly as a milestone payment pursuant
to the Lilly Agreement,
(ii) $37 million payable to holders of Seragen Capital Stock and
certain creditors and obligees of Seragen pursuant to the
Merger Agreement,
(iii) $3 million payable pursuant to the terms of the Option and
Purchase Agreement; and
(d) $2.0 million of estimated costs and expenses of the Merger; but
2. excluding amounts payable to Lilly as any subsequent milestone payment,
royalties or otherwise pursuant to the Lilly Agreement.
94.
<PAGE> 101
The pro forma consolidated financial statements were derived based on the
following assumptions:
1. at the Closing, Closing Consideration payable in the form of cash in the
amount of $4.0 million and approximately 1,858,800 shares of Ligand
Common Stock valued at $13.9875 per share (the average closing prices of
the Ligand Common Stock on the Nasdaq National Market for the five
trading days prior to the announcement of the Merger) or $26.0 million in
the aggregate;
2. based on receipt of the Complete Review Letter, Ligand records on its
balance sheet as of the Closing Date (i) an intangible asset ("acquired
technology") which will be amortized over the remaining life of the
patents (assumed to be 15 years) and (ii) certain contingent obligations
as liabilities ("long-term contingent Merger obligations"). See Note E;
3. all payments which Ligand may elect to pay in cash, Ligand Common Stock
or a combination of both are assumed to be paid wholly in Ligand Common
Stock.
Ligand will obtain a valuation of the tangible and intangible assets in order to
properly allocate the total purchase price to all of the assets acquired and
liabilities assumed in the Merger as required by Accounting Principles Board
Opinion No. 16. Pending completion of such valuations, Ligand has assigned the
estimated cost to the fair value of net assets acquired, including $30.0
million, to in-process technology. Ligand will record a charge to operations for
the amount of in-process technology immediately following the consummation of
the proposed Merger. This charge has not been reflected in the pro forma
condensed consolidated statement of operations for the year ended December 31,
1997 or the three months ended March 31, 1998.
NOTE B
The pro forma condensed consolidated balance sheet gives effect to certain
adjustments as if they had occurred on March 31, 1998, immediately prior to the
Merger, including the elimination of certain assets and the capitalization of
certain liabilities pursuant to the terms of the Accord Agreement and the
elimination of certain liabilities pursuant to the Seragen Canada Settlement
Agreement and the Lilly Agreement.
These adjustments are summarized as follows (in thousands):
<TABLE>
<S> <C> <C>
(a) Use of cash to pay Seragen related pre-Merger transaction costs and
payables with excess cash distributed to Seragen creditors and
obligees $ (4,789)
(b) Elimination of unbilled and accrued contract research costs (1,679)
(c) Elimination of unamortized deferred commission (2,060)
(d) Capitalization of various short and long-term liabilities and
obligations prior to the Merger (21,346)
(e) Forgiveness of obligations prior to the Merger (7,150)
</TABLE>
NOTE C
The pro forma condensed consolidated balance sheet includes the adjustments
necessary to give effect to the Merger as if it had occurred on March 31, 1998
and reflects the allocation of the cost of the proposed acquisition to the fair
value of net assets acquired; payment of $4 million in cash; issuance of
approximately 1,858,800 shares of Ligand Common Stock valued at $13.9875 per
share (the average closing prices of the Ligand Common Stock on the Nasdaq
National Market for the five trading days prior to the announcement of the
Merger) or $26 million in the aggregate; payment of $2 million in Merger
transaction costs; the accrual of $50 million for long-term contingent Merger
obligations including the Milestone Consideration, the Lilly Milestone Payment
pursuant to the Lilly Agreement, and payments due January 31, 1999 (or later, as
extended) and six months after Final FDA Approval of DAB(389)IL-2 pursuant to
the Option and Purchase Agreement and the Merger Agreement, respectively; and
elimination of Seragen's equity accounts.
95.
<PAGE> 102
These adjustments are summarized as follows (in thousands):
<TABLE>
<S> <C> <C>
(a) Use of cash for Merger and related transaction costs $ (6,000)
(b) Adjustment to fair market value of inventory 1,500
(c) Adjustment to fair market value of Marathon property and equipment 15,000
(d) Valuation of acquired technology 35,536
(e) Long-term contingent Merger obligations 50,000
(f) Issuance of Ligand Common Stock as discussed in Note A and
elimination of Seragen equity accounts 26,000
(g) Estimated charge to operations for in-process technology (30,000)
</TABLE>
NOTE D
The pro forma condensed consolidated statements of operations include the
adjustments necessary to reflect the Merger as if it had occurred on January 1,
1997.
The pro forma adjustments are summarized as follows (in thousands):
<TABLE>
<CAPTION>
For the three For the twelve
months ended months ended
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C> <C>
(a) Adjustment for depreciation resulting from adjusting
the basis of property and equipment to fair market value
and amortization over 25 years $ 150 $ (598)
(b) Amortization of acquired technology over 15 years 592 2,369
(c) Elimination of Seragen stock issuance costs (1997)
and compensation expense amortization (1998) (117) (800)
(d) Elimination of interest income for Seragen and
reduction of Ligand interest income resulting from
use of $6 million for the Merger at an annual
interest rate of 5.5% (127) (457)
(e) Elimination of interest expense related to the
amortization of Seragen's Ajinomoto liability 0 172
</TABLE>
The net loss per share and the shares used in computing the net loss per share
for the year ended December 31, 1997 and the three months ended March 31, 1998
are based upon Ligand's historical weighted average common shares outstanding
for the respective periods adjusted to reflect the issuance of approximately
1,858,800 shares of Ligand Common Stock as described in Note A.
NOTE E
There is no assurance that Final FDA Approval of DAB(389)IL-2 will be received,
or will be received prior to the Second Closing Anniversary.
In the event that Final FDA Approval is not received by the Second Closing
Anniversary and Ligand has not breached certain obligations to undertake
activities to obtain Final FDA Approval, Ligand will be relieved of all
obligations to pay the Milestone Consideration and to pay certain other
contingent payments pursuant to the Option and Purchase Agreement and the Lilly
Agreement. In such an event, the carrying value of Acquired Technology of $35.5
million, inventory of $1.5 million and property, plant and equipment of $15
million would be reduced by
96.
<PAGE> 103
the $45 million of long-term contingent Merger obligations which are no longer
due and payable and the remaining asset value of $7 million would be evaluated
in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."
97.
<PAGE> 104
SERAGEN
BUSINESS
GENERAL
Seragen is a biotechnology company engaged in the discovery and
development of Fusion Proteins. This technology has led to the discovery of a
number of molecules, two of which have been studied in clinical trials for the
treatment of cancers and autoimmune diseases. The description of the business of
Seragen and the related matters discussed herein do not take account of the
Merger and the other transactions described elsewhere in this Proxy
Statement/Prospectus.
In December 1997, Seragen submitted a BLA to the FDA requesting clearance
to market its lead molecule, DAB(389)IL-2, for the treatment of patients with
advanced CTCL who have received previous treatment with other agents. In
February 1998, the FDA notified Seragen that the BLA had been accepted for
filing and designated for "priority" review. In the case of applications for
drugs intended to treat certain life-threatening illnesses, the FDA may choose
to accelerate the review process. On June 2, 1998, Ligand and Seragen announced
that the ODAC had voted favorably on questions put to it by the FDA regarding
the efficacy of, and the acceptability of the incidence and severity of toxicity
associated with, DAB(389)IL-2 for the treatment of patients with recurrent or
persistent CTCL. The ODAC also recommended that treating physicians should
decide the appropriate doses within a prescribed dose range. The ODAC's votes,
although not binding, will be considered by the FDA in its review of the BLA.
See "Risk Factors--Uncertainties Related to Regulatory Review of DAB(389)IL-2
and Panretin Gel." On June 9, 1998, the FDA issued the Complete Review Letter to
Seragen in respect of its BLA. The Complete Review Letter identified certain
deficiencies in the BLA related to safety, efficacy, manufacturing and product
characterization. Seragen is in the process of addressing and responding to the
issues set out in the Complete Review Letter. See "Risk Factors-- Uncertainties
Related to Regulatory Review of DAB(389)IL-2 and Panretin Gel."
Seragen is also conducting clinical trials of the same molecule for the
treatment of moderate-to-severe psoriasis. A Phase II trial for this application
has been completed, and a follow-up Phase I/II dose-escalation trial is under
way. The molecule has also been evaluated in clinical trials for other lymphomas
and leukemias, HIV infection, and rheumatoid arthritis.
A second molecule developed from the same technology, DAB(389)EGF, is in
a Phase I/II clinical trial for solid tumors in patients whose tumors exhibit
the EGF receptor. DAB(389)EGF is also the subject of an agreement with USSC for
collaborative development for restenosis following angioplasty.
Seragen's proprietary Fusion Proteins consist of fragments of diphtheria
toxin genetically fused to a ligand (a targeting and binding mechanism) that
targets specific receptors on the surface of disease-causing cells. The Fusion
Proteins are designed to:
- bind to specific receptors present on the surface of disease-causing
cells;
- penetrate the target cells; and
- destroy the target cells' ability to manufacture proteins, thereby
killing the targeted cells.
Seragen builds its Fusion Proteins from a template based on the genetic
components of the diphtheria toxin molecule. Using this platform, Seragen has
genetically engineered six Fusion Proteins, each of which consists of fragments
of diphtheria toxin fused to a different targeting ligand, such as a polypeptide
hormone or growth factor. Seragen has conducted clinical trials of two proteins,
DAB(389)IL-2 and DAB(389)EGF, for applications in oncology, dermatology, HIV,
and autoimmune disorders. Although it has created four other proteins, namely
DAB(389)IL-4,
98.
<PAGE> 105
DAB(389)IL-6, DAB(389)CD-4, and DAB(389)MSH, for oncology, infectious disease
and autoimmune disorders, Seragen has, at this point, focused its clinical
efforts on its two leading molecules, DAB(389)IL-2 and DAB(389)EGF.
Seragen entered into a strategic alliance with Lilly in 1994. The Lilly
alliance has provided Seragen with funding to take its first product through
Phase III clinical trials for CTCL. Through this alliance, as amended in April
1997, Lilly has exclusive worldwide rights to develop and promote DAB(389)IL-2
for the treatment of cancer, as well as to serve as Seragen's sole distributor
for intravenous and intramuscular formulations of DAB(389)IL-2 for cancer
indications, except in certain Asian countries. Lilly also has the right to
serve as Seragen's sole distributor for intravenous and intramuscular
formulations of DAB(389)IL-2 for non-cancer indications except in certain Asian
countries and member countries of the European Union. All pre-clinical and
clinical programs other than those covered by the Lilly alliance have thus far
been funded by Seragen independently. See "--Strategic Alliance with Eli Lilly
and Company."
Even if the BLA is approved by the FDA, a number of considerations affect
Seragen's business prospects. These include: the currently projected sales
levels for DAB(389)IL-2 in CTCL; the prices that Seragen will receive for the
product from Lilly, its marketing partner for cancer; the royalties Seragen must
pay to other parties for its technology licenses; Seragen's obligation to repay
a $5.0 million advance against future sales; and Seragen's costs for having the
product manufactured. Given these considerations, Seragen does not expect
revenues from DAB(389)IL-2 to cover its operating costs for the foreseeable
future.
Seragen has been looking for a partner to develop DAB(389)IL-2 for
psoriasis. However, Seragen's prospects for such arrangements appear to be
limited. Seragen's management has found that clinical issues associated with the
side effect profile and with intravenous administration of the product, along
with the fact that the same compound has already been partnered for cancer
indications, make it difficult to attract a partner to develop DAB(389)IL-2 for
non-cancer indications. Management of Seragen accordingly believes that it will
continue to be difficult for Seragen to establish advantageous partnerships to
fund further trials of DAB(389)IL-2 for psoriasis or for other autoimmune
diseases. Although Seragen continues to pursue such arrangements, its efforts to
date have been unsuccessful.
As of February 14, 1997, Seragen entered into an agreement to sell its
manufacturing and clinical operations facilities to BU for $5.0 million. The
agreement was approved and ratified by Seragen's stockholders on December 16,
1997, and the transaction was completed on December 31, 1997. Prior to closing,
BU paid Seragen $4.5 million as a deposit and assumed responsibility for the
facility's operations, including responsibility for operating costs. At the
closing, BU paid the remaining $500,000 of the purchase price, and a majority of
Seragen's employees involved in manufacturing and clinical operations became
employees of Marathon.
As of February 14, 1997, Seragen also entered into a service agreement
with BU providing for the purchase by Seragen of certain services related to
product research, development, manufacturing, clinical trials, quality control,
and quality assurance. This service contract expires in January 1999 and is
subject to early termination provisions, as defined, including the option of BU
to terminate the agreement if losses during a contract year exceed $9.0 million
and Seragen does not reimburse BU for the losses in excess of $9.0 million. The
service agreement may be renewed for two successive one-year terms at the option
of Seragen. Seragen has the option to repurchase the assets comprising the
manufacturing and clinical operations facilities. Seragen agreed to pay BU
approximately $5.5 million in contract year 1997. Seragen and BU have negotiated
a reduction in the fees payable for 1998 to $4.3 million based on the actual
services anticipated for 1998. See "--Seragen's Management's Discussion and
Analysis of Financial Condition and Results of Operations." The service
agreement has reduced substantially Seragen's operating costs in research and
development, as Seragen is contracting solely for the services that Seragen
requires for clinical and manufacturing purposes.
Seragen was organized as a Massachusetts corporation in 1979 as a joint
venture between BU and several of its scientific faculty members. It adopted its
present name in 1980 and was reincorporated as a Delaware corporation in
February 1982. Since 1985, Seragen has focused substantially all of its efforts
and resources on research and development of its fusion protein technology. BU
became Seragen's majority stockholder in 1987 and
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was Seragen's principal source of working capital from that time until Seragen's
initial public offering in April 1992. Seragen's executive offices are located
at 97 South Street, Hopkinton, Massachusetts 01748, and its telephone number is
(508) 435-2331.
PRODUCT DEVELOPMENT UPDATE
Seragen's fusion protein technology has led to the discovery of a number
of molecules, two of which have been subjects of clinical trials for the
treatment of cancers and/or autoimmune diseases. In December 1997, Seragen
submitted a BLA to the FDA requesting clearance to market its lead molecule,
DAB(389)IL-2, for the treatment of patients with advanced CTCL who have received
previous treatment with other agents. In February 1998, the FDA notified Seragen
that the BLA had been accepted for filing and designated for "priority" review.
In the case of applications for drugs intended to treat certain life-threatening
illnesses, the FDA may choose to accelerate the review process. On June 2, 1998,
Ligand and Seragen announced that the ODAC had voted favorably on questions put
to it by the FDA regarding the efficacy of, and the acceptability of the
incidence and severity of toxicity associated with, DAB(389)IL-2 for the
treatment of patients with recurrent or persistent CTCL. The ODAC also
recommended that treating physicians should decide the appropriate doses within
a prescribed dose range. The ODAC's votes, although not binding, will be
considered by the FDA in its review of the BLA. See "Risk Factors--Uncertainties
Related to Regulatory Review of DAB(389)IL-2 and Panretin Gel." On June 9, 1998,
the FDA issued the Complete Review Letter to Seragen in respect of its BLA. The
Complete Review Letter identified certain deficiencies in the BLA related to
safety, efficacy, manufacturing and product characterization. Seragen is in the
process of addressing and responding to the issues set out in the Complete
Review Letter. See "Risk Factors--Uncertainties Related to Regulatory Review of
DAB(389)IL-2 and Panretin Gel."
DAB(389)IL-2 is also being investigated in two continuing Phase III
clinical trials. One is investigating the molecule's usefulness in patients with
CTCL who have been less extensively pre-treated than those covered in the BLA;
the other is evaluating the benefit of administration to patients who have
relapsed after previous benefit from the agent, or who had progressive disease
after placebo treatment in the associated trial. DAB(389)IL-2 is also the
subject of a Phase I/II clinical trial for moderate-to-severe psoriasis. A
second molecule developed from the same technology, DAB(389)EGF, is in a Phase
I/II clinical trial for solid tumors in patients whose tumors exhibit the EGF
receptor. DAB(389)EGF is also the subject of an agreement with USSC for
collaborative development for restenosis following angioplasty.
INTERLEUKIN-2 ("IL-2") FUSION PROTEIN (DAB(389)IL-2)
Seragen has designed two versions of an Interleukin-2 fusion protein that
combine the cell-killing action of diphtheria toxin and the specific
cell-targeting ability of the growth factor, IL-2. IL-2 Fusion Proteins bind to
the IL-2 receptor ("IL-2R") on activated lymphocytes and malignant T-cells and
B-cells. Once bound to the surface receptor, the molecule is internalized and
the cell-killing portion of the fusion toxin passes into the cell where it
inhibits protein synthesis, ultimately causing cell death.
DAB486IL-2, Seragen's first version of IL-2 Fusion Protein to be studied,
was evaluated in a series of Phase I/II clinical trials and established
Seragen's rationale for IL-2R targeted therapy. Clinical evaluation of
DAB486IL-2 was discontinued shortly after the development of DAB(389)IL-2
because DAB(389)IL-2 is more potent biologically and more economical to
manufacture.
Cancer
Cancer is characterized by uncontrolled growth of malignant cells capable
of forming secondary tumors or metastases at remote sites. Conventional cancer
therapy includes surgery, chemotherapy and radiation. Patients may be treated
with one of these approaches but are more commonly treated with combinations.
Although chemotherapy and radiation are effective methods for killing cells,
they cannot target specific cells and, therefore, they cause serious adverse
effects in patients. Response rates to cancer therapy vary enormously depending
on the stage of disease and
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the type of cancer. In the case of some solid tumors, early diagnosis and
treatment can result in cures and/or long-term remissions. In later stage
disease, treatment is generally ineffective. New therapies are particularly
needed to induce remission of any meaningful duration in patients with solid
tumors and refractory non-Hodgkin's lymphoma.
Recent efforts to improve cancer therapy have focused on ways to target
malignant cells more selectively. Seragen's receptor-targeted Fusion Proteins
are part of the emerging field of targeted therapeutics, a field which also
includes monoclonal antibodies and receptor antagonists.
Cutaneous T-Cell Lymphoma (CTCL)
CTCL is an infrequent, low-grade, non-Hodgkin's lymphoma, composed of
malignant T-lymphocytes, and typically manifesting in the skin. Worldwide, the
prevalence and incidence are low. Approximately 1,600 patients are newly
diagnosed with CTCL each year, and there are approximately 16,000 CTCL patients
in the United States alone.
There is currently no approved drug therapy for CTCL. CTCL patients
experience significant disability from frequent skin infection, disfigurement,
pruritus (itching), and pain, and the disease is ultimately fatal. Patients with
patch/plaque skin lesions alone are often treated with topical therapies such as
nitrogen mustard, psoralen phototherapy, or electron beam radiation. However,
remission without maintenance therapy is unusual, and patients often experience
acute and chronic adverse effects and may eventually become unresponsive to
these agents. Patients with generalized skin involvement, lymph node
enlargement, and/or visceral involvement require combination and/or systemic
therapies. These therapies (including chemotherapy, interferon-alpha, and/or
retinoids) are variably applied depending on the particular treating center's
experience. Efficacy of these treatments is inconsistent and often associated
with significant short and long term adverse effects. In addition, length of
survival does not appear to be influenced by aggressive combination therapy. No
therapy has been specifically approved by the FDA to treat CTCL, except for
photopheresis, a form of ultra-violet light therapy, which has been approved for
a subset of CTCL patients with erythroderma. There is a critical medical need,
therefore, for additional therapies to manage this malignancy.
CTCL Clinical Trial Status
Seragen has been investigating the safety and effectiveness of IL-2
fusion toxin proteins (DAB486IL-2 and DAB(389)IL-2) in patients with refractory
IL-2 receptor-expressing lymphomas, including CTCL, since 1988. DAB(389)IL-2
treatment courses have consisted of an intravenous infusion of 15-60 minutes
daily for five days, administered either once a month or every three weeks.
Patients were selected for treatment who were no longer experiencing any
clinical benefit from previously administered therapies. Six of 36 patients
treated with the first molecule (DAB486IL-2) demonstrated a response, as
measured by at least a 50% reduction in tumor burden. The duration of response
ranged from three months to more than eight years in one patient who had a
complete response.
Investigation continued in a Phase I/II dose-escalation trial of
DAB(389)IL-2 in which 13 of 35 CTCL patients responded to treatment with at
least a 50% reduction in tumor burden. Five of these patients cleared
completely. Duration of response from the date of first course of treatment with
DAB(389)IL-2 ranged from two to greater than 24 months (as of the latest
available information) with a median duration of 9.1 months; responses occurred
at varying dose levels without a discernible difference in effectiveness among
the doses used. These responses are notable because the patients enrolled in
these early clinical trials had not been receiving any clinical benefit from a
variety of previously administered treatments.
Based on the response rates seen in the Phase I/II patients, Seragen
designed a Phase III program with consultation from oncologists and
dermatologists experienced in treating CTCL. Seragen designed this program
together with its strategic alliance partner, Lilly. See "--Strategic Alliance
with Eli Lilly and Company." The FDA also provided guidance and comments.
Seragen and Lilly finalized the protocol and initiated the Phase III program in
May 1995. The first Phase III study targeted more seriously ill patients who had
received extensive previous
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therapy and needed immediate systemic (as opposed to topical) treatment. The
second Phase III study is a placebo-controlled trial for earlier stage patients
who have received less extensive therapy. Both of these studies have been
randomized and blinded to evaluate two dose levels of DAB(389)IL-2 in different
CTCL patient populations. A companion study is an open-label study for CTCL
patients who have relapsed after a previous response to DAB(389)IL-2, patients
with stable disease after eight courses of therapy in the second study, and
patients who had progressive disease while on placebo in the second study. The
criteria for response in each of these studies have been strictly defined based
on objective, measurable assessments of the patients' disease. Seragen believes
these criteria set the standard for determining meaningful clinical responses
among patients with CTCL.
Enrollment in the first study was completed in July 1996, and
approximately 60% of the number of patients sought have been enrolled in the
second study. Forty-one patients have enrolled in the third study. Enrollment
into the second Phase III study is proceeding slowly and management is uncertain
when full patient accrual will be complete.
In December 1997, Seragen submitted a BLA to the FDA requesting clearance
to market its lead molecule, DAB(389)IL-2, for the treatment of patients with
advanced CTCL who have received previous treatment with other agents. In
February 1998, the FDA notified Seragen that the BLA had been accepted for
filing and designated for "priority" review. In the case of applications for
drugs intended to treat certain life- threatening illnesses, the FDA may choose
to accelerate the review process. On June 2, 1998, Ligand and Seragen announced
that the ODAC had voted favorably on questions put to it by the FDA regarding
the efficacy of, and the acceptability of the incidence and severity of toxicity
associated with, DAB(389)IL-2 for the treatment of patients with recurrent or
persistent CTCL. The ODAC also recommended that treating physicians should
decide the appropriate doses within a prescribed dose range. The ODAC's votes,
although not binding, will be considered by the FDA in its review of the BLA.
See "Rick Factors--Uncertainties Related to Regulatory Review of DAB(389)IL-2
and Panretin Gel." On June 9, 1998, the FDA issued the Complete Review Letter to
Seragen in respect of its BLA. The Complete Review Letter identified certain
deficiencies in the BLA related to safety, efficacy, manufacturing and product
characterization. Seragen is in the process of addressing and responding to the
issues set out in the Complete Review Letter. See "Risk Factors--Uncertainties
Related to Regulatory Review of DAB(389)IL-2 and Panretin Gel."
The FDA has already granted "Orphan Drug" status to DAB(389)IL-2 for the
treatment of CTCL. This designation provides incentives to manufacturers to
undertake development and marketing of products to treat relatively rare
diseases and includes seven-year marketing exclusivity for qualified products.
Investigational results of the first Phase III study, on which the BLA
was partially based, led to the characterization of DAB(389)IL-2 as potentially
having clinically significant anti-tumor effects, even in patients with advanced
CTCL who have received multiple prior therapies. Seventy-one patients with CTCL
who had failed an average of five prior therapies were included in the analysis.
Seragen's preliminary analysis indicates that, overall, 30% of the patients
treated with DAB(389)IL-2 demonstrated a protocol-defined response of 50% or
greater reduction in tumor burden lasting at least six weeks--a response
consistent with results of the earlier Phase I/II study. Preliminary statistical
analysis of the trial results indicated that the true response rate, based on a
95% confidence interval, lies between 18% and 41%. Approximately 10% of all
patients showed complete remission of all evidence of tumor for at least six
weeks. Further analysis indicated that symptoms improved in patients classified
as responders and in a of majority of patients who did not qualify as
responders. Statistically significant differences were also noted in four
measures of quality of life for responders compared to non-responders.
Analysis also revealed that multiple adverse events occurred in the two
(high-dose and low-dose) treatment groups in the Phase III study. All patients
in the study experienced at least one adverse event. Clinical syndromes included
hypersensitivity/infusion-related effects, constitutional (flu-like) symptoms,
and the development of a vascular leak disorder. Rashes were also reported.
Thirty-seven percent of the patients withdrew from the trial because of
adverse events. Some of the adverse events that led to discontinuation of
therapy included infectious complications, cardiovascular changes (unstable
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angina, arrhythmia) and neurological changes (confusion, amnesia). Investigators
pointed out that, in general, the study enrolled older patients who had
advanced-stage disease and who had received multiple prior therapies. They also
noted that patients with CTCL are particularly susceptible to infections because
of the compromised condition of their skin.
Other Potential Cancer Applications
Research indicates that IL-2 receptors are expressed on the surface of
some malignant cells in a variety of T-cell and B-cell leukemias and lymphomas,
including non-Hodgkin's lymphoma and CTCL. The incidence of T-cell and B-cell
leukemias and lymphomas in the United States as of 1995 is set out in Table 1.
Table 1
ESTIMATED NEW BLOOD AND LYMPH CANCER CASES, U.S. 1995
<TABLE>
<S> <C>
Leukemia:
Lymphocytic Leukemia .................................... 11,000
Granulocytic Leukemia ................................... 11,100
Other & Unspecified Leukemia ............................ 3,600
------
Total ............................................... 25,700
Other Blood & Lymph Tissues:
Hodgkin's Disease ....................................... 7,800
Non-Hodgkin's Disease ................................... 50,900
Multiple-Myeloma ........................................ 12,500
------
Total ............................................... 71,200
</TABLE>
Source: A Journal of the American Cancer Society. January/February 1996 -
Vol.46 No.1
Based on research data and screening studies conducted by Seragen,
Seragen estimates that approximately 50% of new patients with leukemias and
lymphomas set forth in Table 1 will have IL-2 receptors on the surface of their
malignant cells. This population of patients represents a potential market for
the use of DAB(389)IL-2 in treating cancer. Seragen believes, however, that
there are new products recently introduced and others being developed by other
companies that present substantial competition in this market.
AUTOIMMUNE DISEASES
To defend the body against foreign agents, the human immune system
employs specialized cells, including T-cells, which recognize disease-causing
viruses, bacteria, and parasites as foreign. T-cells, an important component of
the immune system, control the network of immune responses by regulating the
activity of other cells in the immune system and by killing foreign cells. The
same immune response that protects the body from foreign agents can also cause
disease when it inappropriately attacks the body's own cells and proteins. In
autoimmune diseases, the immune network mistakenly identifies "self" as
"foreign" and, among other actions, produces T-cells that attack normal body
cells. Such prevalent diseases as rheumatoid arthritis, psoriasis, multiple
sclerosis and alopecia areata are autoimmune diseases. The prevalence of
autoimmune diseases in the United States as of 1996 is set forth in Table II.
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Table II
AUTOIMMUNE DISEASE PREVALENCE (U.S.)
------------------
<TABLE>
<S> <C>
Psoriasis (Total) .................................... 6,000,000
Psoriasis (Moderate-to-Severe) ....................... 1,500,000
Rheumatoid Arthritis ................................. 2,500,000
Multiple Sclerosis ................................... 350,000
Alopecia Areata ...................................... 2,000,000
Other ................................................ 1,500,000
</TABLE>
Source: Scientific American Medicine and National Psoriasis Foundation
Conventional approaches for treating autoimmune diseases rely on broadly
active immunosuppressive agents, such as corticosteroids, cyclosporine A, and
methotrexate. These agents do not have specific targets, may be difficult to
tolerate, and are not selective in their suppression of the immune response.
Typically, they must be administered continuously to achieve therapeutic effect;
resistance may develop and/or toxicity may require discontinuation of therapy.
On the basis of limited psoriasis trials conducted to date, Seragen believes
that specifically targeted cytotoxic agents, such as DAB(389)IL-2, could induce
remission in certain autoimmune diseases following a brief course of therapy and
may not cause the long-term toxicity that can occur with broad spectrum
immunosuppressants.
Research indicates that activated, high affinity IL-2 receptor-expressing
lymphocytes are present in the circulation and in the affected tissue of
patients in acute phases of certain autoimmune diseases, including rheumatoid
arthritis, psoriasis, multiple sclerosis and alopecia areata. These findings
suggest that autoimmune disorders characterized by the presence of high affinity
IL-2 receptor-bearing lymphocytes may, therefore, be treatable with
DAB(389)IL-2. Seragen believes that DAB(389)IL-2, because of its side effect
profile, may have applications primarily restricted to the treatment of
moderate-to-severe cases of autoimmune diseases.
Psoriasis
DAB(389)IL-2 Opportunity in Psoriasis
Seragen believes that the opportunity for a biological agent such as
intravenously administered DAB(389)IL-2 in the psoriasis market lies only in the
moderate-to-severely affected patient population. An agent like DAB(389)IL-2
could provide targeted immunomodulation therapy against a component of the
immune system believed to be involved in the pathogenesis of psoriasis, the CD8+
cytotoxic T-lymphocyte. The market for a product such as DAB(389)IL-2 would
probably be limited to administration by clinics and major hospitals.
Limitations of Psoriasis Market for DAB(389)IL-2
Seragen has been conducting a clinical trial program to evaluate the
safety and effectiveness of DAB(389)IL-2 in moderate-to-severe psoriasis since
1993. Two clinical studies of DAB(389)IL-2 in moderate-to-severe psoriasis
patients who had received prior treatment with multiple systemic therapies have
been completed. A third trial is currently under way. In the two completed
studies, dosing schedules investigated showed a statistically significant
decrease in disease severity from baseline with DAB(389)IL-2 administration.
The second study of DAB(389)IL-2 in psoriasis was terminated prematurely
(in December 1995) to allow Seragen to conduct a broad safety review of
DAB(389)IL-2 when one patient in the trial experienced unexpected blood
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clotting. After a review of this event, of the data from this trial, and of the
data from other trials of DAB(389)IL-2, the FDA authorized Seragen to resume its
investigation of DAB(389)IL-2 in psoriasis. Analysis of the available data
indicated that the degree of patient improvement in this second psoriasis trial
was consistent with the results of the earlier study.
The accumulated data from the first two psoriasis studies indicated that
DAB(389)IL-2 induced clinical responses in as many as 50% of psoriasis patients
who had previously been treated with multiple other therapies. Tolerability
issues suggested that three doses per week for four weeks, especially at the
higher doses tested, was too frequent. Other observations indicated that
clinical improvement after a single five-day treatment may induce maximum
response two weeks after administration. These data suggest that monthly
administration may not be frequent enough. Therefore, Seragen designed a third
psoriasis trial to evaluate the safety and effectiveness of administration of a
lower dose range of DAB(389)IL-2 on a bi-weekly schedule. This Phase I/II
dose-escalation study is ongoing.
However, even if DAB(389)IL-2 is found to be effective in this patient
population, Seragen does not yet know if the side effect profile, which may be
acceptable in cancer, will be considered tolerable by a majority of psoriasis
patients and their physicians. Furthermore, DAB(389)IL-2 has at this point only
been administered via intravenous infusion, both to cancer and to psoriasis
patients. Close supervision is required for such administration. These factors
could seriously limit the use of DAB(389)IL-2 in psoriasis. Despite these
limitations, if DAB(389)IL-2 is shown to be safe and effective in further
clinical testing and if it can compete with other products in development, it
might be possible to advance the product for these patients' special needs.
Seragen has been looking for a partner to develop DAB(389)IL-2 for
psoriasis. However, Seragen's prospects for such arrangements appear to be
limited. Seragen's management has found that clinical issues associated with the
side effect profile and with intravenous administration of the product, along
with the fact that the same molecule has already been partnered for cancer
indications, make it difficult to attract a partner to develop DAB(389)IL-2 for
non-cancer indications. Management of Seragen accordingly believes that it will
continue to be difficult for Seragen to establish advantageous partnerships to
fund further trials of DAB(389)IL-2 for psoriasis or for other autoimmune
diseases. Although Seragen continues to pursue such arrangements, its efforts to
date have been unsuccessful.
Other Potential Opportunities for DAB(389)IL-2
Rheumatoid Arthritis
Rheumatoid arthritis ("RA") is a chronic, systemic disease characterized
by persistent inflammation of the joints. RA is believed to be caused by an
autoimmune response against joint tissue. Furthermore, expression of the
high-affinity IL-2 receptor on activated lymphocytes is known to play a pivotal
role in the pathogenesis of many autoimmune diseases, including RA. Seragen
believes that the RA population may represent a potential market for
DAB(389)IL-2, although Seragen is not currently pursuing clinical development of
this application for DAB(389)IL-2.
Seragen has conducted three early clinical trials of DAB(389)IL-2 in
patients with rheumatoid arthritis. One trial is ongoing in a small number of RA
patients who have benefited from treatment with DAB(389)IL-2 in previous trials.
Seragen lacks the financial resources to pursue this application for
DAB(389)IL-2 at this time, and management has been unable to attract a corporate
partner for this indication.
HIV Infection/AIDS
A preliminary safety study of DAB(389)IL-2 has been conducted in patients
infected with human immunodeficiency virus ("HIV"). Twenty four patients were
enrolled in a double-blind, randomized, dose-ranging study, and DAB(389)IL-2 was
found to be safe at the very low doses tested, although at those doses no
efficacy was noted. There can be no assurance that DAB(389)IL-2 or any of
Seragen's other potential products will have an
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application in the treatment of HIV. Seragen lacks the financial resources to
pursue this application for DAB(389)IL-2 at this time, and management has been
unable to attract a corporate partner for this indication.
Additional Potential Applications for DAB(389)IL-2
Agents like DAB(389)IL-2, which specifically target immune system cells,
may offer a new therapeutic approach to the treatment of other autoimmune
disorders, such as multiple sclerosis ("MS") and alopecia areata ("AA").
However, Seragen has not conducted any trials to evaluate the efficacy of
DAB(389)IL-2 or Seragen's other potential products in treating these disorders.
There can be no assurance that any of Seragen's products will have an
application in the treatment of MS or AA. Seragen lacks the financial resources
to pursue this application for DAB(389)IL-2 at this time, and management has
been unable to attract a corporate partner for this indication.
EPIDERMAL GROWTH FACTOR ("EGF") FUSION PROTEIN (DAB(389)EGF)
In the U.S., the American Cancer Society estimates approximately one
million new cases of solid tumor cancers per year, with approximately 500,000
related deaths each year. A significant percentage of these cases are possible
candidates for treatment with a targeted therapeutic approach utilizing
DAB(389)EGF. In several carcinomas, research has indicated that the level of
EGF-receptor expression correlates strongly with the progression of the disease.
Increased EGF-receptor expression is associated with refractory tumors. Enhanced
EGF-receptor expression may, therefore, characterize a subset of highly
aggressive tumor cells with greater metastatic potential.
DAB(389)EGF binds specifically to the EGF receptor on target cells and
may have therapeutic potential in solid tumors, including breast, bladder, lung,
colon, prostate, esophageal, thyroid, gastric, renal, endometrial, cervical,
brain and ovarian carcinomas, all of which express the EGF receptor. A
cell-killing agent such as DAB(389)EGF may be useful for a variety of solid
tumors bearing EGF receptors, including a number of tumors that are inadequately
treated by currently available therapies. Pre-clinical tests involving animal
models have indicated that DAB(389)EGF administration results in cell death and
tumor regression of EGF-receptor expressing malignancies.
Status of Clinical Trials of DAB(389)EGF in Solid Tumor Cancers
To date, Seragen has conducted two companion Phase I clinical trials in
patients with EGF-receptor expressing malignancies. The trials enrolled 52
patients to evaluate the safety of five different doses administered either
consecutively or episodically. The patients enrolled had varying types of
EGF-receptor ("EGF-R") expressing tumors, most of which were prostate,
gastrointestinal, or breast tumors. All patients had metastatic disease.
One of two patients enrolled with lung cancer (adenocarcinoma) had a
greater than 50% reduction in tumor burden in the episodic schedule. Three
additional patients, one with head and neck cancer in the episodic dosing
schedule and two with prostate cancer, were judged in the consecutive dosing
schedule to have stable disease for the six-month study period.
A limited Phase I/II dose escalation study, initially focused on
non-small cell lung cancer and then expanded to include other EGF-R expressing
tumors, is currently in progress.
ADVERSE EVENTS ASSOCIATED WITH CLINICAL TRIALS OF FUSION PROTEINS
In all clinical trials of Seragen's Fusion Proteins described in this
document, adverse events associated with administration of the particular fusion
protein under investigation did occur. These events included, but were not
limited to, flu-like symptoms, rash, a vascular leak syndrome, and transient
elevation of liver enzyme (transaminase) levels. Some patients have experienced
adverse events requiring hospitalization. These adverse events included problems
associated with the patients' underlying disease as well as those associated
with treatment. In some cases, patients experiencing adverse events discontinued
participation in the trial.
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Further testing in a larger number of patients would be required to
determine the safety and effectiveness of Seragen's Fusion Proteins in
psoriasis, rheumatoid arthritis, HIV infection and solid tumor cancers. Further
testing may also be required to determine the safety and effectiveness of
DAB(389)IL-2 in CTCL.
STRATEGIC ALLIANCE WITH ELI LILLY AND COMPANY
On August 3, 1994, Seragen and Lilly signed an agreement to form a global
strategic alliance that gave Lilly exclusive worldwide development,
distribution, and marketing rights, except in certain Asian countries, to
Seragen's IL-2 Fusion Protein for the treatment of cancer and worldwide
distribution rights, except in certain Asian countries and members of the
countries of the European Union, to Seragen's intravenous and intramuscular
formulations of DAB(389)IL-2 for non-cancer indications. Lilly also had the
option to obtain worldwide development, distribution, and marketing rights for
additional indications for IL-2 Fusion Protein and for other Company products
under development upon presentation of Phase II data. Seragen retained exclusive
rights to promote IL-2 Fusion Protein and future Fusion Proteins for
dermatologic applications outside of oncology, subject to Lilly's retention of
distribution rights for all formulations of IL-2 Fusion Protein. Seragen also
retained responsibility for bulk manufacturing for all indications, including
all costs associated with manufacturing.
On August 4, 1994, under the terms of the alliance, Lilly made an initial
payment to Seragen of $10.0 million, $5.0 million representing payment for
787,092 shares of Seragen Common Stock at approximately $6.35 per share and $5.0
million representing an advance against Lilly's purchase of bulk product from
Seragen. Lilly also agreed to pay Seragen an additional $3.0 million based on
Seragen meeting certain regulatory milestones in the development of IL-2 Fusion
Protein for cancer therapy. In addition, Lilly agreed to reimburse Seragen for
costs incurred in the clinical development of IL-2 Fusion Protein for cancer
therapy, including costs for Phase III clinical trials, the preparation of an
FDA application and any FDA filing fees. Seragen recorded approximately
$3,337,000, $3,979,000 and $4,281,000 of contract revenue for such reimbursed
development costs during the years ended December 31, 1995, 1996 and 1997,
respectively.
On May 28, 1996, Lilly and Seragen amended the Sales and Distribution
Agreement relating to the $5.0 million advance paid by Lilly in August 1994
against Lilly's future purchases of bulk product from Seragen. The amended
agreement states that the $5.0 million payment is non-refundable and that
Seragen has no obligation to refund the advance should no bulk purchases be made
by Lilly. To the extent Lilly purchases bulk product in the future, Seragen is
required to pay Lilly a royalty equal to 75% of the purchase price, up to $2.5
million in any twelve-month period and $5.0 million in the aggregate. Seragen
will recognize the $5.0 million non-refundable payment and amortize the related
deferred commission upon the sale of bulk product to Lilly or at such time as
Lilly acknowledges it will not purchase any bulk material.
On April 7, 1997, Seragen entered into the April 7 Amendment with Lilly.
Pursuant to the amendment, Lilly relinquished, subject to certain limitations,
all development and promotion rights to IL-2 Fusion Protein for non-cancer
indications, as well as rights to Seragen's other molecules. Lilly did, however,
retain rights to distribute all intravenous and intramuscular formulations of
IL-2 Fusion Protein, for both cancer and non-cancer indications, except, in the
case of cancer indications, in certain Asian countries and, in the case of
non-cancer indications, certain Asian countries and member countries of the
European Union. Pursuant to the amendment, Lilly agreed to pay $4.3 million to
Ajinomoto on behalf of Seragen. Lilly paid $2.15 million of this amount to
Ajinomoto for a license granted by Ajinomoto directly to Lilly; and Lilly has
agreed to pay, subject to certain conditions, up to $2.15 million of Seragen's
$2.25 million obligation to Ajinomoto under Seragen's restructured agreement
with Ajinomoto. As of June 30, 1998, Lilly has paid $800,000 of Seragen's
obligation to Ajinomoto. See "--Patents, Licenses and Proprietary Rights".
Pursuant to the amendment, Lilly was permitted to credit $1.5 million of the
amount paid by Lilly to Ajinomoto on behalf of Seragen against the $1.5 million
milestone payment due under the Sales and Distribution Agreement between Seragen
and Lilly on the submission by Seragen of a BLA for CTCL to the FDA. Lilly is
not obligated to make any further payments in respect of Seragen's obligations
to Ajinomoto if Lilly terminates the Sales and Distribution Agreement between it
and Seragen as a result of a failure by Seragen to meet specified clinical,
regulatory and financial milestones and other requirements. Such milestones have
not been met by Seragen and, as
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a result, Lilly has the right at any time to terminate its arrangements with
Seragen with 30 days notice. Seragen has received no indication from Lilly that
Lilly intends to exercise that right. If Lilly were to terminate its agreements
with Seragen, Seragen would be obligated to make payments of $1.35 million to
Ajinomoto that Lilly has not yet made on Seragen's behalf, and Lilly's
obligations under the agreements to provide financial support to Seragen's
clinical trial efforts would cease.
In partial consideration for the April 7 Amendment, Seragen issued to
Lilly in a private placement 1.0 million shares of Seragen Common Stock.
As a condition to Ligand's willingness to enter into the Merger
Agreement, Seragen agreed to enter into the Letter Agreement with Ligand in
which Seragen gave its consent to the assignment of the Seragen Agreements by
Lilly to Ligand in the following circumstances: (a) if the Closing occurs prior
to the receipt of Governmental Approval, or (b) if Governmental Approval is
received prior to the Closing and Ligand is in compliance with the best efforts
requirement under Section 5.9 of the Merger Agreement. Ligand is deemed to be in
compliance with Section 5.9 of the Merger Agreement if Seragen fails to notify
Ligand and Lilly within two business days of receipt of Governmental Approval
that Ligand is not in compliance.
In addition, Seragen and Lilly agreed, pursuant to the Letter Agreement,
to amend the Seragen Agreements to provide for an amended milestone payment upon
receipt of Governmental Approval of DAB(389)IL-2 in the United States. Finally,
effective upon the assignment of the Seragen Agreements, Seragen released Lilly
and Ligand from liabilities and obligations arising from the execution and
delivery of the Wholesale Agreement. Seragen also released Lilly, effective upon
the assignment of the Seragen Agreements, from liabilities and obligations
arising from the sale and use of the Product after the effective date of
assignment. See "Description of the Merger--Agreements with Lilly, Ligand and
Seragen."
MANUFACTURING
The manufacture of Seragen's Fusion Proteins originates at the genetic
level. First, genes that direct production of the toxic and translocation
domains of the diphtheria toxin molecule are fused with genes that direct
production of the desired receptor targeting domain to create a new, recombinant
gene. The recombinant gene is then placed in a strain of bacteria (E. coli)
which is grown by fermentation using standard biotechnology techniques. During
fermentation, the recombinant gene is expressed in the bacteria resulting in the
production of Fusion Proteins. The fusion protein is then extracted from the
bacteria and purified. Since Fusion Proteins are produced in recombinant
bacteria using well established technology, Seragen believes that its Fusion
Proteins can be reliably produced in commercial quantities.
To date Seragen has produced all of its Fusion Proteins in the laboratory
and has produced its IL-2 Fusion Protein and EGF Fusion Protein in manufacturing
facilities previously owned by it and now owned and operated by Marathon.
Manufacturing facilities utilized for Seragen's products are operated in
accordance with cGMP.
Seragen entered into an agreement to sell its manufacturing facility to
BU in February 1997 and completed the sale on December 31, 1997, pursuant to an
asset purchase agreement. See "--General". Simultaneously, Seragen entered into
a service agreement with BU under which BU agreed to provide certain services
related to product research, development, manufacturing, clinical trials,
quality control and quality assurance required by Seragen to continue clinical
trials and to produce commercial quantities of DAB(389)IL-2 for sale. Such
services are to be performed to specifications outlined in the service contract.
In order for this manufacturing facility to produce material that can be
marketed, it must be inspected and licensed by the FDA. Seragen regularly
contracts with a variety of firms for certain quality control testing and
fill-finish services, some of which services are essential to Seragen. As of
July 1998, Lilly is Seragen's fill/finish contractor. Generally, these
agreements may be terminated at any time by any of the parties thereto.
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COMPETITION
The therapeutic products which Seragen is developing will compete with
existing therapies for market share. In addition, a number of companies,
including biotechnology companies and pharmaceutical companies, acting
independently or in collaboration, are pursuing the development of novel
pharmaceuticals which target the same diseases Seragen is targeting with its
products. Furthermore, academic institutions, government agencies and other
public organizations conducting research may seek patent protection, discover
new drugs or establish collaborative arrangements for drug research that may be
competitive with the targeted therapeutic products being developed by Seragen.
Seragen's Fusion Proteins are designed to target cells bearing receptors
that are implicated in a variety of diseases. Accordingly, competition will
depend in part on the specific therapeutic applications for which Seragen's
compounds are developed and ultimately approved.
The development by others of new treatment methods for those diseases for
which Seragen is developing targeted therapeutic products could render such
products non-competitive or obsolete. Many of Seragen's existing or potential
competitors (including competitors that may be in the process of developing
fusion protein products utilizing other toxins) have substantially greater
financial, technical and human resources than Seragen and may be better equipped
to develop, manufacture and market products. In addition, many of these
competitors have greater experience in pre-clinical testing and human clinical
trials than Seragen. These competitors may develop and introduce products and
processes competitive with or superior to those of Seragen. In addition, Seragen
expects that competition among products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price and
patent position.
Seragen's competitive position also depends upon its ability to attract
and retain qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes and to secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales.
A number of companies, including both large pharmaceutical companies and
biotechnology companies, have been actively pursuing the development of
monoclonal antibodies and immunotoxin conjugates, the field in which Seragen's
technology lies, for more than a decade. Seragen is aware of the Pastan Patents,
which relate to Fusion Proteins similar to those of Seragen, in which the
cytotoxic agent is pseudomonas exotoxin. Certain competitors of Seragen,
including certain large pharmaceutical companies, are known to have been
engaged, at least in the past, in the development of Fusion Proteins under the
Pastan Patents as potential therapeutic products for some of the same diseases
which Seragen is targeting. Seragen is unable to assess the effect that such
efforts may have on Seragen's competitive position or business.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
In November 1983 and as amended in August 1997, Seragen entered into an
agreement with Harvard University in Cambridge, Massachusetts, whereby Seragen
was granted a worldwide license under United States Patent 4,675,382 and all
foreign patents and patent applications corresponding to United States Patent
4,675,382 (the "Murphy Patents"). The Harvard license provides Seragen with the
exclusive right to manufacture, have manufactured, sell or have sold, products
made in accordance with the Murphy Patents for human and veterinary therapeutic
and diagnostic uses for the life of the patents. Under certain circumstances,
the license may become non-exclusive. Under the license, Seragen has agreed to
pay Harvard University an annual license fee until a product is marketed, and
thereafter, a royalty on net sales, including a minimum royalty amount if
certain sales levels are not met. The Murphy Patents relate to Fusion Proteins
expressed as the product of a fused gene wherein the protein is a toxin whose
naturally occurring receptor binding domain is deleted and replaced at the
genetic level by a gene encoding a cell-specific polypeptide ligand. Seragen
believes that the Murphy Patents are fundamental to the use of the genetically
constructed diphtheria toxin molecules being developed by Seragen. Although the
scope of patent
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protection is difficult to quantify, Seragen believes that, due in large part to
the Murphy Patents, its patents or licenses to patents should afford adequate
protection to conduct its business.
Seragen has also been prosecuting a patent application family directed to
its core fusion protein technology, which technology represents an improvement
in the technology disclosed in the Murphy patents. Applications are pending in
the United States and many foreign countries. Four U.S. patents have issued
directed to these improvements. These patents should provide intellectual
property protection of Seragen's core technology for many years after the
expiration of the Murphy Patents.
Seragen also has the rights to obtain licenses (many of which are, or
will be, exclusive licenses) to patents and patent applications which have been
filed by its institutional collaborators. Worldwide, Seragen owns or holds
exclusive licensing rights to approximately 70 patents issued worldwide, which
cover certain aspects of its technology and products and the methods for their
production and use. Seragen intends to file patent applications with respect to
subsequent developments and improvements when it believes patent protection is
in its best interest. There can be no assurance that Seragen's patent
applications will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology.
In August 1987, BU acquired Nycomed's majority interest and technology
rights in Seragen. Under the terms of the purchase and sale agreement, Nycomed
received a grant of a royalty on future sales of Seragen's fusion protein
products, as well as a right of first negotiation to market Seragen's fusion
protein products in Norway, Denmark, Sweden, Finland, Iceland, Belgium, the
Netherlands and Luxembourg (the "Territory"). The agreement provides that, when
in the business judgment of Seragen it is appropriate for Seragen to enter into
agreements with third parties with respect to the marketing of such products,
Seragen will negotiate exclusively with Nycomed for 90 days with respect to the
rights to market Seragen's fusion protein products in the Territory. Seragen has
conducted such negotiations with Nycomed regarding Seragen's IL-2 Fusion Protein
and EGF Fusion Protein, but no agreement was reached for the marketing of these
products. Seragen therefore believes that any rights Nycomed may have had for
marketing of Seragen's IL-2 Fusion Protein and EGF Fusion Protein in the
Territory have expired.
Seragen may need to obtain licenses to other patents of which it is
unaware. There can be no assurance that licenses will be available from the
owners of such patents, or, if available, that they will be available on terms
acceptable to Seragen. Moreover, there can be no assurance that all United
States or foreign patents that may pose a risk of infringement have been
identified.
Seragen pursues a policy of seeking patent protection to preserve its
proprietary technology and its right to capitalize on the results of its
research and development activities and, to the extent it may be necessary and
advisable, to exclude others from appropriating its proprietary technology.
While Seragen pursues such a policy, it also relies upon trade secrets,
unpatented proprietary information and continuing technological innovation to
develop and maintain its competitive position. There can be no assurance,
however, that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to such trade
secrets, proprietary information or technology or that Seragen can meaningfully
protect its rights in such secrets, information and technology.
All employees of Seragen have signed confidentiality agreements under
which they agree not to use or disclose proprietary information of Seragen
without the consent of Seragen. Relationships between Seragen's scientific
consultants and collaborative research partners provide access to Seragen's
know-how that is generally protected by confidentiality agreements with the
parties involved. However, there can be no assurance that these confidentiality
agreements will be honored.
In December 1994, Seragen entered into a license agreement with Ajinomoto
which provides Seragen with exclusive worldwide rights under Ajinomoto's IL-2
gene patents for Seragen's Fusion Proteins. Seragen made an up-front payment of
$100,000 under this agreement and was required to make a payment of $4.3 million
by March 31, 1997, and to pay royalties ranging from 2% to 4% on sales of
licensed product by Seragen or its
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sublicensees. Seragen was required to pay minimum royalties of $100,000 in 1997,
$200,000 in 1998 and $300,000 each year thereafter. Seragen did not make any of
the required payments.
On June 1, 1997, in cooperation with Lilly, Seragen restructured its
License Agreement with Ajinomoto. The restructured Ajinomoto Agreement provides
that the license granted by Ajinomoto to Seragen will be non-exclusive. Under
the terms of the restructured agreement, the future license fees payable by
Seragen to Ajinomoto were reduced to the following amounts: a $2.25 million fee
payable in the amount of $800,000 by June 30, 1998, or approval by the FDA of a
BLA filed by Seragen for the licensed product, whichever comes first, in the
amount of $800,000 by June 30, 1999, and in the amount of $650,000 by March 31,
2000; and a reduced royalty of 1% on end-user net sales of the licensed product
by Seragen or its sublicenses. Accordingly, in the year ended December 31, 1997,
Seragen reduced its obligation to Ajinomoto from $4.3 million to $2.25 million
and recorded extraordinary income of $2,050,000 for the reduction of this
liability. Seragen amended its agreements with Lilly whereby Lilly will pay
certain license fees to Ajinomoto on behalf of Seragen. See "--Strategic
Alliance with Eli Lilly and Company." As of June 30, 1998, Lilly has paid
$800,000 to Ajinomoto on behalf of Seragen.
In connection with the issuance of 23,800 shares of Seragen Series B
Preferred Stock, Seragen formed STI. Seragen transferred all of its existing and
future United States patents and patent applications (the "Patents") to STI in
exchange for 214,200 shares of STI Class A Common Stock and 23,800 shares of STI
Class B Common Stock. Each share of STI Class A Common Stock is owned by
Seragen. Seragen has transferred the STI Class B Common Stock to the holders of
the Seragen Series B Preferred Stock.
STI has no operations, and its sole asset is the Patents. Its authorized
capital stock consists of 214,200 shares of STI Class A Common Stock and 23,800
shares of STI Class B Common Stock, all of which, as described in the paragraph
above, are issued and outstanding. Each share of STI Class A Common Stock and
Class B Common Stock is entitled to one vote on all matters submitted to a vote
of STI shareholders, voting together as a single class.
Simultaneously with the contribution of the Patents to STI, Seragen
entered into a license agreement with STI pursuant to which STI granted to
Seragen an irrevocable worldwide exclusive license with respect to the Patents
(the "Irrevocable License Agreement"). Under the terms of the Irrevocable
License Agreement, Seragen is obligated to pay quarterly royalties to STI in an
amount equal to the amount of any dividend that the holders of the Seragen
Series B Preferred Stock are entitled to receive but have not received by the
royalty due date (which is one day after each quarterly dividend payment date
for the Seragen Series B Preferred Stock). The holders of STI Class B Common
Stock, in turn, are entitled to receive cumulative dividends in an amount equal
to any royalty payable to STI under the Irrevocable License Agreement.
STI has executed a collateral assignment of the Patents in favor of the
holders of the STI Class B Common Stock, which is being held by an escrow agent.
The escrow agent is required to deliver the collateral assignment to the holders
of the STI Class B Common Stock if dividends on the STI Class B Common Stock are
in arrears and STI fails for 60 days, after the receipt of notice from the
holders of the STI Class B Common Stock, to pay the dividends due. Likewise, the
holders of shares of STI Class B Common Stock have executed a reassignment of
the Patents to STI, which also is being held by the escrow agent. The escrow
agent is obligated to deliver the reassignment of the Patents to STI upon the
redemption by STI of all of the STI Class B Common Stock. Shares of the STI
Class B Common Stock are required to be redeemed upon the redemption or
conversion of Seragen Series B Preferred Stock in a number equal to the number
of shares of Seragen Series B Preferred Stock redeemed or converted. The
collateral assignment of the Patents secures only STI's dividend payment
obligations on the STI Class B Common Stock and does not secure any other
amounts (e.g., the liquidation preference of the Series B Preferred Stock). The
collateral assignment of the Patents has no effect until the escrow agent is
instructed to deliver it to the holders of the STI Class B Common Stock.
Seragen did not pay the cash dividends due in respect of the Seragen
Series B Preferred Stock during the period December 31, 1996 through June 30,
1998, and does not anticipate making any dividend payments on the Seragen Series
B Preferred Stock in 1998. Correspondingly, STI has not paid the dividends due
January 1, 1997
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through July 1, 1998 on the STI Class B Common Stock and it is not anticipated
that STI will make any dividend payments on the STI Class B Common Stock during
1998.
Due to STI's failure to pay dividends on the STI Class B Common Stock,
delivery of notice by the agent for the holders of the STI Class B Common Stock
to the escrow agent in accordance with the collateral assignment of the Patents
is the only condition to delivery of the collateral assignment of the Patents to
the holders of the STI Class B Common Stock. If the holders of the STI Class B
Common Stock were to deliver this notice to the escrow agent, they would
thereafter have the right to foreclose on the Patents, subject to Seragen's
rights under the Irrevocable License Agreement. To Seragen's knowledge, the
holders of the STI Class B Common Stock have not delivered this notice to the
escrow agent.
RESEARCH AND LICENSING AGREEMENTS
Seragen has engaged in sponsored research programs through external
research under agreements with various academic institutions and companies and
under consulting agreements with scientists affiliated with such institutions.
Under the agreements, Seragen provides periodic research funding and typically
maintains options to obtain exclusive licenses to patents and patent
applications which may be filed as a result of the sponsored research by the
institutional partner. In general, where a patent is licensed, the license is
co-terminus with the patent.
From April 1, 1984 through December 31, 1996, Seragen maintained a
research agreement with Boston Medical Center, formerly known as University
Hospital, in Boston, Massachusetts (the "UH Research Agreements") in support of
research on Fusion Proteins under the direction of Dr. John R. Murphy. Seragen
has entered into a license agreement with University Hospital (the "UH License
Agreement") under which Seragen has acquired exclusive rights to certain patent
applications and patents arising out of the research under the UH Research
Agreements. Under the UH License Agreement as amended in October 1997, Seragen
has been granted an exclusive license to five existing U.S. patents and patent
applications and to their foreign counterparts.
Seragen maintained a research agreement with Beth Israel Hospital in
Boston, Massachusetts (the "BIH Research Agreement"), which began August 1984
and continued until December 31, 1995, related to the control of T-cell mediated
response by targeted agents under the direction of Dr. Terry B. Strom. Under the
BIH Research Agreement, Seragen was granted an option to obtain an exclusive
license to any patent application filed on any invention conceived or reduced to
practice during the course of the research. Several patent applications have
been filed pursuant to the BIH Research Agreement. Two of these describe methods
of treating immunological diseases and transplant rejection and have been issued
as U.S. Patents 5,011,684 and 5,336,489. Both of these patents have been
exclusively licensed to Seragen. Seragen believes that this method may be
broadly useful in the treatment of autoimmune diseases and allograft rejection.
A third patent, which issued as U.S. Patent 5,152,980, relates to a method of
inducing tolerance to a foreign antigen, which Seragen believes will be useful
in helping it to keep therapies from being disabled by the body's immune system.
Seragen has exercised its option to obtain an exclusive license to this patent.
Including the arrangements described above, Seragen has incurred
consulting fees to a stockholder and directors of approximately $155,000,
$169,000 and $50,000 in 1995, 1996 and 1997, respectively. Seragen has also
incurred expenses relating to research grants to, and clinical trials performed
at, Boston Medical Center and Beth Israel Hospital of approximately $335,000 and
$175,000 in 1995 and 1996, respectively, with no grants in 1997.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the future manufacturing and marketing of
Seragen's potential products and in its ongoing research and product development
activities. All of Seragen's products currently under development will require
regulatory approval by governmental agencies prior to their commercialization.
In particular, human therapeutic products are subject to rigorous pre-clinical
and clinical testing and other premarket approval procedures by the FDA and
similar authorities
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in many foreign countries. Various other federal, and in some cases state and
local, statutes and regulations also govern or influence the manufacturing,
safety, labeling, storage, transport, recordkeeping, promotion and marketing of
such products. The lengthy process of seeking these approvals, and the
subsequent ongoing compliance with applicable federal, state and local statutes
and regulations, require the expenditure of substantial resources. There can be
no assurance that, even after such time and expenditures, regulatory approvals
will be obtained for any products developed by Seragen. Moreover, if regulatory
approval of a product is granted, such approval will entail limitations on the
indicated uses for which it may be marketed. Further, even if such regulatory
approval is obtained, a marketed product and its manufacturer are subject to
continual review, and discovery of previously unknown problems with a product or
manufacturer or non-compliance with FDA regulations may result in restrictions
on such product or manufacturer, including withdrawal of the product from the
market. The manufacturer is also subject to continuing FDA inspection, review
and post-market requirements. In addition, there can be no assurance that this
regulatory framework will not change or that additional regulation will not
arise at any stage of Seragen's product development which may affect approval or
delay an application or require additional expenditures by Seragen. Delays in
obtaining regulatory approvals would adversely affect the marketing of products
developed by Seragen and Seragen's ability to receive product revenues or
royalties.
Seragen has entered into a strategic alliance with Lilly in connection
with the development, production, marketing and sale of its IL-2 Fusion Protein
for cancer. See "--Strategic Alliance with Eli Lilly and Company." Seragen may
enter into additional corporate partnerships and other agreements in connection
with the development, manufacturing, marketing and sale of the IL-2 Fusion
Protein for other indications and for all other Fusion Proteins for any
indications. Such arrangements would be subject to fair trade regulation by
numerous governmental authorities in the United States and other countries.
There can be no assurance that any agreements entered into by Seragen and
international pharmaceutical partners on terms favorable to Seragen would be
found to be binding and enforceable if subject to any judicial or administrative
action by any governmental authority. If the agreement with Lilly were
terminated, and Seragen failed to establish additional partnerships in
developing, producing, marketing and selling certain of its products, such
failure could have a material adverse effect on Seragen.
In both the U.S. and foreign markets, Seragen's ability to commercialize
its products successfully may also depend in part on the extent to which
reimbursement for the cost of such products and related treatment will be
available from government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty may exist as to the reimbursement status of newly
approved health care products, and there can be no assurance that adequate
third-party coverage will be available to enable Seragen to maintain price
levels or sales volume sufficient to realize an appropriate return on its
investment in product development.
Clinical Trials Process
Seragen expects that its potential products in the United States will be
regulated by the CBER of the FDA. Currently, the steps required before a new
biological product can be produced and marketed include pre-clinical studies,
the filing of an IND application, human clinical trials, and the approval of a
BLA. Pre-clinical studies are conducted in the laboratory and in animal model
systems to gain preliminary information on the drug's efficacy and metabolism
and to identify potential safety issues. The results of these studies are
submitted to the FDA as part of the IND application for review and approval
before the commencement of testing in humans. Human clinical testing typically
includes a three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine a safety profile and the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specific disease in order to develop
preliminary efficacy data, optimal dosages and additional safety data. In Phase
III, large scale, multi-center, well-controlled clinical trials are conducted
with patients afflicted with a target disease in order to provide enough data
for the statistical proof of efficacy and safety required by the FDA. In some
cases, the initial Phase I human testing is in patients rather than in healthy
volunteers. Since these patients are already afflicted with the target disease,
it is possible that such studies may provide efficacy results traditionally
obtained in Phase II clinical trials. These trials are frequently referred to as
Phase I/II clinical trials. Phase II/III clinical trials refer to a combined
phase of human pharmaceutical trials
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designed to provide evidence of efficacy and safety of a compound in patients
with the targeted disease. In some instances, a BLA may be approved based on
data from Phase II/III clinical trials. The FDA has issued regulations governing
clinical trials, and the failure to comply with these regulations can result in
delay in obtaining approvals or the denial of the application.
The results of the pre-clinical and clinical testing, together with
chemistry and manufacturing information, product labeling and other information
are submitted to the FDA in the form of a BLA. Commercial manufacturing and
marketing of biologic products may occur only after approval of a BLA. In
responding to a BLA, the FDA may grant marketing approval, request additional
information, or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. There can be no assurance that
approvals will be granted on a timely basis, if at all, or if granted will cover
all the clinical indications for which Seragen is seeking approval. In addition,
approvals may contain significant limitations in the form of warnings,
precautions or contraindications with respect to conditions of clinical use.
Seeking and obtaining regulatory approval for a new therapeutic product
including the full clinical trial process, may take several years and may
require the expenditure of substantial resources.
Orphan Drug Designation
The Orphan Drug Act generally provides incentives to manufacturers to
undertake development and marketing of products to treat relatively rare
diseases or conditions affecting fewer than 200,000 persons in the United
States. These incentives include a seven-year marketing exclusivity and funding
for qualified clinical trials. Seragen has received Orphan Drug designation for
DAB(389)IL-2 in CTCL and may seek Orphan Drug designation for other qualified
products. From time to time, proposals have been introduced in Congress to limit
Orphan Drug exclusivity.
Accelerated Drug Approval
Under current regulations, the FDA will accelerate approval of certain
new drugs and biological products for serious or life-threatening illnesses,
with provisions for any necessary continued study of the drugs' clinical
benefits after approval or with restrictions on use, if necessary. These
procedures are intended to expedite marketing of drugs or biologicals for
patients suffering from such illnesses when the product provides meaningful
therapeutic benefit compared to existing treatment. Drugs or biological products
approved under these procedures must meet the requisite standards for safety and
effectiveness under the Federal Food, Drug, and Cosmetic Act or the Public
Health Service Act, and thus will have full approval for marketing, but will be
subject to significant post-approval limitations at least for some period of
time.
In December 1997, Seragen submitted a BLA to the FDA requesting clearance
to market its lead molecule, DAB(389)IL-2, for treatment of patients with
advanced CTCL who have received previous treatment with other agents. In
February 1998, the FDA notified Seragen that the BLA had been accepted for
filing and designated for "priority" review. In the case of applications for
drugs intended to treat certain life-threatening illnesses, the FDA may choose
to accelerate the review process. On June 2, 1998, Ligand and Seragen announced
that the ODAC had voted favorably on questions put to it by the FDA regarding
the efficacy of, and the acceptability of the incidence and severity of toxicity
associated with, DAB(389)IL-2 for the treatment of patients with recurrent or
persistent CTCL. The ODAC also recommended that treating physicians should
decide the appropriate doses within a prescribed dose range. The ODAC's votes,
although not binding, will be considered by the FDA in its review of the BLA.
See "Risk Factors--Uncertainties Related to Regulatory Review of DAB(389)IL-2
and Panretin Gel." On June 9, 1998, the FDA issued the Complete Review Letter to
Seragen in respect of its BLA. The Complete Review Letter identified certain
deficiencies in the BLA related to safety, efficacy, manufacturing and product
characterization. Seragen is in the process of addressing and responding to the
issues set out in the Complete Review Letter. See "Risk Factors--Uncertainties
Related to Regulatory Review of DAB(389)IL-2 and Panretin Gel."
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National Institutes of Health Regulations
Seragen has complied with National Institutes of Health ("NIH")
Recombinant DNA Guidelines on a voluntary basis and expects to continue to do
so. Such guidelines, among other things, restrict or prohibit certain
recombinant DNA experiments and establish levels of biological and physical
containment that must be met for various types of research. The federal
government has proposed a new interagency biotechnology science coordinating
committee to establish a unified approach to the regulation of recombinant DNA
activities.
Foreign Regulations
Regulations concerning the marketing of human therapeutic products are
imposed by most foreign governments and may have an impact on Seragen's
anticipated operations. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement levels vary widely from
country to country. Seragen attempts to conduct its development activities in a
manner that will comply with most foreign regulations.
Other Regulations
Seragen's activities are also regulated in part by the Atomic Energy Act,
the Occupational Safety and Health Act, the Environmental Protection Act, and
other local, state and federal regulations, including those governing the use
and disposal of hazardous materials. Any violation of, and the cost of
compliance with, these regulations could adversely impact Seragen's operations.
From time to time other federal, state and local agencies have indicated an
interest in implementing further regulation of biotechnology activities. There
can be no assurance that additional regulations will not be adopted and, if
adopted, that such regulations will not have a material adverse impact on
Seragen.
RESEARCH AND DEVELOPMENT SPENDING
During each of the three fiscal years ended December 31, 1995, 1996 and
1997, Seragen spent approximately $14.1 million, $14.0 million and $10.6
million, respectively, on research and development activities. In 1994,
approximately $2.8 million of the research and development activities related to
a charge to licensed technology for research and development. None of this
spending involved customer-sponsored research.
EMPLOYEES
As of December 31, 1997, Seragen had a total of 13 employees, each of
whom has entered into a confidentiality agreement with Seragen. Five of them
held Ph.D. degrees. None of Seragen's employees is covered by a collective
bargaining agreement.
In connection with the sale of Seragen's manufacturing and clinical
operations to BU on December 31, 1997, approximately 90 of Seragen's employees
formerly involved in Seragen's manufacturing and clinical operations became
employees of Marathon.
PROPERTIES
Seragen subleases approximately 7,000 square feet of office space in two
buildings in Hopkinton, Massachusetts from Marathon. The subleases on each of
the buildings expire in January 1999 and Seragen can
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exercise, at its option, two one-year extensions on each sublease. Seragen
believes that these facilities are adequate for its operations as currently
contemplated.
LEGAL PROCEEDINGS
Seragen is a defendant in an action brought in Massachusetts Superior
Court by Jelric Realty Trust, the owner of premises that Seragen leased and
occupied until mid-December 1997. The plaintiff has alleged that Seragen
breached its lease agreements by failing to vacate in a timely manner, failing
to return the premises to original condition, and failing to pay rent for the
last few months of the lease and seeks damages in the amount of $218,724. The
plaintiff has sought and obtained an attachment on funds which Seragen had on
deposit at State Street Bank and Trust Company in the amount of $25,000. Seragen
has answered the complaint by denying liability. Discovery in this action has
just begun. Because of the early stage of the proceedings, management is unable
to express an opinion as to the likely outcome of this matter.
116.
<PAGE> 123
PRICE RANGE OF SERAGEN COMMON STOCK AND DIVIDEND POLICY
Seragen's Common Stock is quoted on the OTC Bulletin Board under the
symbol SRGN. Until September 9, 1997, Seragen's Common Stock was quoted on the
Nasdaq National Market. The following table sets forth for the periods indicated
high and low reported sale prices for Seragen Common Stock as reported on the
applicable market.
<TABLE>
<CAPTION>
High Low
------- -------
Fiscal 1996
<S> <C> <C>
First Quarter............. $5 5/8 $2 7/8
Second Quarter............ 5 3/4 3 3/4
Third Quarter............. 4 1/2 2 5/8
Fourth Quarter............ 3 1/8 2 9/32
Fiscal 1997
First Quarter............. $1 5/8 $ 15/16
Second Quarter............ 2 1/8 15/16
Third Quarter............. 1 1/16 1/2
Fourth Quarter............ 1 1/6 15/64
Fiscal 1998
First Quarter............. .84 .30
Second Quarter ........... .62 .36
Third Quarter
(through July 2, 1998).... .53 .46
</TABLE>
The last reported sale price of Seragen Common Stock as reported on
the OTC Bulletin Board on July 2, 1998 was $.47. OTC Bulletin Board quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions. As of July 2, 1998, there
were 682 holders of record of Seragen Common Stock.
Seragen has never paid cash dividends on Seragen Common Stock. Seragen is
required to pay cash dividends on its Series B Preferred Stock, although these
dividends currently are in arrears.
As of September 9, 1997, the Seragen Common Stock was delisted from
trading on the Nasdaq National Market due to failure of Seragen to comply with
the Nasdaq National Market's minimum net tangible assets requirement. The
delisting of Seragen Common Stock from the Nasdaq National Market could have a
material adverse effect on Seragen's efforts to raise additional equity capital.
In addition, as a result of the delisting of the Seragen Common Stock from the
Nasdaq National Market, the investors in Seragen Canada, may claim that they are
entitled to require Seragen to purchase their shares in Seragen Canada for cash.
See Note G of "Notes to Financial Statements." Seragen has entered into the
Seragen Canada Settlement Agreement relating to the claims of such investors.
See "The Merger--Seragen Biopharmaceuticals Ltd. Settlement Agreement."
117.
<PAGE> 124
SELECTED FINANCIAL DATA OF SERAGEN
The following table presents the selected financial data of Seragen as of the
end of and for each of the years in the five year period ended December 31, 1997
and as of the end of and for the three-month periods ended March 31, 1997 and
1998. The financial statements as of December 31, 1993, 1994, 1995 and each of
the three years in the period ended December 31, 1995 were audited by Coopers &
Lybrand L.L.P. The financial statements as of December 31, 1996 and 1997 and the
two years in the period ending December 31, 1997 were audited by Arthur Andersen
LLP. See Note O to the financial statements for restatement discussion. The
financial statements as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 are included elsewhere in this Proxy
Statement/Prospectus. The selected financial data should be read in conjunction
with Seragen's financial statements and notes thereto and Seragen's Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Proxy Statement/Prospectus.
The selected financial data for the three-month periods ended March 31, 1997 and
1998 are derived from the unaudited financial statements. The unaudited
financial statements include all adjustments (consisting of all normal recurring
entries) which management considers necessary for a fair presentation of the
financial position and results of operations for the periods indicated.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the full year or any future
period.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996
------------ ------------ ------------ ------------
(As Restated)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue and license fees ................ $ 138,226 $ 588,350 $ 3,337,388 $ 5,542,315
Operating Expenses:
Cost of contract revenue and license fees ....... -- 588,350 3,337,388 4,504,243
Research and development ........................ 13,718,973 15,240,195 14,086,632 13,959,405
General and administrative ...................... 4,357,563 4,903,963 4,904,226 5,148,465
Licensed technology for research and
development ..................................... -- 2,824,217 -- --
------------ ------------ ------------ ------------
Total operating expenses ......................... 18,076,536 23,556,725 22,328,246 23,612,113
------------ ------------ ------------ ------------
Loss from operations ............................. (17,938,310) (22,968,375) (18,990,858) (18,069,798)
Loss incurred in connection
with Canadian affiliate .......................... -- -- (390,136) (2,923,864)
Interest income .................................. 611,784 438,338 92,924 120,740
Interest expense ................................. (53,505) (113,756) (1,813,128) (5,453,638)
------------ ------------ ------------ ------------
Net loss before extraordinary income ............. (17,380,031) (22,643,793) (21,101,198) (26,326,560)
Extraordinary income and
forgiveness of indebtedness ...................... -- -- -- --
------------ ------------ ------------ ------------
Net loss ......................................... (17,380,031) (22,643,793) (21,101,198) (26,326,560)
============ ============ ============ ============
Preferred stock dividends and accretion .......... -- -- -- (10,394,918)
============ ============ ============ ============
Basic and diluted net loss applicable to
common stockholders .............................. $(17,380,031) $(22,643,793) $(21,101,198) $(36,721,478)
============ ============ ============ ============
Basic and diluted net loss per common share ...... $ (1.26) $ (1.45) $ (1.29) $ (2.20)
============ ============ ============ ============
Weighted average common shares used in
computing net loss per share ..................... 13,775,341 15,631,333 16,355,587 16,724,493
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Three
FOR THE Months Months
YEAR ENDED Ended Ended
DECEMBER 31, March 31 March 31
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue and license fees ................ $ 4,713,686 $ 911,625 $ 747,174
Operating Expenses:
Cost of contract revenue and license fees ....... 4,281,174 882,034 747,098
Research and development ........................ 10,601,362 2,516,840 1,494,661
General and administrative ...................... 5,738,703 1,189,803 606,281
Licensed technology for research and
development ..................................... -- -- --
------------ ------------ ------------
Total operating expenses ......................... 20,621,239 4,588,677 2,848,040
------------ ------------ ------------
Loss from operations ............................. (15,907,553) (3,677,052) (2,100,866)
Loss incurred in connection
with Canadian affiliate .......................... -- -- --
Interest income .................................. 127,322 14,703 44,145
Interest expense ................................. (172,366) (172,366) --
------------ ------------ ------------
Net loss before extraordinary income ............. (15,952,597) (3,834,715) (2,056,761)
Extraordinary income and
forgiveness of indebtedness ...................... 2,050,000 -- --
------------ ------------ ------------
Net loss ......................................... (13,902,597) (3,834,715) (2,056,721)
============ ============ ============
Preferred stock dividends and accretion .......... (3,487,587) (720,703) (1,503,299)
============ ============ ============
Basic and diluted net loss applicable to
common stockholders .............................. $(17,390,184) $ (4,555,418) (3,560,020)
============ ============ ============
Basic and diluted net loss per common share ...... $ (.88) $ (.25) $ (.15)
============ ============ ============
Weighted average common shares used in
computing net loss per share ..................... 19,826,864 17,936,675 23,243,684
============ ============ ============
</TABLE>
118.
<PAGE> 125
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996
-------------- -------------- -------------- --------------
(As Restated (1))
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 10,104,179 $ 5,536,782 $ 435,460 $ 1,548,392
Marketable securities ...................... -- 2,034,948 -- --
Working capital (deficit) .................. 8,612,996 3,859,854 (1,298,886) (5,927,902)
Total assets ............................... 18,099,705 17,039,292 16,299,508 10,504,608
Short-term debt ............................ 170,572 197,453 248,494 5,402,268
Long-term debt obligation .................. 483,364 3,038,778 15,977,899 --
Deferred revenue ........................... -- 5,000,000 5,000,000 5,000,000
Related party payable ...................... -- -- -- --
Dividend payable ........................... -- -- -- 583,295
Preferred stock redemption liability ....... -- -- -- 1,236,753
Canadian affiliate put option liability .... -- -- 2,076,000 2,400,000
Total liabilities .......................... 2,893,194 13,255,070 26,741,003 17,091,212
Accumulated deficit ........................ (108,528,342) (131,172,135) (152,273,333) (188,994,811)
Total stockholders' equity (deficit) ....... 15,206,511 3,784,222 (10,441,495) (6,586,604)
</TABLE>
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
DECEMBER 31, March 31 March 31
1997 1997 1998
-------------- ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 5,328,535 2,122,889 4,588,786
Marketable securities ...................... -- -- --
Working capital (deficit) .................. (3,125,559) (10,201,932) (10,180,070)
Total assets ............................... 8,811,565 10,682,921 8,591,833
Short-term debt ............................ 800,000 4,300,000 800,000
Long-term debt obligation .................. 1,450,000 -- 1,450,000
Deferred revenue ........................... 10,000,000 5,000,000 10,000,000
Related party payable ...................... 3,442,833 -- 5,887,835
Dividend payable ........................... 2,943,136 1,154,885 3,528,383
Preferred stock redemption liability ....... -- 1,370,375 4,530,461
Canadian affiliate put option liability .... 2,400,000 2,400,000 2,400,000
Total liabilities .......................... 23,703,412 21,809,076 30,539,525
Accumulated deficit ........................ (206,384,995) (193,550,229) (209,945,015)
Total stockholders' equity (deficit) ....... (14,891,847) (11,126,155) (21,947,692)
</TABLE>
- ----------
(1) See Note O of Notes to Financial Statements for restatement discussion.
119.
<PAGE> 126
SERAGEN'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion may contain forward-looking statements that involve risks
and uncertainties. Seragen's actual results may differ materially from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors." Seragen undertakes no obligation to release publicly the results of
any revisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.
The following should be read in conjunction with Seragen's condensed financial
statements and notes thereto.
OVERVIEW
Seragen is engaged in the discovery, research and development of
pharmaceutical products for human therapeutic applications. Since 1985, Seragen
has focused substantially all of its efforts and resources on research and
development of its fusion protein technology. Seragen's Fusion Proteins were
developed using proprietary technology and have potential applications in a wide
range of human diseases. To date, Seragen has not generated any revenues from
the sale of fusion protein products, and Seragen does not expect to receive any
such revenues in 1998. Seragen has generated no profit since its inception and
expects to incur additional operating losses over the next several years.
In February 1997, Seragen entered into an agreement to sell its
manufacturing and clinical operations facilities to BU or a designated affiliate
for $5.0 million and in connection therewith entered into a service agreement
with BU pursuant to which BU agreed to provide Seragen with certain services
related to product research, development, manufacturing, clinical trials,
quality control and quality assurance. After receiving shareholder approval and
ratification, Seragen completed the sale of the Operating Division on December
31, 1997. BU assumed responsibility for the facility's operation including
responsibility for operating costs as of February 14, 1997. The terms of this
transaction are discussed more fully below under "Liquidity and Capital
Resources".
On May 11, 1998, Seragen executed the Merger Agreement with Ligand and
Merger Sub, a wholly owned subsidiary of Ligand. Subject to approval by a
majority of the outstanding voting shares of capital stock of Seragen and
certain other conditions, Merger Sub will merge with and into Seragen, with the
result that Seragen will become a wholly owned subsidiary of Ligand.
Simultaneously with the execution of the Merger Agreement, Seragen and its
subsidiary STI entered into the Accord Agreement with the Compromising
Claimants, pursuant to which those parties agreed to forbear from exercising all
specified rights against Seragen and STI for so long as the Merger Agreement
continues in effect and to release Seragen from specified liabilities in the
event that the Ligand merger is consummated.
Seragen's business is subject to significant risks, including the ability
to raise additional capital, the uncertainties associated with the regulatory
approval process and with obtaining and enforcing patents important to Seragen's
business. Seragen expects to incur substantial operating losses over the next
several years due to continuing expenses associated with its research and
development programs, including pre-clinical testing and clinical trials.
Operating losses may also fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Seragen's net loss applicable to common shareholders for the three-month
period ended March 31, 1998 was $3.6 million compared to $4.6 million for the
period ended March 31, 1997. The decrease in the net loss of $1.0 million during
the first quarter of 1998 was primarily due to a reduction in operating expenses
of $1.7 million and a reduction of interest expense of $172,000. This decrease
was partially offset by a reduction in contract revenue with Lilly of $135,000
and an increase in preferred stock dividends of $783,000.
120.
<PAGE> 127
Seragen's revenues for the three months ended March 31, 1998 and 1997
were $747,000 and $912,000, respectively, primarily contract revenue from Lilly
for certain development costs of IL-2 Fusion Protein for cancer therapy.
Contract revenue from Lilly decreased in 1998 by $135,000 reflecting the
completion in 1998 of certain clinical data management milestones and patient
enrollment for a Phase III clinical trial for IL-2 Fusion Protein for CTCL.
Total operating expenses for the quarter ended March 31, 1998 decreased
by $1.8 million to $2.8 million in 1998 from $4.6 million in 1997. This decrease
of $1.8 million was primarily due to savings resulting from Seragen's Service
Agreement with BU and the sale of Seragen's Operating Division to BU. The cost
of contract revenue was $747,000 in 1998 as compared to $882,000 in 1997, a
decrease of $135,000, reflecting the completion in 1998 of certain clinical data
management milestones and patient enrollment for a Phase III clinical trial for
IL-2 Fusion Protein for CTCL. Research and development expenses decreased by
$1.0 million to $1.5 million in the first three months of 1998 from $2.5 million
for the first three months of 1997. The reductions in research and development
expenses are a result of the sale of the Operating Division to BU which resulted
in substantial reductions in nearly all expenses including salaries (as the
result of the transfer of a majority of Seragen's employees), rent and
depreciation. General and administrative expenses decreased by $584,000 to
$606,000 in the first three months of 1998 as compared to $1.2 million in the
first three months of 1997. This decrease was primarily the result of the
transfer of certain employees in connection with the sale of Seragen's Operating
Division to BU and reductions in legal fees, outside services and business
insurance.
Seragen's obligation to Seragen's Canadian affiliate is $2.4 million,
which was accrued as of December 31, 1997. Interest income increased by $30,000
reflecting interest earned on higher cash balances versus the first quarter of
1997. Interest expense decreased by $172,000 to $0 in the first quarter of 1998
from $172,000 in the first quarter of 1997 as a result of elimination of
interest expense associated with a note payable. Preferred stock dividends and
accretion increased by $783,000 to $1.5 million in the first three months on
1998 as compared to $721,000 in the first three months in 1997. This increase
was the dividend expense related to the conversion of 598 shares of Series D
Preferred Stock ("Seragen Series D Preferred Stock") and 1060 shares of Seragen
Series Preferred C Stock into common stock.
RESTATEMENT OF DECEMBER 31, 1996 FINANCIAL STATEMENTS
In September of 1997, Seragen restated its 1996 financial statements to
reflect a change in the accounting treatment for Seragen's Sales and
Distribution Agreement with Lilly, as a result of the May 28, 1996 amendment
thereto. The restatement consists of (i) recording the $5.0 million payment by
Lilly in 1994 as an advance against future purchases of bulk product by Lilly
(Seragen had previously recorded such amount as revenue in the quarter ended
June 30, 1996), (ii) capitalizing as a deferred expense $2,060,000 of
commissions paid by Seragen in connection with the $5.0 million payment from
Lilly in 1994, and (iii) reversing a $1.2 million expense accrual associated
with providing the bulk material to Lilly (previously recorded by Seragen in the
fourth quarter of 1996). (See Notes D and O in Notes to the Financial
Statements.) The following table presents the net loss, the net loss applicable
to common stockholders, and the net loss per share as originally reported, and
as restated.
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1996
----------------------------
As reported As restated
------------ ------------
<S> <C> <C>
Net loss $(24,586,560) $(26,326,560)
Basic and diluted loss applicable to
common stockholders (34,981,478) (36,721,478)
Basic and diluted loss per share $ (2.09) $ (2.20)
============ ============
</TABLE>
121.
<PAGE> 128
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1997 AND 1996
Seragen incurred a net loss of $17.4 million for the year ended December
31, 1997 compared to $36.7 million for the year ended December 31, 1996. The
decrease in net loss of $19.3 million during 1997 was primarily due to (i) a
decrease of $6.9 million in preferred stock dividends and accretion, (ii) a
reduction in operating expenses of $3.0 million, (iii) a reduction in the loss
incurred in connection with Seragen's Canadian affiliate of $2.9 million, (iv) a
decrease of $5.3 million in interest expense, and (v) an extraordinary gain of
$2.1 million reflecting the forgiveness of indebtedness of the Ajinomoto license
agreement. These decreases in expenses were partially offset by a reduction in
revenue of $0.8 million.
Seragen's revenues for the year ended December 31, 1997 were $4.7 million
as compared to $5.5 million for the year ended December 31, 1996. Contract
revenue from Lilly increased in the year ended December 31, 1997 as compared to
1996 by $0.3 million, associated with the Phase III clinical trial for IL-2
Fusion Protein for cancer therapy. Other contract revenue increased by $0.4
million, however this gain was more than offset by a decrease in revenue from
license fees of $1.5 million as a result of a one-time fee relating to the
exercise by Novartis of an option to license certain patents in the field of
transplantation in 1996.
Total operating expenses decreased by $3.0 million to $20.6 million in
1997 from $23.6 million in 1996. Expenses associated with the cost of contract
revenue and license fees decreased by $0.2 million to $4.3 million in 1997 from
$4.5 million in 1996. Although the cost of contract revenue from Lilly increased
by $0.3 million, this was more than offset by the one-time expense of a
sublicense fee relating to the exercise by Novartis of an option to license
certain patents in the field of transplantation that occurred in the year ended
December 31, 1996. Research and development expenses decreased by $3.4 million
to $10.6 million for the year ended December 31, 1997 as compared to $14.0
million for the year ended December 31, 1996. This decrease was primarily the
result of a reduction in workforce and related expenses.
General and administrative expenses increased by $0.6 million to $5.7
million for the year ended December 31, 1997 as compared to $5.1 million for the
year ended December 31, 1996 due to the increase in legal expenses associated
with Seragen's proxy filing and patent counsel, a fairness opinion for USSC, the
value of warrants issued to USSC, and fees and expenses of certain consultants.
Losses incurred in connection with Seragen's Canadian affiliate decreased
by $2.9 million to $0 in 1997. This decrease reflects Seragen's decision in 1997
to reduce its investment in the affiliate to zero and reflects an obligation of
$2.4 million to the Investor Shareholders in Seragen's Canadian affiliate.
Interest income was substantially unchanged for the year ended December 31, 1997
as compared to the year ended December 31, 1996.
Interest expense decreased $5.3 million in 1997 to $0.2 million from $5.5
million in 1996 primarily due to the elimination of the lines of credit in
exchange for Series B Preferred Stock which occurred in July 1996.
Seragen recorded $3.5 million in preferred stock dividends in 1997
related to the Series A, B and C Preferred Stock. In 1996 Seragen recorded $10.4
million in preferred stock dividends which consisted of (i) the value associated
with the Series B Preferred Stock warrants of $8.6 million, (ii) cash dividends
of $1.2 million, and (iii) stock dividends and issuance costs of $610,000.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996 AND 1995
Seragen incurred a net loss of $36.7 million for the year ended December
31, 1996 compared to $21.1 million for the year ended December 31, 1995. The
increase in net loss during 1996 was primarily due to (i) the payment and
accretion of a total of $10.4 million in dividends associated with the Series A,
B and C Preferred Stock in 1996 including warrants valued at $8.6 million issued
to the Series B shareholders, (ii) the expensing of $3.0 million of prepaid
interest associated with the restructuring of the June 1995 guaranteed loans,
and (iii) an increase
122.
<PAGE> 129
of $2.5 million in the charge for the potential obligation of Seragen to the
investors in SBL in connection with certain put rights.
Seragen's revenues for the year ended December 31, 1996 were $5.5 million
as compared to $3.3 million for the year ended December 31, 1995. This increase
of $2.2 million in 1996 was primarily the result of the receipt of a one-time
$1.5 million fee relating to the exercise by Novartis of an option to license
certain patents in the field of transplantation in the third quarter of 1996 and
an increase of $700,000 primarily in contract revenue from Lilly associated with
the Phase III clinical trial for IL-2 Fusion Protein for cancer therapy.
Total operating expenses increased by $1.3 million to $23.6 million in
1996 from $22.3 million in 1995. Expenses associated with the cost of contract
revenue and license fees increased by $1.2 million to $4.5 million in 1996
compared to $3.3 million in 1995. This increase reflects an increase of
approximately $700,000 for the acceleration of clinical development activity
under the Phase III clinical trial for IL-2 Fusion Protein for cancer therapy
and an increase of $500,000 related to a sub-license fee payable on the $1.5
million patent license revenue mentioned above. Research and development
expenses were substantially unchanged for the year ended December 31, 1996 as
compared to the year ended December 31, 1995. However, there was a decrease of
approximately $300,000 due to the decision by Seragen in 1996 to focus its
financial resources on IL-2 Fusion Protein for cancer and psoriasis therapies
thereby reducing clinical development in other IL-2 Fusion Protein indications.
There was also a decrease of $200,000 in non-reimbursable research grants and
outside pre-clinical testing. These decreases were partially offset by an
increase of $400,000 in facility engineering and validation fees. General and
administrative expenses were substantially unchanged for the year ended December
31, 1996 as compared to the year ended December 31, 1995.
Losses incurred in connection with Seragen's Canadian affiliate increased
$2.5 million to $2.9 million in 1996 from $400,000 in 1995. This increase
reflects Seragen's decision in 1996 to reduce its investment in the affiliate to
zero and reflects an obligation of $2.4 million to the Investor Shareholders in
Seragen's Canadian affiliate. Interest income was substantially unchanged for
the year ended December 31, 1996 as compared to the year ended December 31,
1995.
Interest expense increased $3.7 million in 1996 to $5.5 million from $1.8
million in 1995 primarily due to the expensing of $3.0 million of prepaid
interest and $475,000 of debt issuance costs associated with the repayment of
the June 1995 loans and to higher loan balances in 1996 as compared to 1995.
Seragen recorded $10.4 million in preferred stock dividends in 1996
related to the Series A, B and C Preferred Stock issuances. The $10.4 million in
preferred stock dividends consisted of (i) the value associated with the Series
B Preferred Stock warrants of $8.6 million, (ii) cash dividends of $1.2 million,
and (iii) stock dividends and issuance costs of $610,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, Seragen had approximately $4.6 million in cash and
cash equivalents, which was comprised of (i) the final payment of $0.5 million
made by BU with respect to the sale of the Operating Division to BU, and (ii)
the remainder of $5.0 million from USSC pursuant to the USSC License Agreement.
As of March 31,1998, Seragen had negative working capital of $10.2 million and
is dependent upon the continued forbearance of BU and Marathon pursuant to the
Accord Agreement. If BU and Marathon were to require payment from Seragen,
Seragen would be unable to make such payment and might be forced to cease
operations.
Seragen expects to incur substantial additional research and development
expenses as it continues development of its Fusion Proteins and pursues
regulatory approval of DAB(389)IL-2 for CTCL through its pending BLA. Seragen
also expects that substantial investment will be required to commercialize its
products. Seragen's continuing operating losses and requirements for working
capital will depend on many factors, including progress
123.
<PAGE> 130
in and costs associated with its research, pre-clinical and clinical development
efforts and the level of resources which Seragen must devote to obtaining
regulatory approvals to manufacture and sell its products.
Even if the BLA is approved by the FDA, a number of considerations affect
Seragen's business prospects. These include: the currently-projected sales
levels for DAB(389)IL-2 in CTCL; the prices that Seragen will receive for the
product from Lilly, its marketing partner for cancer; the royalties Seragen must
pay to other parties for its technology licenses; Seragen's obligation to repay
a $5 million advance against future sales; and Seragen's costs for having the
product manufactured. Given these considerations, Seragen does not expect
revenues from DAB(389)IL-2 to cover its operating costs for the foreseeable
future.
On April 7, 1997, Seragen entered into the April 7 Amendment with Lilly
pursuant to which Lilly had originally obtained the development and marketing
rights to Seragen's lead molecule, IL-2 Fusion Protein, for all cancer and
certain non-cancer indications. Under the terms of the Amendment, subject to
certain limitations, Lilly relinquished certain other development and marketing
rights to IL-2 Fusion Protein for non-cancer indications, as well as rights to
other molecules. In addition, Lilly agreed to pay to Ajinomoto on behalf of
Seragen $4.3 million: Lilly paid $2.15 million to Ajinomoto for a license
granted by Ajinomoto directly to Lilly; and Lilly has agreed to pay, subject to
certain conditions, up to $2.15 million of Seragen's $2.25 million obligation to
Ajinomoto under Seragen's restructured agreement with Ajinomoto. Pursuant to the
Amendment, Lilly has (i) credited $1.5 million of the amount paid by Lilly to
Ajinomoto on behalf of Seragen against the $1.5 million milestone payment that
was due from Lilly to Seragen under the Sales and Distribution Agreement between
Seragen and Lilly upon the submission in December 1997 of a BLA for CTCL to the
FDA and (ii) paid $800,000 of Seragen's obligations to Ajinomoto.
Lilly is not obligated to make any further payments in respect of
Seragen's obligations to Ajinomoto if Lilly terminates the Sales and
Distribution Agreement and Development Agreement between it and Seragen as a
result of a failure by Seragen to meet specified clinical, regulatory and
financial milestones and other requirements. Seragen has not met the milestones
and as a result, Lilly has the right, with 30 days' notice, to terminate its
agreements with Seragen. Seragen has received no indication from Lilly that
Lilly intends to exercise that right. If Lilly were to terminate its agreements
with Seragen, Seragen would be obligated to pay $1.35 million to Ajinomoto that
Lilly has agreed to make on Seragen's behalf, and Lilly's obligations under the
agreements to provide financial support to Seragen's clinical trial efforts
would cease.
In exchange for the amendments to the agreement, Seragen issued to Lilly
in a private placement 1.0 million shares of its common stock, which were valued
at $800,000 and recorded as research and development expense.
Pursuant to an agreement dated May 11, 1998, Lilly has agreed to assign
to Ligand its rights and obligations under its existing agreements with Seragen
upon FDA approval of Seragen's BLA for CTCL. In the event that the FDA approves
the BLA, this assignment will occur regardless of whether the Merger has been
consummated so long as Ligand is exercising its best efforts to seek
consummation of the Merger at time of regulatory approval. (See "Description of
the Merger--Agreements with Lilly, Ligand and Seragen.")
On June 1, 1997, Seragen restructured its License Agreement with
Ajinomoto pursuant to which Ajinomoto had granted Seragen worldwide rights to
certain IL-2 gene patents owned by the Japanese Foundation for Cancer Research
and Ajinomoto for potential use in the development of Seragen's lead product,
IL-2 Fusion Protein. Prior to the restructuring, Seragen was obligated to pay
Ajinomoto license fees and royalties as follows: $4.3 million payable upon the
occurrence of certain specified events, but no later than March 31, 1997
(extended by agreement of Ajinomoto to May 31, 1997); and royalties ranging from
2% to 4% on sales of the licensed product by Seragen or its sublicensees, but
with minimum royalties of $100,000 for the third year of the agreement, $200,000
for the fourth year of the agreement, and $300,000 for the fifth and following
years of the agreement. In addition, prior to the restructuring, the rights
granted by Ajinomoto to Seragen pursuant to the License Agreement were
exclusive.
124.
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Under the terms of the restructuring, the future license fees and
royalties payable by Seragen to Ajinomoto were reduced to the following amounts:
a $2.25 million fee payable in the amount of $800,000 by June 30, 1998, or
approval by the FDA of a BLA filed by Seragen for the licensed product,
whichever comes first, in the amount of $800,000 by June 30, 1999, and in the
amount of $650,000 by March 31, 2000; and a reduced royalty of 1% on end user
net sales of the licensed product by Seragen or its sublicenses. Seragen amended
its agreements with Lilly whereby Lilly will pay license fees to Ajinomoto on
behalf of Seragen, subject to certain limitations. As of June 30, 1998, Lilly
has paid $800,000 to Ajinomoto on behalf of Seragen. The restructuring provides
that the license granted by Ajinomoto to Seragen will be non-exclusive.
Accordingly, in 1997, Seragen reduced its obligation to Ajinomoto from $4.3
million to $2.25 million and recorded extraordinary income of $2,050,000 for the
forgiveness of indebtedness. Seragen will record extraordinary income in the
amount of $800,000 for forgiveness of indebtedness in the quarter ended June 30,
1998.
In 1997, Seragen sold its Operating Division (as defined below) to BU.
Seragen began assembling the components of Seragen's operating division, which
includes substantially all of Seragen's personnel and tangible assets and
related contract rights other than (i) certain management personnel, and (ii)
assets utilized by retained management personnel in the performance of their
duties (collectively, the "Operating Division"), over five years ago. Seragen
developed the Operating Division in a manner that provided excess capacity in
order to meet anticipated commercial demand for the Company's products.
Historically, the Operating Division has never operated at full capacity because
Seragen has not yet begun manufacturing product for commercial purposes and due
to the limited financial resources that Seragen has available to develop other
products. Seragen, however, maintained a relatively high level of staffing in
order to comply with regulatory requirements. Seragen maintained the Operating
Division, despite its high costs, because of the delays and disruptions in
Seragen's product development and clinical trial efforts that the board of
directors and management believed would have resulted had Seragen discontinued
the operations of the Operating Division and sought to obtain the services
provided by the Operating Division from third parties. In late 1996, Seragen
determined that it did not have adequate financial resources to maintain the
Operating Division in accordance with its initial plans or to develop additional
products utilizing the Operating Division.
As of February 14, 1997, Seragen entered into the Asset Purchase
Agreement to sell the Operating Division to BU or a designated affiliate for
$5.0 million. The net book value of the assets to be sold to BU was
approximately $4.5 million as of February 14, 1997. Seragen closed this
transaction as of December 31, 1997. The net book value of the assets sold to BU
was approximately $3.9 million as of December 31, 1997. At the closing, BU paid
the remaining $500,000 of the purchase price, and a majority of Seragen's
employees involved in its manufacturing and clinical operations became employees
of the contract service organization created by BU under the name Marathon
Biopharmaceuticals, LLC. Upon the closing of this transaction, Seragen accounted
for the gain on the sale of the Operating Division and the excess of the
reimbursed operating costs over the amount due to BU, pursuant to the Service
Agreement for the period from February 14, 1997 until the closing of the
transaction, as a contribution of capital.
Simultaneously with the execution of the Asset Purchase Agreement,
Seragen entered into the Service Agreement with BU providing for the purchase by
Seragen of certain services related to product research, development,
manufacturing, clinical trials, quality control, and quality assurance. The
Service Agreement expires in January 1999 and is subject to certain early
termination provisions, including the option of BU to terminate the agreement if
losses during a contract year exceed $9.0 million and, after notice, Seragen
does not reimburse BU for the losses in excess of $9.0 million. If Seragen is
unable to or chooses not to make the additional payments, it will be forced to
change to a new service provider. This could adversely affect Seragen's research
and development efforts. The Service Agreement may be renewed for two successive
one-year terms at the option of Seragen. Seragen has the option to repurchase
the assets comprising the Operating Division. Seragen originally agreed to pay
BU approximately $5.5 million and $6.6 million in years 1 and 2 of this
contract, respectively. Under the agreement, the fees could be mutually
increased or decreased, but not to less than $4.3 million per contract year. As
of May 11, 1998, Seragen and BU agreed to reduce the fees payable in the
contract year ending January 31, 1999 to $4.3 million. This reduction in fees
applies retroactively to February 1, 1998, the beginning of the current contract
year. As of June 30, 1998, Seragen has not paid any portion of these fees, and
BU has not taken any action to compel
125.
<PAGE> 132
payment. As a result, Seragen currently is indebted to BU and Marathon in this
respect in the amount of $7.1 million as of that date. BU and Marathon, as the
assignee of BU's rights under the Service Agreement, have agreed pursuant to the
Accord Agreement to forbear from exercising their rights to collect amounts due
to them under the Service Agreement until the earlier to occur of the
consummation of the Merger and the termination of the Merger Agreement. Pursuant
to the Accord Agreement, BU and Marathon have agreed to release Seragen from all
claims for amounts due to them from Seragen under the Service Agreement in the
event the Merger is consummated in exchange for the right to receive the Merger
Consideration.
As a result of the Service Agreement, Seragen's research and development
operating costs in the year ended December 31, 1997 were reduced substantially,
even after taking into consideration the accrued amount owed to BU under the
Service Agreement. The Service Agreement is expected to continue to result in
reduced operating costs in research and development, as Seragen will be
contracting solely for the services that Seragen requires for clinical and
manufacturing purposes.
On July 31, 1997, Seragen entered into the USSC License Agreement with
USSC, granting USSC an option on worldwide rights to the EGF Fusion Protein for
restenosis in cardiovascular applications. Leon C. Hirsch, who beneficially owns
more than 5% of Seragen Common Stock, is the Chairman of USSC and beneficially
owns 7.8% of the common stock of USSC. Turi Josefsen, who beneficially owns more
than 5% of Seragen Common Stock, is a director of USSC and beneficially owns
1.8% of the common stock of USSC. John R. Silber, a director of Seragen and the
Chancellor of BU, is a director of USSC and beneficially owns .02% of the common
stock of USSC. Pursuant to the USSC License Agreement, USSC made an initial
payment to Seragen of $5.0 million on July 31, 1997. Under the USSC License
Agreement, USSC is entitled to acquire an exclusive license to the EGF Fusion
Protein technology, at any time during a 15-month evaluation period, upon the
payment to Seragen of an additional $5.0 million. In addition, Seragen issued to
USSC a warrant for the purchase of 500,000 shares of Seragen Common Stock at a
purchase price of $.5625 per share, the closing sale price for shares of Seragen
Common Stock on the date prior to the date the warrant was issued. Seragen
charged $175,000 for such warrant to general and administrative expense. USSC
has agreed to fund trials associated with the development of EGF Fusion Protein
for restenosis. If USSC's option to obtain an exclusive license of the EGF
Fusion Protein technology is exercised, milestone payments will be payable by
USSC to Seragen up to a maximum amount of $22.5 million. In addition, USSC will
be obligated to pay Seragen royalties on commercial sales of the licensed
product. In the event USSC chooses not to exercise the option, the USSC License
Agreement will terminate, and, in exchange, USSC will receive $5.0 million worth
of Seragen Common Stock valued at the average of the closing prices of Seragen
Common Stock (i) for the 10 trading days preceding the date of the USSC License
Agreement or (ii) for the 10 trading days preceding the date on which USSC
chooses not to exercise the option, whichever is lower. Seragen has recorded the
$5.0 million initial payment from USSC as a liability. In the event that USSC
exercises its option to license the EGF Fusion Protein, the $5.0 million will be
recorded as revenue at that time. In the event that USSC chooses not to exercise
the option, the $5.0 million will be recorded as stockholders' equity. Pursuant
to the Accord Agreement, USSC has agreed to release Seragen from all claims
under the USSC License Agreement and related warrants and to terminate such
agreement and warrants, all in the event the Merger is consummated, in exchange
for the right to receive the specified Merger Consideration allocated to it
under the Merger Agreement.
On August 6, 1997, Seragen and Harvard College amended their license
agreement dated November 29, 1983. Pursuant to the amended license agreement,
the royalties payable by Seragen on net sales of product covered by such license
agreement were reduced from 5% to 2%. Further, the royalties payable to Harvard
from sub-licenses were reduced from 50% to 10%.
On October 1, 1997, Seragen and the Boston Medical Center (formerly
University Hospital) amended their license and royalty agreement dated November
18, 1991. Pursuant to the amended license and royalty agreement, the royalties
payable by Seragen on net sales of product covered by such license agreement
following the expiration of the Harvard license, above, were reduced from 1.5%
to 1.0%. Further, the royalties payable to Boston Medical Center from
sub-licenses were reduced from 15% to 2% provided that such products require
other patents or licenses in addition to the license from Boston Medical Center.
126.
<PAGE> 133
In January 1998, Seragen subleased approximately 7,000 square feet of
office space in two buildings in Hopkinton, Massachusetts from Marathon. The
subleases on each of the buildings expires in January 1999 and Seragen can
exercise, at its option, two one-year extensions on each sublease.
On May 29, 1996, Seragen issued 4,000 shares of Series A Preferred Stock
("Seragen Series A Preferred Stock"), to investors outside the United States in
reliance on Regulation S of the Securities Act, for gross proceeds of $4 million
(approximately $3.8 million net of offering fees). Each share of Seragen Series
A Preferred Stock was convertible into shares of Seragen Common Stock at a
conversion price equal to the lesser of $4.125 or 73% of the average closing
sale prices for a five-day period prior to the conversion date, subject to a
contractually imposed maximum of 3,321,563 shares of Seragen Common Stock. Any
shares of Seragen Series A Preferred Stock the investor was unable to convert
due to the conversion cap could be exchanged for $1,150 per share in cash. On
November 11, 1997, the holders of the Seragen Series A Preferred Stock and
Seragen agreed to eliminate the conversion limitation and the ability to
exchange such shares for cash when subject to such limitation. The holders of
the Seragen Series A Preferred Stock also were entitled to receive cumulative
dividends from May 29, 1996, at an 8% annual rate upon conversion, payable in
shares of Common Stock. Any Seragen Series A Preferred Stock remaining
outstanding on November 29, 1997, were to be automatically converted into shares
of Seragen Common Stock.
On November 26, 1997, Seragen issued 923 shares of Series D Preferred
Stock ("Seragen Series D Preferred Stock") in exchange for all remaining
outstanding shares of its Seragen Series A Preferred Stock. The Seragen Series D
Preferred Stock featured terms identical to the Seragen Series A Preferred
Stock, except that (i) the shares of Seragen Series D Preferred Stock did not
convert automatically into Seragen Common Stock until November 29, 1998, and
(ii) the shares of Seragen Series D Preferred Stock were redeemable for cash.
All Seragen Series D Preferred Stock have since been converted into Seragen
Common Stock.
Seragen has not paid the cash dividends due December 31, 1996, March 31,
1997, June 30, 1997, September 30, 1997, December 31, 1997, March 31, 1998, and
June 30, 1998 on the Seragen Series B Preferred Stock, nor has Seragen made the
royalty payments due to STI on January 1, 1997, April 1, 1997, July 1, 1997,
October 1, 1997, January 1, 1998, April 1, 1998, and July 1, 1998.
Correspondingly, STI has not paid the dividends due January 1, 1997, April 1,
1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998, and July 1,
1998 on STI Class B Common Stock. Seragen does not expect STI to make any
dividend payments due on the STI Class B Common Stock in 1998. The holders of
the STI Class B Common Stock have the right under an escrow agreement to seek
delivery to them of a collateral assignment of Seragen's patents.
Dividends payable of approximately $4.1 million with respect of the
Seragen Series B Preferred Stock were outstanding at June 30, 1998, and are
included in accrued expenses.
On September 30, 1996, Seragen raised $5 million through the sale of
5,000 shares of Seragen's non-voting convertible Seragen Series C Preferred
Stock in a private placement to BU under Regulation D of the Securities Act of
1933. Shares of the Seragen Series C Preferred Stock were convertible at the
option of the holder into shares of Seragen Common Stock at a per share
conversion price equal to the lesser of $2.75 or 73% of the average closing sale
prices for a five day period prior to the conversion date, up to a maximum of
3,360,625 shares of Seragen Common Stock. Any shares the investor was unable to
convert due to this limitation could be exchanged for $1,150 per share in cash.
Terms of the Seragen Series C Preferred Stock also provided for 8% cumulative
dividends payable in shares of Seragen Common Stock at the time of each
conversion. Each share of Seragen Series C Preferred Stock had a liquidation
preference equal to $1,000 plus an amount equal to any accrued and unpaid
dividends from the date of issuance of the Seragen Series C Preferred Stock in
the event of a voluntary or involuntary liquidation, dissolution or winding up
of Seragen. Seragen Series C Preferred Stock which remained outstanding on March
30, 1998 were to be automatically converted into shares of Seragen Common Stock.
Effective March 30, 1998, 1,060 Seragen Series C Preferred Stock
automatically converted, in accordance with the terms of the Series C Preferred
Stock, into 3,360,625 shares of Seragen Common Stock and 3,940 shares
127.
<PAGE> 134
of Series C Preferred Stock were, as required by the terms of the Series C
Preferred Stock, purchased by Seragen for an aggregate purchase price of
$4,530,461. Following these transactions, no shares of Seragen Series C
Preferred Stock remained outstanding. The purchase price for the Seragen Series
C Preferred Stock purchased by Seragen has not yet been paid by Seragen, nor has
BU, the holder of the Seragen Series C Preferred Stock, demanded payment of the
said purchase price. As a result, Seragen currently is indebted to BU for this
amount. Pursuant to the Accord Agreement, BU has agreed, in exchange for the
right to receive the specified amount of Merger Consideration allocated to it
under the Merger Agreement, to surrender 3,360,625 shares of Seragen Common
Stock for cancellation and to release Seragen from its obligations to make any
cash payment in respect of the March 30, 1998 conversion of the Seragen Series C
Preferred Stock.
Seragen Common Stock was delisted from trading on the Nasdaq National
Market on September 9, 1997, due to failure to comply with Nasdaq's minimum net
tangible assets requirement. The delisting of the Common Stock from the Nasdaq
National Market could have a material adverse effect on Seragen's efforts to
raise additional equity capital.
Effective as of May 1, 1998, Seragen entered into the Seragen Canada
Settlement Agreement with the Investor Shareholders. The Seragen Canada
Settlement Agreement provides for the purchase by Seragen Canada of all shares
of Seragen Canada capital stock currently held by the Investor Shareholders for
an aggregate amount equal to Seragen Canada's cash and liquid investments on
hand after the payment of specified expenses. As of February 28, 1998, Seragen
Canada held approximately $9,378,770 in cash and liquid investments. Such
purchase transaction is expected by Seragen management to occur on or prior to
July 31, 1998; there can be no assurance, however, that such transaction will
occur. Upon the consummation of Seragen Canada's purchase of the Investor
Shareholders' Seragen Canada shares, mutual releases among Seragen, Seragen
Canada, and the Investor Shareholders will become effective and a November 22,
1995 Shareholders Agreement and other specified agreements executed in
connection with the original organization of Seragen Canada in November 1995
will be terminated. The Seragen Canada Settlement Agreement also provides for
issuance by Seragen of an aggregate of $2.4 million worth of its Common Stock
upon the later to occur of (a) the closing date for Seragen Canada's purchase of
the Investor Shareholders' Seragen Canada shares and (b) the earlier to occur of
(i) a qualified offering by Seragen of additional shares of its capital stock
with net proceeds to Seragen of $10 million and (ii) the consummation of a
disposition of Seragen, whether by way of a merger (as contemplated under the
Merger Agreement) or otherwise, or substantially all of Seragen's assets.
Seragen anticipates that existing cash and cash equivalents and
reimbursement of clinical costs for the development of IL-2 Fusion Protein for
cancer therapy from Lilly will be sufficient, under the forbearance provisions
of the Accord Agreement, to fund Seragen's working capital requirements through
approximately October 1998. The Report of Independent Accountants on Seragen's
Financial Statements for the fiscal year ended December 31, 1997 includes an
explanatory paragraph concerning uncertainties surrounding Seragen's ability to
continue as a going concern. This uncertainty may adversely affect Seragen's
ability to raise additional capital. Seragen's ability to finance its operations
is dependent upon its ability to raise additional capital.
Seragen has explored possible opportunities for equity and debt
offerings. On the basis of discussions with its financial advisors and with
multiple prospective investors, Company management concluded that it is unlikely
that Seragen will be able to obtain such financing on terms that Company
management believes would be attractive to Seragen's existing shareholders.
On May 11, 1998, Seragen executed the Merger Agreement with Ligand and
Merger Sub, a wholly-owned subsidiary of Ligand. Subject to approval by a
majority of the outstanding voting shares of capital stock of Seragen and
certain other conditions, Merger Sub will merge with and into Seragen, with the
result that Seragen will become a wholly-owned subsidiary of Ligand. This
transaction is expected to close in the third quarter of 1998. Simultaneously
with the execution of the Merger Agreement, Seragen and its subsidiary STI
entered into the Accord Agreement with BU, BU Holding, Marathon, USSC, Mr.
Hirsch, Ms. Josefsen, Mr. Cassidy, Mrs. Cassidy, Mr. Prior, Dr. Nichols, Ms.
Chen, Mr. Crane, Shoreline Pacific, Lehman Brothers, 520 Commonwealth and 660
Corporation,
128.
<PAGE> 135
pursuant to which those parties agreed to forbear from exercising all specified
rights against Seragen and STI for so long as the Merger Agreement continues in
effect and to release Seragen from specified liabilities, including the
liabilities to BU, Marathon and USSC discussed above, in the event that the
Merger is consummated. There can be no assurance that the Merger will be
consummated.
In the event that the Merger is not consummated, Seragen may continue to
seek additional funds through collaborative or other arrangements with corporate
partners and others. Seragen entered into one such arrangement in 1997 with
USSC, as described above, with respect to its EGF Fusion Protein. However,
Seragen's prospects for such arrangements with respect to IL-2 Fusion Protein
appear to be limited. Seragen's New Management Team has found that clinical
issues associated with the side-effect profile of the product and with its
intravenous administration, along with the fact that the same molecule has
already been partnered for cancer indications, make it difficult to attract a
partner to develop the product for non-cancer indications. The New Management
Team accordingly believes that it will continue to be difficult for Seragen to
establish, on advantageous terms, additional collaborative partnerships for
further trials of IL-2 Fusion Protein.
If the Merger Agreement is terminated and as a result the Accord
Agreement is also terminated, Seragen's current cash position may not be
sufficient to meet its financial obligations or to fund operations at the
current level beyond July 1998 unless BU and Marathon continue to forbear from
collecting amounts due to them under the Service Agreement or Seragen is able to
secure a financing or other means of funding operations. If adequate additional
funds are not available, Seragen may be required to delay, scale back or
eliminate some or all of its clinical trials, manufacturing or development
activities or certain other aspects of its business and may be required to cease
operations.
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On March 12, 1997, the Seragen Board at the recommendation of the
Seragen's Audit Committee voted to replace Coopers & Lybrand L.L.P. with Arthur
Andersen LLP as Seragen's independent accountants effective March 12, 1997.
Coopers & Lybrand L.L.P.'s report for the fiscal year 1995 contained no adverse
opinions, disclaimers, or qualifications or modifications as to uncertainty,
audit scope or accounting principles, except that the report on the 1995
financial statements included an explanatory paragraph concerning factors which
raise substantial doubt about Seragen's ability to continue as a going concern.
During such fiscal year, there had been no disagreements with Coopers & Lybrand
L.L.P. on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of Coopers & Lybrand L.L.P., would have caused it to make reference
to the subject matter of disagreement in connection with its reports.
129.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Seragen Common Stock as of July 6, 1998 by (i) each person known by
Seragen to own beneficially 5% or more of outstanding Seragen Common Stock, (ii)
each Director of Seragen, (iii) each named executive officer of Seragen and (iv)
all Directors and executive officers as a group. Except as otherwise indicated,
the named beneficial owner has sole voting and investment power with respect to
the shares beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
OWNED (1)(2)
NAME(**) NUMBER OF SHARES PERCENT
- -------- ---------------- -------
<S> <C> <C>
Boston University................................ 47,826,246(3)(4) 74.0%
881 Commonwealth Avenue
Boston, MA 02215
Leon C. Hirsch................................... 21,454,713(3)(5) 43.0%
150 Glover Avenue
Norwalk, CT 06856
Turi Josefsen.................................... 9,194,877(3)(6) 24.4%
150 Glover Avenue
Norwalk, CT 06856
Gerald S.J. Cassidy.............................. 6,155,111(3)(7) 17.8%
700 13th Street, N.W., Suite 400
Washington, DC 20005
Elizabeth Chen................................... 1,386,766(8) 4.7%
Kenneth G. Condon, C.P.A., C.F.P................. 5,200(9) *
Robert W. Crane.................................. 1,768,557(10) 5.9%
c/o Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Norman A. Jacobs................................. 19,000(11) *
Jean C. Nichols, Ph.D............................ 2,482,318(12) 8.0%
c/o Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Reed R. Prior.................................... 5,748,117(13) 16.8%
c/o Seragen, Inc.
97 South Street
Hopkinton, MA 01748
John R. Silber, Ph.D............................. 178,500(14) *
All Officers and Directors as a Group............ 17,918,619 38.9%
</TABLE>
130.
<PAGE> 137
- ----------
* Represents beneficial ownership of less than 1% of the Seragen Common Stock.
** Addresses are given for persons who beneficially own 5% or more of
outstanding Seragen Common Stock only.
(1) A person or group is deemed to have "beneficial ownership" of any shares
as of July 6, 1998, that such person or persons comprising the group has
the right to acquire within 60 days after such date. Any securities not
outstanding which are subject to options, warrants, rights or conversion
privileges of which a person or group has ownership are deemed to be
outstanding only for the purpose of computing the percentage of
outstanding securities of the class owned by such person or group; but
are not deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.
(2) Percentage ownership is based on 28,430,011 shares of Seragen Common
Stock outstanding as of July 6, 1998.
(3) Consists of a portion of 46,706,734 shares of Seragen Common Stock
issuable upon conversion of 23,800 shares of Seragen Series B Preferred
Stock and assumes that Seragen Series B Preferred Stock are convertible
at a conversion price of $0.509563, the conversion price in effect on
July 6, 1998, based on the average of the closing sale prices of the
Seragen Common Stock for the ten consecutive trading days preceding that
date.
(4) The Boston University Nominee Partnership is a partnership that was
created to act as the record holder of certain securities owned by BU.
Mr. Condon is a general partner of the partnership and is required to
vote and take other actions with respect to such shares of Seragen Common
Stock as instructed by duly authorized officers of BU. The officers of BU
are duly authorized by the actions of the trustees of BU. Mr. Condon (a
general partner of the Boston University Nominee Partnership) and Dr.
Silber (a trustee and the Chancellor of BU) disclaim beneficial ownership
of these shares. The ownership of the partnership consists of a warrant
to purchase 1,376,666 shares exercisable at $4.75 per share, a warrant to
purchase 11,632,758 shares exercisable at $4.00 per share and 23,157,120
shares of Seragen Common Stock issuable upon conversion of 11,800 shares
of Seragen Series B Preferred Stock. Pursuant to the anti-dilution
provisions of certain of its warrants, BU may be entitled to receive
additional warrants in the event that USSC declines to exercise its
option under the USSC License Agreement to acquire the EGF Fusion Protein
technology and thereby becomes entitled to receive shares of Seragen
Common Stock. See "Certain Transactions." Due to the fact that the price
at which shares of Seragen Common Stock would be issuable to USSC under
the USSC License Agreement cannot be determined until USSC declines to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology, Seragen is unable at this time to determine
the number of additional warrants that would be issuable to BU in the
event that USSC were to decline to exercise its option under the USSC
License Agreement to acquire the EGF Fusion Protein technology. BU has
entered into that certain shareholders agreement dated November 6, 1996,
with Seragen, Leon C. Hirsch, Turi Josefsen, Gerald S.J. Cassidy and
Loretta P. Cassidy (collectively, the "Shareholders") and Reed R. Prior
with respect to the election of directors and other matters (the
"Shareholders Agreement"). See "Certain Transactions."
(5) Consists of a warrant to purchase 816,666 shares of Seragen Common Stock
exercisable at $4.75 per share, a warrant to purchase 6,900,772 shares of
Seragen Common Stock exercisable at $4.00 per share, and 7,000 shares of
Seragen Series B Preferred Stock convertible into 13,737,275 shares of
Seragen Common Stock. Does not include 2,957,474 shares of Seragen Common
Stock issuable upon exercise of warrants and does not include 5,887,403
shares of Seragen Common Stock issuable upon conversion of 3,000 shares
of Seragen Series B Preferred Stock held by Turi Josefsen, Mr. Hirsch's
wife, as to which Mr. Hirsch disclaims beneficial ownership. Pursuant to
the anti-dilution provisions of certain of his warrants, Mr. Hirsch may
be entitled to receive additional warrants in the event that USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology and thereby becomes entitled to
receive shares of Seragen Common Stock. See "Certain Transactions." Due
to the fact that the price at which shares of Seragen Common Stock would
be issuable to USSC under the USSC
131.
<PAGE> 138
License Agreement cannot be determined until USSC declines to exercise
its option under the USSC License Agreement to acquire the EGF Fusion
Protein technology, Seragen is unable at this time to determine the
number of additional warrants that would be issuable to Mr. Hirsch in the
event that USSC were to decline to exercise its option under the USSC
License Agreement to acquire the EGF Fusion Protein technology. Mr.
Hirsch has entered into the Shareholders Agreement with respect to the
election of directors and other matters. See "Certain Transactions."
(6) Consists of a warrant to purchase 350,000 shares of Seragen Common Stock
exercisable at $4.75 per share, a warrant to purchase 2,957,474 shares of
Seragen Common Stock exercisable at $4.00 per share, and 3,000 shares of
Seragen Series B Preferred Stock convertible into 5,887,403 shares of
Seragen Common Stock. Does not include 6,900,772 shares of Seragen Common
Stock issuable upon exercise of warrants and does not include 13,737,275
shares of Seragen Common Stock issuable upon conversion of 7,000 shares
of Seragen Series B Preferred Stock held by Leon C. Hirsch, Ms.
Josefsen's husband, as to which Ms. Josefsen disclaims beneficial
ownership. Pursuant to the anti-dilution provisions of certain of her
warrants, Ms. Josefsen may be entitled to receive additional warrants in
the event that USSC declines to exercise its option under the USSC
License Agreement to acquire the EGF Fusion Protein technology and
thereby becomes entitled to receive shares of Seragen Common Stock. See
"Certain Transactions." Due to the fact that the price at which shares of
Seragen Common Stock would be issuable to USSC under the USSC License
Agreement cannot be determined until USSC declines to exercise its option
under the USSC License Agreement to acquire the EGF Fusion Protein
technology, Seragen is unable at this time to determine the number of
additional warrants that would be issuable to Ms. Josefsen in the event
that USSC were to decline to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology. Ms. Josefsen has
entered into the Shareholders Agreement with respect to the election of
directors and other matters. See "Certain Transactions."
(7) Includes 4,000 shares of Seragen Common Stock issuable upon exercise of
options held by Mr. Cassidy, a warrant to purchase 233,332 shares of
Seragen Common Stock exercisable at $4.75 per share, a warrant to
purchase 1,971,674 shares of Seragen Common Stock exercisable at $4.00
per share, and 3,924,936 shares of Seragen Common Stock issuable upon
conversion of 2,000 shares of Seragen Series B Preferred Stock. Mr.
Cassidy's Seragen Series B Preferred Stock and warrants are owned jointly
with his wife, Loretta P. Cassidy. Pursuant to the anti-dilution
provisions of certain of their warrants, Mr. Cassidy and Mrs. Cassidy may
be entitled to receive additional warrants in the event that USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology and thereby becomes entitled to
receive shares of Seragen Common Stock. See "Certain Transactions." Due
to the fact that the price at which shares of Seragen Common Stock would
be issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, Seragen is unable
at this time to determine the number of additional warrants that would be
issuable to Mr. Cassidy and Mrs. Cassidy in the event that USSC were to
decline to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology. Mr. and Mrs. Cassidy have
entered into the Shareholders Agreement with respect to the election of
directors and other matters. See "Certain Transactions."
(8) Includes 1,386,766 shares of Seragen Common Stock issuable upon exercise
of options held by Ms. Chen that are exercisable within 60 days. Pursuant
to the anti-dilution provisions of her options, Ms. Chen may be entitled
to receive additional options in the event that USSC declines to exercise
its option under the USSC License Agreement to acquire the EGF Fusion
Protein technology and thereby becomes entitled to receive shares of
Seragen Common Stock. See "Certain Transactions." Due to the fact that
the price at which shares of Seragen Common Stock would be issuable to
USSC under the USSC License Agreement cannot be determined until USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology, Seragen is unable at this time
to determine the number of additional options that would be issuable to
Ms. Chen in the event that USSC were to decline to exercise its option
under the USSC License Agreement to acquire the EGF Fusion Protein
technology.
132.
<PAGE> 139
(9) Consists of 4,000 shares of Seragen Common Stock issuable upon exercise
of options held by Mr. Condon.
(10) Includes 1,768,557 shares of Seragen Common Stock issuable upon exercise
of options held by Mr. Crane that are exercisable within 60 days.
Pursuant to the anti-dilution provisions of his options, Mr. Crane may be
entitled to receive additional options in the event that USSC declines to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology and thereby becomes entitled to receive shares
of Seragen Common Stock. See "Certain Transactions." Due to the fact that
the price at which shares of Seragen Common Stock would be issuable to
USSC under the USSC License Agreement cannot be determined until USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology, Seragen is unable at this time
to determine the number of additional options that would be issuable to
Mr. Crane in the event that USSC were to decline to exercise its option
under the USSC License Agreement to acquire the EGF Fusion Protein
technology.
(11) Consists of 19,000 shares of Seragen Common Stock issuable upon exercise
of options held by Mr. Jacobs.
(12) Includes 2,473,812 shares of Seragen Common Stock issuable upon exercise
of options held by Dr. Nichols that are exercisable within 60 days.
Pursuant to the anti-dilution provisions of her options, Dr. Nichols may
be entitled to receive additional options in the event that USSC declines
to exercise its option under the USSC License Agreement to acquire the
EGF Fusion Protein technology and thereby becomes entitled to receive
shares of Seragen Common Stock. See "Certain Transactions." Due to the
fact that the price at which shares of Seragen Common Stock would be
issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, Seragen is unable
at this time to determine the number of additional options that would be
issuable to Dr. Nichols in the event that USSC were to decline to
exercise its option under the USSC License Agreement to acquire the EGF
Fusion Protein technology.
(13) Consists of 5,748,117 shares of Seragen Common Stock issuable upon
exercise of options held by Mr. Prior that are exercisable within 60
days. Pursuant to the anti-dilution provisions of his options, Mr. Prior
may be entitled to receive additional options in the event that USSC
declines to exercise its option under the USSC License Agreement to
acquire the EGF Fusion Protein technology and thereby becomes entitled to
receive shares of Seragen Common Stock. See "Certain Transactions." Due
to the fact that the price at which shares of Seragen Common Stock would
be issuable to USSC under the USSC License Agreement cannot be determined
until USSC declines to exercise its option under the USSC License
Agreement to acquire the EGF Fusion Protein technology, Seragen is unable
at this time to determine the number of additional options that would be
issuable to Mr. Prior in the event that USSC were to decline to exercise
its option under the USSC License Agreement to acquire the EGF Fusion
Protein technology. Mr. Prior has entered into the Shareholders Agreement
with respect to the election of directors and other matters. See "Certain
Transactions."
(14) Includes a warrant to purchase 7,500 shares of Seragen Common Stock
exercisable at $10.00 per share. Dr. Silber's shares of Seragen Common
Stock and warrant are owned jointly with his wife, Kathryn U. Silber.
133.
<PAGE> 140
DIRECTORS AND EXECUTIVE OFFICERS OF SERAGEN
The following identifies the Seragen director and named executive officer
who will continue to serve as such following the Closing. The age indicated is
as of June 30, 1998.
<TABLE>
<CAPTION>
OFFICER OF
NAME AGE POSITIONS WITH SERAGEN SERAGEN SINCE
- ---- --- ---------------------- -------------
<S> <C> <C> <C>
Jean C. Nichols, Ph.D. 47 Director, President, Chief 1987
Technology Officer and
Secretary
</TABLE>
Jean C. Nichols, Ph.D., was elected President and Chief Technology
Officer and a member of the Board of Directors of Seragen in November 1996 and
was elected Secretary in March 1998. From 1992 to 1996, she served as Senior
Vice President, and from 1987 to August 1992, as Vice President of Development
for Seragen. From 1984 to 1987, Dr. Nichols was Director of Research and
Development, and from 1983 to 1984, Dr. Nichols served as Seragen's scientific
liaison. Dr. Nichols received a B.S. in Biology and a Ph.D. in Bacteriology and
Immunology from the University of North Carolina. Upon completion of her
studies, Dr. Nichols was a Research Fellow at the Harvard Medical School. Before
joining Seragen, she held the position of Instructor in the Department of
Microbiology and Molecular Genetics at the Harvard Medical School.
Seragen's officers are elected annually by the Seragen Board at a meeting
held immediately following each annual meeting of the stockholders or as soon
thereafter as necessary and convenient in order to fill vacancies or newly
created offices. Each officer holds office until his or her successor is duly
elected and qualified, or until his or her earlier death, resignation,or
removal. The Seragen Board may remove any officer elected or appointed by the
Seragen Board whenever in its judgement the best interests of Seragen will be
served, but removal of an executive officer is to be without prejudice to any
contractual rights of the person so removed.
There are no family relationships among any of Seragen's directors and
executive officers. There are no arrangements or understandings between any
director or executive officer and any other person pursuant to which that
director or executive officer was or is to be selected.
134.
<PAGE> 141
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS
The following table summarizes the compensation for the fiscal years
ended December 31, 1997, 1996, and 1995, of the director and named executive
officer of Seragen who will continue to serve as such following the Closing.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------- ------------
Securities
NAME AND OTHER ANNUAL Underlying
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION Options
- ------------------ ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jean C. Nichols, Ph.D. 1997 225,000 - 42,656(2) 2,116,525
President And Chief 1996 195,542(3) - - 692,752(4)
Technology Officer 1995 190,000 - - 18,000(5)
</TABLE>
(1) Portions of Annual Compensation have been deferred under Seragen's
Employee Savings Plan. These amounts are included in calculation of
"Salary" and "Bonus" as reflected in the table.
(2) Amount includes payment of accrued vacation of $42,656.
(3) In fiscal year 1996, Dr. Nichols was paid $195,542, which represents
$190,000 base salary through November 5, 1996, and $225,000 base salary
from November 6, 1996 through December 31, 1996.
(4) Represents an option granted on December 18, 1996 comprised of (i)
514,164 shares and (ii) 164,409 shares which were granted upon
cancellation of options for an equal number of shares. Also includes an
option for 14,179 shares which was canceled on December 18, 1996.
(5) Represents options which were canceled as of December 18, 1996, and
reissued at a lower price, such options are included in fiscal year
1996.
OPTION GRANTS
The following table sets out the material terms of each grant of a stock
option to a Named Executive Officer during the last fiscal year, including the
number of options granted, the exercise price and the expiration date, as well
as the percentage that the grant represents of total options granted to
employees during the fiscal year. In addition, in accordance with rules of the
SEC, the table discloses hypothetical gains that would be realized by the
holders of the options if the options were exercised on the expiration dates.
These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the future performance of the Seragen Common Stock and
overall market conditions.
135.
<PAGE> 142
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZED
---------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jean C. Nichols, Ph.D. 124,894 1.0% $1.31 12/18/06 75,817 190,617
135,293 1.0% $1.00 12/18/06 79,501 198,463
681,336 5.3% $0.63 12/18/06 241,788 599,190
1,175,002 9.1% $0.28 12/18/06 180,501 444,137
</TABLE>
(1) All options were granted under Seragen's Incentive Plan and have an
exercise price equal to the fair market value of Seragen's Common Stock
on the date of grant. See -- "Employment and Consulting Agreements;
Change in Control Arrangements." All options vest either monthly or
quarterly over a three to five year period. Under the terms of the
Incentive Plan, upon a change in control or a potential change in
control (each as defined in the Incentive Plan), all options will be
fully vested and, unless otherwise determined by the committee
administering the plan, cashed out. In the event of a merger or
consolidation, the options terminate unless they are assumed by the
merged or consolidated corporation or that corporation issues substitute
options; however, if that corporation does not assume the options or
issue substitute options, the options immediately vest in full. Under
the Incentive Plan, optionees may settle any tax withholding obligations
with Seragen's Common Stock. The committee that administers the
Incentive Plan has authority: to substitute new options for previously
granted options (including previously granted options having higher
exercise prices); to accelerate the vesting of options upon termination
of the optionee's employment due to death, disability or retirement; and
generally to amend the terms of any option, including the exercise price
(so long as the optionee consents to any amendment that impairs his or
her rights).
Currently, Seragen has 24 million shares of common stock reserved for
issuance under Seragen's Incentive Plan. As of July 2, 1998, Seragen had
granted, net of cancellations, options to purchase 23,254,930 shares of Seragen
Common Stock, and options to purchase 559,213 shares of Seragen Common Stock are
still available for grant.
FISCAL YEAR-END OPTION VALUES
No stock options were exercised by any of the Named Executive Officers
in fiscal year 1997. The following table sets forth the number of shares covered
by both exercisable and unexercisable stock options held by each of the Named
Executive Officers as of December 31, 1997, and the value of "in-the-money"
options, which represent the positive spread, if any, between the exercise price
of a stock option and the year-end price of Seragen Common Stock.
136.
<PAGE> 143
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL YEAR
OPTIONS AT FISCAL YEAR END(#) END($)(1)
------------------------------------ ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jean C. Nichols, Ph.D. 1,141,981 1,708,117 - -
</TABLE>
(1) Based on the last reported sale price of Seragen Common Stock as of
December 31, 1997 of $0.28.
EMPLOYMENT AND CONSULTING AGREEMENTS; CHANGE IN CONTROL ARRANGEMENTS
Employment Agreement with Jean C. Nichols. On November 6, 1996, Seragen
entered into an employment agreement with Jean C. Nichols, Ph.D., pursuant to
which Dr. Nichols was promoted to and serves as President and Chief Technology
Officer of Seragen. The agreement was amended in certain respects and restated
as of September 22, 1997. Dr. Nichols' agreement also provides that she serve as
a Director of Seragen. Dr. Nichols' annual base salary is $225,000. Dr. Nichols
is entitled to participate in the bonus and benefit programs that are available
to Seragen's employees, and is entitled to health, life and disability
insurance.
Pursuant to Dr. Nichols' employment agreement, in December 1996, Seragen
issued to Dr. Nichols an option to purchase 678,573 shares of Seragen Common
Stock, which number of shares was equal to 1.275% of Seragen common stock
outstanding on the grant date less 54,000 shares covered by options previously
granted to Dr. Nichols, at a price of $1.31 per share, to vest in 36 monthly
increments during the term of the agreement, and canceled options for 164,409
shares of Seragen Common Stock. Seragen has the obligation to register all of
the shares of Seragen Common Stock underlying options for resale.
On September 30, 1997, Seragen issued additional options to Dr. Nichols
sufficient to bring her total options to a number giving her the right to
purchase Seragen Common Stock equal to 2.75% of Seragen outstanding common
stock, on a fully diluted basis.
The agreement as amended provides for anti-dilution protections which,
among other things, require Seragen to issue additional options as necessary to
cause the number of shares underlying her stock options to equal but not exceed
2.75% of Seragen outstanding common stock on a fully diluted basis. These
anti-dilution provisions will be applicable until Seragen sells a cumulative
total of $20.0 million in equity or convertible securities to non-affiliated
persons. Pursuant to these anti-dilution provisions and the amendment of Dr.
Nichols' employment agreement increasing her option percentage from 1.275% to
2.75%, on March 31, 1997, June 30, 1997, September 30, 1997, December 31, 1997,
and March 31, 1998, Seragen granted to Dr. Nichols options to purchase 124,894,
135,293, 681,336, 1,175,002, and 998,698 shares of Seragen Common Stock,
respectively.
Under the agreement, Dr. Nichols is entitled to receive payments in the
event of certain transactions that may be deemed a "change in ownership" of
Seragen. A "change in ownership" includes: (i) any acquisition of all or
substantially all of Seragen's equity securities or operating assets, whether by
way of merger, sale of assets, stock purchase, tender offer or otherwise; or
(ii) the sale or out-licensing of the majority (in value) of Seragen's
technology assets. In the event of a "change in ownership," Dr. Nichols is
entitled to receive an "Asset Value Realization Bonus" equal to 2.75% of the net
proceeds from the change in ownership transaction. The amount that Seragen must
pay Dr. Nichols will be reduced by the amount of gain recognized by Dr. Nichols
as a result of her sale of Seragen Common Stock acquired as a result of exercise
of options (or deemed sales in certain circumstances when she is able to, but
does not, sell). In the event of a change in ownership after which the purchaser
makes Dr. Nichols a bona fide employment offer, Dr. Nichols' Asset Value
Realization Bonus will be payable to her as follows: 25% on the closing of the
change in ownership, 25% two months after closing, 25% four months
137.
<PAGE> 144
after closing, and 25% six months after closing, the obligation of Seragen to
make each such payment in respect of the Asset Value Realization Bonus being
subject to Dr. Nichols' continued employment with the purchaser at the time the
payment falls due. If the purchaser terminates Dr. Nichols' employment without
"just cause" or if Dr. Nichols terminates her employment with the purchaser for
"good reason" (as defined below, except that a change in ownership or a change
in control will not constitute good reason for this purpose and the termination
of Dr. Nichols' employment by agreement, death, or disability will constitute
good reason for this purpose), Dr. Nichols will be entitled to receive the
entire amount of her Asset Value Realization Bonus as a lump sum payment.
Seragen's sale of its operating facility to Boston University did not constitute
a "change in ownership" for purposes of Dr. Nichols' agreement.
Seragen's agreement with Dr. Nichols continues until terminated by
either party on written notice of not less than 30 days. The agreement may be
terminated by Seragen with or without just cause. In the event Seragen
terminates Dr. Nichols' employment other than for just cause, or in the event
that Dr. Nichols terminates her employment for good reason, Seragen is required
to pay Dr. Nichols as severance a lump sum payment equal to one year's salary
based on the annual rate in effect on the date of termination. Upon such
termination, Seragen will also provide Dr. Nichols with accelerated vesting of
her stock options. "Just cause," as defined in the agreement, consists of fraud,
a felony conviction, or a breach of a material term of the agreement or willful
failure to perform material duties which default is not cured following written
notice (all as defined in the agreement). "Good reason," as defined in the
agreement, includes: (i) the failure of Dr. Nichols to continue as a member of
the Board of Directors, unless Dr. Nichols resigns from that position; (ii) an
act of bad faith by Seragen resulting in Dr. Nichols' resignation from Seragen;
(iii) breach by Seragen of a material term under the employment agreement; (iv)
a "change in ownership" as defined in Dr. Nichols' employment agreement; or (v)
a "change in control" as defined under the Incentive Plan. Dr. Nichols is
entitled to receive one year's salary in the event of death or disability. The
agreement also includes non-competition, confidentiality and indemnification
provisions.
Option Plans. Under Seragen's Incentive Plan, upon a change in control
or a potential change in control, the vesting of options granted to the named
executive officer under the Incentive Plan will be accelerated, and the value of
the options will, unless otherwise determined by the Compensation Committee, be
cashed out at a price to be determined at the time of the cash out.
Specifically, in the event of (i) a Change in Control, or (ii) a Potential
Change in Control, but only if and to the extent determined by the Board of
Directors or the Compensation Committee: (a) all SARs outstanding for at least
six months and all Stock Options will become fully exercisable and vested; (b)
all limitations applicable to any award of Restricted Stock, Deferred Stock, or
an Other Stock-Based Award will lapse and the shares to which the award relates
will be deemed fully vested; and (c) unless the Compensation Committee
determines otherwise prior to a Change in Control, the value of all vested
awards under the Incentive Plan will be cashed out on the basis of the Change in
Control Price, which generally is defined as the highest price per share of
Seragen Common Stock paid in any transaction during the 60-day period preceding
the Change in Control.
A "Change in Control" generally is deemed to occur if: (i) any person or
group (other than Boston University) acquires, directly or indirectly,
beneficial ownership of 20% or more of the combined voting power of Seragen's
then-outstanding securities; (ii) within any 24-month period there is a change
in a majority of the Seragen Board that is not approved by the incumbent
Directors; or (iii) a transaction occurs requiring stockholder approval for the
acquisition of Seragen by another entity through asset purchase, merger, or
otherwise.
A "Potential Change in Control" generally is deemed to occur if: (i)
stockholders approve an agreement by Seragen, the consummation of which would
result in a Change in Control; or (ii) any person or group (other than Boston
University) acquires, directly or indirectly, beneficial ownership of 5% or more
of the combined voting power of Seragen's then-outstanding securities and the
Board of Directors adopts a resolution declaring that a Potential Change in
Control has occurred.
Although the exact amount to be paid by Seragen cannot be determined,
such amount could be in excess of $100,000 for a named executive officer even if
he or she continues in such capacity following the Closing.
138.
<PAGE> 145
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1997 were
Messrs. Cassidy and Jacobs.
In June 1995, Seragen finalized three separate lines of credit, which
were guaranteed by three different parties, for a total of $23.8 million in
guaranteed bank financing for Seragen. Seragen issued warrants to the guarantors
for the purchase of 2,776,664 shares of Seragen Common Stock at an exercise
price of $4.75 per share. These warrants were immediately exercisable and expire
in 2005. Boston University, Seragen's majority shareholder, was the lead
guarantor, providing a guaranty of $11.8 million in exchange for a warrant to
purchase 1,376,666 shares of Seragen Common Stock. Mr. Cassidy, a member of the
Seragen Board, provided a guaranty of $2 million in exchange for a warrant to
purchase 233,332 shares of Seragen Common Stock. Mr. Hirsch and Ms. Josefsen
provided guaranties of the remaining $10 million in exchange for warrants to
purchase an aggregate of 1,166,666 shares of Seragen Common Stock.
In an effort to forestall a delisting of Seragen Common Stock from the
Nasdaq National Market due to failure of Seragen to meet applicable listing
criteria relating to net assets, in July 1996, Seragen restructured its
arrangement with the guarantors of Seragen's $23.8 million loan financing to
release Seragen from its obligations to the bank lenders. Under the restructured
arrangement, the guarantors assumed Seragen's obligations to the banks, and in
consideration Seragen issued an aggregate of 23,800 shares of Seragen Series B
Preferred Stock and warrants to the guarantors. Each share of Seragen Series B
Preferred Stock is convertible at any time at the investor's option into a
number of shares of Seragen Common Stock determined by dividing $1,000 by the
average of the closing sale prices of the Seragen Common Stock as reported on
Nasdaq for the ten consecutive trading days immediately preceding the conversion
date. The holders of Seragen Series B Preferred Stock are entitled to receive a
cumulative dividend payable in arrears in cash, quarterly on the last day of
each calendar quarter, commencing on September 30, 1996 at an annual rate equal
to the prime rate plus 1-1/2% through June 1999 and at an increasing percentage
rate thereafter up to a maximum rate of the prime rate plus 5% from and after
July 1, 2003. The holders of Seragen Series B Preferred Stock are entitled to
vote on any matters submitted to Seragen's stockholders. Each share of Seragen
Series B Preferred Stock is entitled to a vote equivalent to 250 shares of
Seragen Common Stock. Each share of Seragen Series B Preferred Stock has a
liquidation preference equal to $1,000 plus an amount equal to any accrued and
unpaid dividends from the date of issuance of the Seragen Series B Preferred
Stock. At any time, with the approval of the Seragen Board, Audit Committee or
comparable body, Seragen may redeem any or all of the Seragen Series B Preferred
Stock for cash. The redemption price per share of Seragen Series B Preferred
Stock is $1,000 plus an amount equal to any accrued and unpaid dividends from
the date of issuance of the Seragen Series B Preferred Stock. The recipients of
the Seragen Series B Preferred Stock also were issued warrants to purchase a
total of 5,950,000 shares of Seragen Common Stock (warrants for the purchase of
250,000 shares of Seragen Common Stock for every $1.0 million of Seragen Series
B Preferred Stock purchased) at an exercise price of $4.00 per share. The
warrants are exercisable commencing on January 1, 1997, and expire on July 1,
2006. In addition, each holder of Seragen Series B Preferred Stock is entitled
to receive additional warrants pursuant to certain anti-dilution provisions.
Each such additional warrant will have an exercise price of $4.00 per share,
will be exercisable commencing on January 1, 1997, and will expire on July 1,
2006.
In connection with the issuance of the Seragen Series B Preferred Stock,
Seragen formed STI. Seragen transferred all of the Patents to STI in exchange
for 214,200 shares of STI's Class A Common Stock and 23,800 shares of STI Class
B Common Stock. Each share of STI Class A Common Stock is owned by Seragen.
Seragen has transferred the STI Class B Common Stock to the holders of the
Seragen Series B Preferred Stock.
STI has no operations, and its sole asset is the Patents. Its authorized
capital stock consists of 214,200 shares of Class A Common Stock and 23,800
shares of Class B Common Stock, all of which, as described in the paragraph
above, is issued and outstanding. Each share of STI Class A Common Stock and STI
Class B Common Stock is entitled to one vote on all matters submitted to a vote
of STI shareholders, voting together as a single class.
Simultaneously with the contribution of the Patents to STI, Seragen
entered into the Irrevocable License Agreement with STI pursuant to which STI
granted to Seragen an irrevocable worldwide exclusive license with respect to
the Patents. Under the terms of the Irrevocable License Agreement, Seragen is
obligated to pay quarterly royalties to STI in an amount equal to the amount of
any dividend that the holders of the Seragen Series B Preferred Stock are
entitled to receive but have
139.
<PAGE> 146
not received by the royalty due date (which is one day after each quarterly
dividend payment date for the Seragen Series B Preferred Stock). The shares of
STI Class B Common Stock, in turn, are entitled to receive cumulative dividends
equal to any royalty payable to STI under the Irrevocable License Agreement.
STI has executed a collateral assignment of the Patents in favor of the
holders of the Class B Common Stock, which is being held by an escrow agent. The
escrow agent is required to deliver the collateral assignment to the holders of
STI Class B Common Stock if dividends on the STI Class B Common Stock are in
arrears and STI fails for 60 days, after the receipt of notice from the holders
of the STI Class B Common Stock, to pay the dividends due. Likewise, the holders
of STI Class B Common Stock have executed a reassignment of the Patents to STI,
which also is being held by the escrow agent. The escrow agent is obligated to
deliver the reassignment of the Patents to STI upon the redemption by STI of all
of the STI Class B Common Stock. The shares of STI Class B Common Stock are
required to be redeemed upon the redemption or conversion of Seragen Series B
Preferred Stock in a number equal to the number of shares of Seragen Series B
Preferred Stock redeemed or converted. The collateral assignment of the Patents
secures only STI's dividend payment obligations on the STI Class B Common Stock
and does not secure any other amounts (e.g., the liquidation preference of the
Seragen Series B Preferred Stock). The collateral assignment of the Patents has
no effect until the escrow agent is instructed to deliver it to the holders of
the STI Class B Common Stock.
Seragen has not paid the cash dividends due December 31, 1996, March 31,
1997, June 30, 1997, September 30, 1997, December 31, 1997, March 31, 1998 and
June 30, 1998 on the Seragen Series B Preferred Stock, nor has Seragen made the
royalty payments due to STI on January 1, 1997, April 1, 1997, July 1, 1997,
October 1, 1997, January 1, 1998, April 1, 1998 and July 1, 1998.
Correspondingly, STI has not paid the dividends due January 1, 1997, April 1,
1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998 and July 1,
1998 on the STI Class B Common Stock. Seragen does not expect STI to make any
dividend payments due on the STI Class B Common Stock in 1998.
Delivery of notice by the agent for the holders of the STI Class B
Common Stock to the escrow agent in accordance with the collateral assignment of
the Patents is the only condition to delivery of the collateral assignment of
the Patents to the holders of the STI Class B Common Stock. If the holders of
the STI Class B Common Stock were to deliver this notice to the escrow agent,
they would thereafter have the right to foreclose on the Patents, subject to
Seragen's rights under the Irrevocable License Agreement. The holders of the
Seragen Series B Preferred Stock have not yet delivered a notice of default to
the escrow agent, although they have the current right to do so.
On November 6, 1996, Seragen entered into the Shareholders Agreement
with respect to the election of directors and other matters. Pursuant to this
agreement, the Shareholders have agreed to vote their respective shares to: (i)
maintain the number of persons comprising the Seragen Board at nine (the
Shareholders and Mr. Prior have waived this requirement until such time as it is
possible to attract additional candidates with sufficient experience and stature
in the pharmaceutical industry to make their election desirable); (ii) not to
elect more than two persons designated by or affiliated with BU to the Seragen
Board; (iii) to elect Mr. Prior as a Director; and (iv) to elect three outside
directors with experience in the pharmaceutical industry reasonably acceptable
to Mr. Prior. In addition, the Shareholders Agreement grants Mr. Prior rights of
co-sale in the event Boston University chooses to sell over 50% of its stock in
Seragen to a third party. BU also agreed to pay its pro-rata share of Mr.
Prior's Asset Value Realization Bonus (as defined in Mr. Prior's employment
agreement) in the event that Seragen fails to pay such bonus.
OTHER ARRANGEMENTS
Pursuant to a shareholders agreement, holders of shares representing a
majority of the voting power of Seragen's securities have agreed to vote their
shares for the election of Mr. Prior as a Director. In addition, these
shareholders have agreed to vote their shares for the election of three
additional nominees with experience in the pharmaceutical industry who would be
"outside" Directors if elected and who are reasonably acceptable to Mr. Prior.
No such persons have yet been nominated.
Dr. John R. Murphy, ("Dr. Murphy") a former Director, has a consulting
agreement with Seragen. See "Executive Compensation--Employment and Consulting
Agreements; Change in Control Arrangements" and "Certain Transactions." On
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July 29, 1997, Seragen granted to Dr. Murphy options to purchase 80,675 shares
of Seragen Common Stock at $.72 per share (options to purchase 61,675 shares
granted in exchange for outstanding options with exercise prices ranging from
$4.63 to $15.00, options to purchase 4,000 shares granted in exchange for
outstanding options granted under the Director Plan with exercise prices ranging
from $4.625 to $8.625, and a new grant of options to purchase 15,000 shares).
These options were granted under Seragen's Incentive Plan. On December 16, 1997,
Seragen amended the grant of options to purchase 15,000 shares to accelerate the
vesting of 2,500 of those options and to delete a provision that those options
will terminate on termination of Dr. Murphy's consulting agreement with Seragen.
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CERTAIN TRANSACTIONS
In August 1987, BU, Nycomed (formerly Nyegaard & Co. AS) and Seragen
entered into a purchase and sale agreement pursuant to which BU, which then
owned approximately 6% of Seragen's outstanding Common Stock, acquired from
Nycomed 1,691,761 shares of Seragen's Common Stock, which represented all of
Nycomed's ownership interest in Seragen and approximately 71% of the then
outstanding common stock of Seragen. As part of this transaction, BU acquired
all of Nycomed's rights to technology, inventions, patents and other proprietary
rights (the "Technology") which were primarily related to or useful in the
development of Seragen's fusion protein products and also acquired the
world-wide exclusive rights to manufacture, use, sell and market products (the
"Products") derived from or including the Technology (the "Technology and
Marketing Rights"). In exchange for the acquisition of these assets, BU paid
$25.0 million to Nycomed and assumed Nycomed's obligations to Seragen, including
a commitment to finance and carry out Seragen's research and development program
and an obligation to guaranty Seragen's leases at its facilities in Hopkinton,
Massachusetts. In addition, pursuant to the agreement, Seragen is obligated to
pay Nycomed a continuing royalty with respect to sales of the Products and to
give Nycomed rights of first negotiation to market the Products in the territory
covered by the agreement. In connection with this agreement, Nycomed and BU
entered into a Noncompetition and Confidentiality Agreement under which Nycomed
agreed to maintain in confidence proprietary information and intellectual
property in connection with Seragen's business and not to compete with Seragen's
business. The Noncompetition and Confidentiality Agreement expired in August
1992. Seragen believes that the expiration of this Agreement will not materially
adversely affect Seragen's business.
In connection with the sale of stock to BU, Nycomed also transferred to
BU a debt owed to Nycomed by Seragen in the principal amount of $1,050,000. In
1988, BU converted this debt plus accrued interest thereon into 95,488 shares of
Seragen Common Stock, based on a conversion price equal to $15.00 per share of
Seragen Common Stock.
In connection with BU's acquisition of the majority interest in Seragen
in 1987, BU guaranteed Seragen's obligations under a $10.0 million line of
credit with The First National Bank of Chicago (the "Bank") to provide
short-term operating funds for Seragen (the "Guaranty"). BU pledged certain
collateral to the Bank to secure the Guaranty. In 1992, Seragen repaid the line
of credit, resulting in a termination of the Guaranty. In return for providing
the Guaranty, Seragen issued to BU a warrant (the "Bank Warrant") that was
exercisable to purchase up to 500,000 shares of Seragen Common Stock, at an
exercise price of $11.80 per share, at any time prior to January 28, 1993. The
Bank Warrant expired unexercised.
In January 1988, pursuant to the Technology Agreement, which was
contemplated at the time BU acquired the Technology from Nycomed, BU transferred
to Seragen the Technology and Marketing Rights obtained from Nycomed in exchange
for a continuing royalty on sales of the Products until the expiration of all
patents. Thereafter, Seragen agreed to pay BU a reduced royalty based on a
percentage of net sales for a period of 10 years after the expiration of such
patents. The Technology Agreement provides BU with a security interest in the
Technology and Marketing Rights to secure Seragen's compliance with the terms of
the agreement and also provides that upon a default by Seragen in the terms of
the Technology Agreement, the agreement will terminate and the Technology and
Marketing Rights will revert to BU. The Technology Agreement provides for
default in the event that (i) Seragen defaults in the performance of any
material term of that agreement, (ii) Seragen defaults in the performance of a
related financing agreement (which since has been terminated) or in any
indebtedness guaranteed by BU (none of which currently exists), (iii) Seragen
ceases to continue as a going concern or (iv) Seragen is placed under
receivership.
As of July 6, 1998, BU beneficially owned 11,659,702 shares (or
approximately 41.0%) of Seragen's outstanding common stock. In addition, BU
beneficially owns a warrant to purchase 1,376,666 shares of Seragen Common
Stock, a warrant to purchase 11,632,758 shares of Seragen Common Stock subject
to anti-dilution provisions (as defined) and shares issuable on conversion of
11,800 shares of Seragen Series B Preferred Stock. As of July 6, 1998, if all
outstanding Seragen securities held by BU were converted to Seragen Common
Stock, BU would own 47,826,246 shares of Seragen Common Stock.
Dr. Murphy, a former director of Seragen, has a consulting agreement
with Seragen pursuant to which he received consulting fees of $50,000 in the
fiscal year ended 1997. Seragen has extended this agreement through December 31,
1998, at a rate of $50,000 per year.
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In June 1995, Seragen finalized three separate lines of credit for a
total of $23.8 million in guaranteed bank financing for Seragen. The lines of
credit were guaranteed in various amounts by BU, Leon C. Hirsch, Turi Josefsen,
and Gerald S.J. Cassidy, in exchange for which Seragen provided warrants to the
guarantors. For a description of this transaction, see "Executive Compensation
and Other Employment Matters--Compensation Committee Interlocks and Insider
Participation."
In an effort to forestall a delisting of Seragen Common Stock from the
Nasdaq National Market due to failure of Seragen to meet applicable listing
criteria relating to net assets, in July 1996, Seragen restructured its
arrangement with the guarantors of Seragen's $23.8 million bank financing to
release Seragen of its liability to the bank lenders. Under the restructured
arrangement, the guarantors assumed Seragen's obligations to the banks, and in
consideration Seragen issued Seragen Series B Preferred Stock and warrants to
the guarantors. For a description of this transaction, see "Executive
Compensation and Other Employment Matters--Compensation Committee Interlocks and
Insider Participation."
In September 1996, Seragen raised $5 million through the sale of 5,000
shares of Seragen's Series C Preferred Stock in a private placement with BU. The
Seragen Series C Preferred Stock were convertible at the option of the holder
into shares of Seragen Common Stock at a conversion price equal to the lesser of
$2.75 or 73% of the average closing sale prices for a five-day period prior to
the conversion date, up to a maximum of 3,360,625 shares of Seragen Common
Stock. Any shares the investor was unable to convert due to this limitation
could be exchanged for $1,150 per share in cash. Terms of the Seragen Series
Preferred Stock also provided for 8% cumulative dividends payable in shares of
Seragen Common Stock at the time of each conversion. Each share of Seragen
Series C Preferred Stock had a liquidation preference equal to $1,000 plus an
amount equal to any accrued and unpaid dividends from the date of issuance of
the Seragen Series C Preferred Stock in the event of liquidation, dissolution or
winding up of Seragen. The holders of the Series C shares were not entitled to
vote, separately as a series or otherwise, on any matter submitted to a vote of
Seragen's shareholders.
Effective March 30, 1998, 1,060 shares Seragen Series C Preferred Stock
automatically converted, in accordance with the terms of the Seragen Series C
Preferred Stock, into 3,360,625 shares of Seragen Common Stock and 3,940 shares
of Series C Preferred Stock were, as required by the terms of the Seragen Series
C Preferred Stock, purchased by Seragen for an aggregate purchase price of
$4,530,461. Following these transactions, no Seragen Series C Preferred Stock
remained outstanding. The purchase price for the Seragen Series C Preferred
Stock purchased by Seragen has not yet been paid by Seragen, nor has BU, the
holder of the Seragen Series C Preferred Stock, demanded payment of the purchase
price. As a result, Seragen currently is indebted to BU for this amount.
On November 6, 1996, Seragen entered into the Shareholders Agreement
with the Shareholders and Mr. Prior. For a description of the Shareholders
Agreement, see "Executive Compensation and Other Employment
Matters--Compensation Committee Interlocks and Insider Participation."
As of February 14, 1997, Seragen entered into an agreement to sell its
operating division, which included substantially all of Seragen's assets and
personnel other than (i) its patents (which were previously transferred to a
related company and pledged to secure certain dividend obligations; see
"Executive Compensation and Other Employment Matters--Compensation Committee
Interlocks and Insider Participation") and other intellectual property, (ii)
certain retained management personnel and (iii) assets utilized by the retained
management personnel in the performance of their duties (the "Operating
Division"), to BU or a designated affiliate for $5 million. The agreement was
approved and ratified by Seragen's stockholders on December 16, 1997, and the
transaction was completed on December 31, 1997. Prior to closing, BU paid
Seragen $4.5 million as a deposit and assumed responsibility for the facility's
operations, including responsibility for operating costs. At the closing, BU
paid the remaining $500,000 of the purchase price, and Seragen transferred to
BU's subsidiary Marathon all assets and personnel associated with the Operating
Division. Seragen assigned to Marathon or BU the leases for Seragen's premises
(all of which were leased by Seragen), subject to an obligation on the part of
Marathon to sublet a portion of the premises back to Seragen for use by Seragen
as its offices. In addition, Seragen assigned to BU the leases for Operating
Division equipment and other property that Seragen leases. Seragen also assigned
its rights under certain of its contracts relating to the Operating Division
(e.g., clinical trial contracts) to Marathon. Finally, effective on the closing
of the sale of the Operating Division, Seragen's employees associated with the
Operating Division (approximately 90) were offered employment by Marathon.
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As of February 14, 1997, Seragen also entered into the Service Agreement
with BU, which was subsequently assigned to Marathon, providing for the purchase
by Seragen of certain services related to product research, development,
manufacturing, clinical trials, quality control, and quality assurance. The
Service Agreement expires in January 1999 and is subject to early termination
provisions, as defined, including the option of Marathon to terminate the
agreement if losses during a contract year exceed $9.0 million and Seragen does
not reimburse Marathon for the losses in excess of $9.0 million. The service
agreement may be renewed for two successive one-year terms at the option of
Seragen. Seragen has the option to repurchase the assets comprising the
manufacturing and clinical operations facilities. Seragen agreed to pay BU
approximately $5.5 million in contract year 1997. Seragen and BU have negotiated
a reduction in fees payable for 1998 to $4.3 million based on the actual
services anticipated for 1998. See "--Seragen's Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Service
Agreement has reduced substantially Seragen's operating costs in research and
development, as Seragen is contracting solely for the services that Seragen
requires for clinical and manufacturing purposes.
On July 31, 1997, Seragen entered into the USSC License Agreement with
USSC granting USSC an option on worldwide rights to Seragen's EGF Fusion Protein
for restenosis in cardiovascular applications. Mr. Hirsch, who beneficially owns
more than 5% of outstanding Seragen Common Stock, is the Chairman of USSC and
beneficially owns 7.8% of the common stock of USSC. Ms. Josefsen, who
beneficially owns more than 5% of outstanding Seragen Common Stock, is a
director of USSC and beneficially owns 1.8% of the common stock of USSC. Dr.
Silber, a director of Seragen, is a director of USSC and beneficially owns .02%
of the common stock of USSC. Pursuant to the USSC License Agreement, USSC made
an initial payment to Seragen of $5.0 million on July 31, 1997. Under the USSC
License Agreement, USSC is entitled to acquire an exclusive license to the EGF
Fusion Protein technology, at any time during a 15-month evaluation period, upon
the payment to Seragen of an additional $5.0 million. In addition, Seragen
issued to USSC a warrant for the purchase of 500,000 shares of Seragen Common
Stock at a purchase price of $.5625 per share, the closing sale price for shares
of Seragen Common Stock on the date prior to the date the warrant was issued.
USSC has agreed to fund trials associated with the development of EGF Fusion
Protein for restenosis. If USSC's option to obtain any exclusive license of the
EGF Fusion Protein technology is exercised, milestone payments will be payable
by USSC to Seragen up to a maximum amount of $22.5 million. In addition, USSC
will be obligated to pay Seragen royalties on commercial sales of the licensed
product. In the event USSC chooses not to exercise the option, the USSC License
Agreement will terminate, and, in exchange, USSC will receive $5.0 million worth
of Seragen Common Stock valued at the average of the closing prices of Seragen
Common Stock (i) for the 10 trading days preceding the date of the USSC License
Agreement or (ii) for the 10 trading days preceding the date on which USSC
chooses not to exercise the option, whichever is lower. Seragen will record the
$5.0 million initial payment from USSC as a liability. In the event that USSC
exercises its option to license the EGF Fusion Protein, the $5.0 million will be
recorded as revenue at that time. In the event that USSC chooses not to exercise
the option, the $5.0 million will be recorded as stockholders' equity.
In January 1998, Seragen subleased approximately 7,000 square feet of
office space in two buildings in Hopkinton, Massachusetts from Marathon. The
subleases on each of the buildings expires in January 1999 and Seragen can
exercise, at its option, two one-year extensions on each sublease.
In February 1998, Seragen entered into a license agreement with
DiagnoCure Inc. ("DiagnoCure") of Quebec, Canada pursuant to which Seragen
licensed certain of its technology for use in connection with nanoerythrosomes
as bioactive agent carriers for cancer treatment, immunotherapy, gene therapy,
and gene diagnostic applications. The license agreement provides for specified
royalties to be paid to Seragen by DiagnoCure on sales of products containing
the licensed Seragen technology and on fees and other payments received by
DiagnoCure pursuant to any sublicense or similar transaction involving the
licensed Seragen technology. In connection with the license agreement,
DiagnoCure agreed to undertake certain research and development activities with
Dr. Murphy a former director of Seragen, at BU Medical Center/University
Hospital.
In connection with the execution and delivery of the Merger Agreement,
Seragen and STI entered into the Accord Agreement with the Compromising
Claimants. Pursuant to the Accord Agreement, the Compromising Claimants agreed,
in order to facilitate the Merger, to accept the right to receive Merger
Consideration in satisfaction of certain of their claims against Seragen. The
amount of Merger Consideration allocated to certain of such Compromising
Claimant under the terms of the Merger Agreement constitutes what Seragen
management expects to be a discount of from 25% to 40% (with the exact amount of
the discount depending on the date of the Closing and the amount of Seragen's
payables as of the Closing) on
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amounts otherwise owed by Seragen to such persons in respect of relevant claims.
In addition, the Discounted Claimants have agreed to accept Milestone
Consideration, as opposed to the right to receive Closing Consideration, as
partial payment for their claims, thereby subjecting what Seragen management
expects to be from 80% to 90% of the Discounted Claimants' right to receive
Merger Consideration to the contingency associated with the Milestone
Consideration and also, in the likely event the Milestone Consideration does not
become payable by the time of the Closing, to some delay. See "The
Merger--Description of the Merger--Accord Agreement" and "The Merger
Agreement--Merger Consideration."
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COMPARISON OF RIGHTS OF HOLDERS OF
LIGAND CAPITAL STOCK AND HOLDERS OF
SERAGEN CAPITAL STOCK
The rights of the Ligand stockholders are governed by the Ligand
Certificate, the Ligand Bylaws, the DGCL, and following any exercise of a Right,
the Certificate of Designation for the Ligand Series A Participating Preferred
Stock and, for holders of Ligand Series B Convertible Preferred Stock, the
Certificate of Designation for the Ligand Series B Convertible Preferred Stock.
The rights of the Seragen stockholders are governed by the Seragen Restated
Certificate of Incorporation (the "Seragen Certificate"), the Seragen Restated
Bylaws (the "Seragen Bylaws"), the DGCL and, for holders of Seragen Series B
Preferred Stock, the Certificate of Designation for Seragen Series B Preferred
Stock. After the Effective Time of the Merger, the rights of the Seragen
stockholders who become Ligand stockholders will be governed by the Ligand
Certificate, the Ligand Bylaws and the DGCL.
In many respects, the rights of the Ligand stockholders and the Seragen
stockholders are similar. The following paragraphs discuss certain similarities
and material differences between the rights of the Ligand stockholders and the
rights of the Seragen stockholders under their respective certificates of
incorporation, certificates of designation and bylaws to the extent that such
differences could materially affect the rights of the Seragen stockholders after
the consummation of the Merger. This discussion is only a summary, and does not
purport to be a complete description of the similarities and differences between
the rights of the Ligand and Seragen stockholders. The following discussion is
qualified in its entirety by reference to the DGCL and the full texts of the
respective certificates of incorporation, certificates of designation and bylaws
of Ligand and Seragen. Copies of such documents may be obtained from Ligand or
Seragen, as the case may be.
COMPARISON OF AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Ligand: The authorized capital stock of Ligand consists of 80,000,000
shares of common stock, par value $.001 per share, and 5,000,000 shares of
preferred stock, par value $.001 per share (the "Ligand Preferred Stock"), of
which 80,000 shares have been designated as Ligand Series A Participating
Preferred Stock. As of March 31, 1998, there were 38,621,882 shares of Ligand
Common Stock and no shares of Ligand Series A Participating Preferred Stock
outstanding.
Seragen: The authorized capital stock of Seragen consists of 30,000,000
shares of Seragen Common Stock and 5,000,000 shares of Seragen Preferred Stock,
of which 4,000 shares have been designated as Seragen Series A Preferred Stock,
23,800 shares have been designated as Seragen Series B Preferred Stock, 5,000
shares have been designated as Seragen Series C Preferred Stock and 979 shares
have been designated as Seragen Series D Preferred Stock. As of July 6, 1998,
there were 28,430,011 shares of Seragen Common Stock, no shares of Seragen
Series A Preferred Stock, 23,800 shares of Seragen Series B Preferred Stock, no
shares of Seragen Series C Preferred Stock and no shares of Seragen Series D
Preferred Stock issued and outstanding. As of the date of this Proxy
Statement/Prospectus, all shares of the Seragen Series D Preferred Stock
converted into Seragen Common Stock, resulting in 28,430,011 shares of Seragen
Common Stock issued and outstanding.
Upon consummation of the Merger, the percentage ownership of Ligand by
each former Seragen stockholder will be substantially less than his, her or its
current percentage ownership of Seragen. Accordingly, former Seragen
stockholders will have a significantly smaller voting influence over the affairs
of Ligand than they currently have over the affairs of Seragen.
COMPARISON OF RIGHTS AND PREFERENCES OF COMMON STOCK
Ligand: Holders of Ligand Common Stock are entitled to one vote per
share in the election of directors and on all other matters on which
stockholders are entitled or permitted to vote. Subject to the prior or parity
rights of the holders of all classes of stock at the time outstanding having
prior or parity rights as to dividends, the holders of Ligand Common Stock are
entitled to receive dividends when and as declared by the Ligand Board out of
any assets of Ligand legally available therefor. In the event of a liquidation,
dissolution or winding up of Ligand, the holders of Ligand Common Stock will
receive no distribution until the holders of Ligand Series A Participating
Preferred Stock, if any, receive $1,000 per share plus an
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amount equal to accrued and unpaid dividends on the Series A Participating
Preferred Stock, whether or not declared, to the date of such payment (the
"Ligand Series A Liquidation Preference"). Following the payment in full of the
Ligand Series A Liquidation Preference, the holders of Ligand Common Stock will
receive an amount per share (the "Ligand Common Adjustment") equal to the
quotient obtained by dividing (i) the Ligand Series A Liquidation Preference by
(ii) 1,000, as adjusted to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Ligand Common Stock. Following the
payment in full of the Ligand Series A Liquidation Preference and the Ligand
Common Adjustment, the holders of Ligand Series A Participating Preferred Stock
and Ligand Common Stock are entitled to receive their ratable and proportionate
share of the remaining assets of Ligand available for distribution. Holders of
Ligand Common Stock have no redemption rights.
Seragen: Holders of Seragen Common Stock are entitled to one vote per
share in the election of directors and on all other matters on which
stockholders are entitled or permitted to vote. Subject to the preferences of
the holders of Seragen Preferred Stock which are described below, the holders of
Seragen Common Stock are entitled to receive dividends when and as declared by
the Seragen Board from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Seragen, the holders of Seragen Common
Stock are entitled, subject to the preferences of the holders of Seragen
Preferred Stock as described below, to share ratably in the remaining assets
available for distribution to Seragen stockholders. Neither the Seragen
Certificate nor the Seragen Bylaws grant the holders of Seragen Common Stock
redemption, preemptive, conversion or other subscription rights.
COMPARISON OF RIGHTS AND PREFERENCES OF PREFERRED STOCK
Ligand: The Ligand Board is authorized, subject to certain limitations
prescribed by the DGCL, to issue preferred stock in one or more series, and to
fix or alter the designation, powers, preferences, rights, qualifications,
limitations and restrictions of any such series, without any further vote or
action by the Ligand stockholders. The rights and preferences of Ligand
Preferred Stock may in all respects be superior and prior to the rights of the
Ligand Common Stock. The issuance of Ligand Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of Ligand
Common Stock or adversely affect the rights and powers, including voting rights,
of the holders of Ligand Common Stock and could have the effect of delaying,
deferring or preventing a change in control of Ligand.
In connection with the adoption of the Shareholder Rights Plan (See
"--Comparison of Certain Other Rights--The Ligand Shareholder Rights Plan"), the
Ligand Board designated 80,000 shares of Ligand Preferred Stock as Ligand Series
A Participating Preferred Stock, none of which are currently outstanding.
Seragen: The Seragen Board is authorized, subject to certain limitations
prescribed by the DGCL, to issue preferred stock in one or more series, and to
fix or alter the designation, powers, preferences, rights, qualifications,
limitations and restrictions of any such series without any further vote or
action by the Seragen stockholders. The Seragen Board has designated 4,000
shares of Seragen Preferred Stock as Seragen Series A Preferred Stock, 23,800
shares of Seragen Preferred Stock as Seragen Series B Preferred Stock, 5,000
shares of Seragen Preferred Stock as Seragen Series C Preferred Stock and 979
shares of Seragen Preferred Stock as Seragen Series D Preferred Stock. As of
July 6, 1998, there were no shares of Seragen Series A Preferred Stock, 23,800
shares of Seragen Series B Preferred Stock, no shares of Seragen Series C
Preferred Stock and no shares of Seragen Series D Preferred Stock issued and
outstanding. As of the date of this Proxy Statement/Prospectus, all shares of
the Seragen Series D Preferred Stock converted into Seragen Common Stock,
resulting in 28,430,011 shares of Seragen Common Stock issued and outstanding.
Upon consummation of the Merger, the holders of Seragen Series B
Preferred Stock may become holders of Ligand Common Stock. (See "The Merger
Agreement--Merger Consideration.") Thereafter, these stockholders will no longer
be entitled to the following rights, privileges and preferences of their Seragen
Preferred Stock:
(i) Dividend Preference: The holders of Seragen Series B
Preferred Stock are entitled to receive a cumulative cash dividend payable
quarterly in arrears commencing on September 30, 1996 at a rate per annum equal
to (i) the prime rate as announced by The Wall Street Journal (the "Prime Rate")
from time to time (such rate to be adjusted automatically on the
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effective date of any change in such rate) plus 1-1/2% through June 30, 1999;
(ii) from July 1, 1999 through June 30, 2000, the Prime Rate plus 2%; (iii) from
July 1, 2000 through June 30, 2001, the Prime Rate plus 3%; (iv) from July 1,
2001 through June 30, 2002, the Prime Rate plus 4%; and (v) from and after July
1, 2003, the Prime Rate plus 5%. Notwithstanding the foregoing, no dividends
will accumulate or accrue during any period when royalties are accruing pursuant
to the Irrevocable License Agreement, dated June 28, 1996.
(ii) Liquidation Preference: Each share of Seragen Series B
Preferred Stock has a liquidation preference equal to the sum of (a) $1,000,
plus (b) an amount equal to any accrued and unpaid dividends from the date of
the issuance of the respective series of Seragen preferred stock. This
liquidation preference must be paid on each share of Seragen Series B Preferred
Stock in the event of a voluntary or involuntary liquidation, dissolution or
winding up of Seragen before any distribution or payment is made to any holders
of the Seragen Common Stock or any other class or series of Seragen's capital
stock which is junior to the Seragen Series B Preferred Stock.
(iii) Conversion: At the option of the holder, each share of
Seragen Series B Preferred Stock may be converted at any time into a number of
shares of Seragen Common Stock determined by dividing $1,000 by the average of
the closing sale prices of the Seragen Common Stock for the ten consecutive
trading days immediately preceding the conversion date.
(iv) Voting Rights and Protective Provisions: The holders of
Seragen Series B Preferred Stock are entitled to vote on any matter submitted to
a vote of the stockholders of Seragen, and are entitled to that number of votes
equal to the product of (a) the number of shares of Seragen Series B Preferred
Stock held on the record date for the determination of the stockholders entitled
to vote on such matters and (b) $1,000 divided by $4.00. Further, Seragen may
not take the following actions without the prior written consent of the holders
of outstanding shares of Seragen Series B Preferred Stock: (a) create or
designate any class or series of preferred stock that ranks senior to the
Seragen Series B Preferred Stock as to conversion, dividends, redemption or
liquidation or (b) amend, alter or repeal, whether by amendment, merger or
otherwise, the Seragen Certificate, the Seragen Bylaws, any resolutions of the
Seragen Board, or the Certificate of Designation of the Seragen Series B
Preferred Stock in such a way that an adverse change is caused with respect to
the rights, privileges, powers or preferences of the holders of the Seragen
Series B Preferred Stock.
(v) Redemption: Seragen has the right to redeem, upon the
approval of (a) the members of the Seragen Board not affiliated with BU, (b) the
members of the Audit Committee of the Seragen Board, or (c) a comparable body
for the review of any potential conflict of interest, all or any portion of the
Seragen Series B Preferred Stock at a redemption price equal to $1,000 per share
plus any accrued and unpaid dividends from the date of issuance.
COMPARISON OF STOCKHOLDER RIGHTS
Annual Meeting: Both the Seragen Bylaws and the Ligand Bylaws require
that an annual stockholder meeting be held each year at a time and place
designated by their respective boards.
Quorum and Vote Required: The Seragen Bylaws and the Ligand Bylaws both
provide that a quorum is formed when the holders of a majority of the stock
entitled to vote at a stockholder meeting are present in person or represented
by proxy at the meeting. The Ligand Bylaws provide that all matters at a
stockholder meeting in which a quorum is present shall be decided by the vote of
a majority of the stock having power to vote at such meeting, present in person
or represented by proxy, unless a different vote is otherwise provided by the
DGCL, the Ligand Certificate or a Ligand Certificate of Designation. Subject to
certain limited exceptions, and as described in more detail below, the Ligand
Certificate provides that an affirmative vote of the holders of at least 66-2/3
% of the voting stock of Ligand entitled to vote thereon is required to approve
certain business combinations. Also as described in more detail below, a
greater-than majority vote may be required to approve certain amendments to the
Ligand Certificate or the Ligand Bylaws. In the case of Seragen, all elections
of directors are determined by a plurality of votes cast and all other matters
at a stockholder meeting are decided by a majority of votes cast, unless a
different vote is otherwise provided by the DGC, the Seragen Certificate or a
Seragen Certificate of Designation.
148.
<PAGE> 155
Business Conducted at Annual Meetings: Both the Ligand Bylaws and the
Seragen Bylaws establish a formal procedure for stockholders to nominate a
director or to properly bring an item of business for consideration at an annual
meeting of stockholders. The Ligand Bylaws require stockholders to provide
notice of all business items or director nominees 120 days in advance of the
date established in the proxy statement for annual meeting of stockholders held
the previous year. The Seragen Bylaws generally require stockholders to provide
notice of additional nominations or other business in writing to the Secretary
of the Corporation not later than close of business on the sixtieth day nor
earlier than the close of business on the ninetieth day prior to the first
anniversary of the preceding year's annual meeting. Both companies may disregard
a stockholder proposal or a director nominee if a stockholder does not comply
with the formal procedures set forth in their respective Bylaws.
Stockholder Action Without Meeting: The Seragen Certificate and the
Ligand Bylaws specifically prohibit the Seragen and Ligand stockholders,
respectively, from taking any action by written consent.
Cumulative Voting: Under the DGCL, stockholders are not entitled to
cumulative voting in the election of directors unless such right is specifically
provided for in the corporation's certificate. Neither the Seragen Certificate
nor the Ligand Certificate contain such a provision. The absence of cumulative
voting may have the effect of limiting the ability of minority stockholders to
effect changes in the respective boards of Seragen and Ligand and, as a result,
may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or management.
Power to Call Special Stockholder Meetings: Under the Ligand Bylaws,
special meetings of the Ligand stockholders may be called at any time by a
majority of the Board, the President or stockholders holding not less than 10%
of the Ligand capital stock issued and outstanding and entitled to vote at such
meeting. In contrast, the Seragen Bylaws do not authorize Seragen stockholders
to call special stockholder meetings. Special meetings of the Seragen
stockholders may only be called by the President, the Chairman of the Seragen
Board or a majority of the Seragen Board.
Business Conducted at Special Meeting: Both the Ligand Bylaws and the
Seragen Bylaws limit the business that may be conducted at special stockholder
meeting to those items listed in the notice for the special stockholder meeting.
COMPARISON OF THE PROVISIONS GOVERNING THE BOARD OF DIRECTORS
Size of Board: The Ligand Bylaws provide for a board between seven and
11 directors, with the number of directors currently set at eight. The Seragen
Certificate authorizes the Seragen Board to set the number of directors on the
Seragen Board. The Seragen Board currently consists of six directors.
Removal of Directors: The Ligand Bylaws and the Seragen Certificate each
provide that any director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
Vacancies: The Ligand Bylaws and the Seragen Bylaws each provide that
vacancies in their respective boards may be filled by the majority vote of the
remaining directors, although less than a quorum, or by a sole remaining
director.
COMPARISON OF CERTAIN OTHER RIGHTS
Amendments to the Ligand Certificate and Seragen Certificate: Both the
Ligand Certificate and the Seragen Certificate authorize the respective
corporations to amend, alter, change or repeal their respective certificates in
the manner now or hereafter provided by the DGCL. Under the DGCL, amendments to
a corporation's certificate must be approved by the affirmative vote of the
holders of a majority of the outstanding stock entitled to vote thereon, unless
such amendments would increase or decrease the number of authorized shares of
any class or series or the par value of such shares or would adversely affect
the shares of such class or series, in which case a majority of the outstanding
stock of such class or series would have to approve the amendment.
Notwithstanding the foregoing, the Ligand Certificate requires the affirmative
vote of 66-2/3% of the voting power of the capital stock of Ligand to alter,
amend or repeal those sections of the Ligand Certificate
149.
<PAGE> 156
governing (a) the stockholder vote required for the approval of certain business
combinations, (b) the amendment of the Ligand Bylaws, (c) the taking of
stockholder actions without a meeting and (d) the bringing of business by
stockholders at a meeting of the stockholders.
Amendments to the Ligand Bylaws and Seragen Bylaws: Both the Ligand
Bylaws and the Seragen Bylaws may be amended or repealed by a majority vote of
the stockholders entitled to vote thereon or a majority vote of their respective
boards. Notwithstanding the foregoing, the Ligand Certificate prohibits the
Ligand Board from any amendment or supplement to the Ligand Bylaws which varies
or conflicts with any amendment or supplement adopted by the Ligand
stockholders. Further, the affirmative vote of 66-2/3% of the voting power of
the capital stock of Ligand. Ligand is required to alter, amend or repeal those
sections of the Ligand Bylaws governing (a) the amendment of the Ligand Bylaws,
(b) the taking of stockholder actions without a meeting, and (c) the number,
term of office and qualification of directors.
Loans to Officers and Employees: The Ligand Bylaws authorize Ligand to
lend money to or to guarantee a loan for or otherwise assist any officer or
other employee of Ligand, with or without interest and whether unsecured or
secured. The Seragen Bylaws do not contain such a similar provision.
Indemnification and Limitation of Liability: Both the Seragen
Certificate and the Ligand Certificate provide for the indemnification of (and
advancement of expenses to) directors, officers, employees and other agents to
the fullest extent permissible under the DGCL. Both the Seragen Certificate and
the Ligand Certificate provide that a director will not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware law or (iv) any
transaction from which the director derived any improper personal benefit.
COMPARISON OF ANTI-TAKEOVER PROVISIONS
Stockholder Vote Required for Business Combinations: In addition to the
affirmative vote required by DGCL, the Ligand Certificate contains a "Fair Price
Provision" that requires the approval of the holders of 66 2/3% of Ligand's
voting stock as a condition to a merger or certain other business transactions
with, or proposed by, a holder of 15% or more of Ligand's voting stock (an
"Interested Stockholder"), except in cases where a majority of the Continuing
Directors (as defined below) approve the transaction or certain minimum price
criteria and other procedural requirements are met. A "Continuing Director" is a
director originally elected upon incorporation of Ligand or a director who is
not an Interested Stockholder or affiliated with an Interested Stockholder or
whose nomination or election to the Ligand Board is recommended or approved by a
majority of the Continuing Directors. The minimum price criteria are from time
to time recommended or approved by a majority of the Continuing Directors. The
minimum price criteria generally require that, in a transaction in which
stockholders are to receive payments, holders of Ligand Common Stock must
receive a value equal to the highest price paid by the Interested Stockholder
for the Ligand Common Stock during the prior two years, and that such payment be
made in cash or in the type of consideration paid by the Interested Stockholder
for the greatest portion of its shares. The Ligand Board believes that the Fair
Price Provision helps assure that all of Ligand's stockholders will be treated
similarly if certain kinds of business combinations are effected. However, the
Fair Price Provision may make it more difficult to accomplish certain
transactions that are opposed by the incumbent Ligand Board that could be
beneficial to stockholders.
The Seragen Certificate does not contain a comparable provision.
Restrictions on Certain Business Combinations: As a corporation
organized under the laws of the State of Delaware, Ligand is subject to Section
203 of the DGCL, an anti-takeover law. In general, the statute, prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an Interested Stockholder for a period of three years after the date of the
transaction in which the person became an Interested Stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale, or other
transaction resulting in a financial benefit to the Interested Stockholder.
150.
<PAGE> 157
These restrictions, however, do not apply if (i) prior to an Interested
Stockholder becoming such, the Ligand Board approves either the business
combination or the transaction in which the stockholder becomes an Interested
Stockholder, (ii) upon consummation of the transaction in which any person
becomes an Interested Stockholder, such Interested Stockholder owns at least 85%
of the voting stock of Ligand outstanding at the time the transaction commences
(excluding shares owned by persons who are both directors and officers of
Ligand) or (iii) on or subsequent to the date an Interested Stockholder becomes
such, the business combination is both approved by the Ligand Board and
authorized at an annual or special meeting of the Ligand stockholders by the
affirmative vote of at least 66-2/3% of the outstanding voting stock not owned
by the Interested Stockholder.
Rights Plan: Delaware law allows for the adoption by a company of a
rights plan providing for the issuance of additional shares in the event of
acquisition by a third party of a significant portion of the company outstanding
equity. Ligand has adopted such a stockholder rights plan. See the description
of Ligand's Preferred Shares Rights Agreements contained in its Registration
Statement on Form 8-A filed on September 9, 1996, incorporated by reference
herein. Seragen has not adopted a similar plan.
151.
<PAGE> 158
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of
the shares of Ligand Common Stock offered hereby will be passed upon for Ligand
by Brobeck, Phleger & Harrison LLP, San Diego, California.
Covington & Burling, Washington, D.C., is acting as counsel for Seragen
in connection with certain legal matters relating to the Merger and the
transactions contemplated thereby.
EXPERTS
The financial statements of Ligand as of December 31, 1997, and for each
of the three years in the period ended December 31, 1997, incorporated by
reference in this Proxy Statement/Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report incorporated by
reference herein and have been so incorporated in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The audited financial statements of Seragen included in this Proxy
Statement/Prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants (1996 and 1997)
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said reports which include an explanatory paragraph
regarding Seragen's ability to continue as a going concern.
The statements of operations, stockholders equity (deficit) and cash
flow of Seragen for the year ended December 31, 1995 included in this Proxy
Statement/Prospectus and elsewhere in the registration statement have been
included herein in reliance on the report of Coopers & Lybrand L.L.P,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for stockholders to
submit proposals to be considered for inclusion in Seragen's Proxy Statement for
the 1999 Annual Meeting of Seragen Stockholders, if the Merger has not been
consummated prior to the date the meeting is to held, is November 20, 1998.
OTHER MATTERS
The Seragen Board knows of no other business which will be presented at
the Seragen Meeting. If any other business is properly brought before the
Seragen Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SERAGEN MEETING, YOU ARE
URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
BY ORDER OF THE SERAGEN BOARD OF DIRECTORS
Reed R. Prior
Chairman, Chief Executive Officer and Treasurer
July 14, 1998
Hopkinton, Massachusetts
152.
<PAGE> 159
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX TO SERAGEN FINANCIAL STATEMENTS
Reports of Independent Accountants.......................................................................................F-1
Financial Statements:
Balance Sheets as of December 31, 1996 and 1997.................................................................F-3
Statements of Operations for the years ended December 31, 1995, 1996 and 1997...................................F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995,
1996 and 1997..........................................................................................F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997...................................F-6
Notes to Financial Statements ..................................................................................F-7
Balance Sheets
December 31, 1997 and March 31, 1998...........................................................................F-25
Statements of Operations
Three Months Ended March 31, 1997 and 1998.................................................................... F-26
Statements of Cash Flows
Three Months Ended March 31, 1997 and 1998.....................................................................F-27
Notes to Financial Statements................................................................................. F-28
</TABLE>
153.
<PAGE> 160
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Seragen, Inc.:
We have audited the accompanying balance sheets of Seragen, Inc. (a
Delaware Corporation) as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Seragen, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described in Note A, the
Company has experienced significant operating losses since inception, has a
significant stockholders' deficit and has a working capital deficit as of
December 31, 1997. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note A. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
February 5, 1998
(except for the matters discussed in Notes A and J as to which the dates are May
11, 1998 and March 30, 1998, respectively)
F-1
<PAGE> 161
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Seragen, Inc.:
We have audited the balance sheet of Seragen, Inc. as of December 31,
1995 and the related statement of operations, stockholders' equity (deficit) and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Seragen, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As described in Note A, the
Company has experienced recurring operating losses and has a working capital
deficit. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note A. The accompanying financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 23, 1996
F-2
<PAGE> 162
SERAGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
ASSETS 1996 1997
------------- -------------
<S> <C> <C>
Current assets: (AS RESTATED)
Cash and cash equivalents ............................................... $ 1,548,392 $ 5,328,535
Restricted cash ......................................................... 610,318 175,000
Contract receivable ..................................................... 485,261 208,190
Unbilled contract receivable ............................................ 833,983 944,063
Prepaid expenses and other current assets ............................... 285,356 72,065
------------- -------------
Total current assets ................................... 3,763,310 6,727,853
Property and equipment, net .............................................. 4,604,115 15,064
Deferred commission ...................................................... 2,060,000 2,060,000
Other assets ............................................................. 77,183 8,648
------------- -------------
Total assets ........................................... $ 10,504,608 $ 8,811,565
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable ........................................................ $ 1,111,477 $ 447,008
Related party payable ................................................... -- 3,422,833
Current maturities of long-term debt .................................... 37,418 --
Dividend payable - Series B preferred stock ............................. 583,295 2,943,136
Accrued expenses ........................................................ 2,594,172 2,240,435
Preferred stock redemption liability .................................... 1,236,753 --
Short-term obligation, less unamortized discount ........................ 4,128,097 800,000
------------- -------------
Total current liabilities .............................. 9,691,212 9,853,412
------------- -------------
Non-current liabilities:
Deferred revenue ........................................................ 5,000,000 10,000,000
Long-term obligation .................................................... -- 1,450,000
Canadian affiliate put option liability ................................. 2,400,000 2,400,000
------------- -------------
Total non-current liabilities .......................... 7,400,000 13,850,000
------------- -------------
Commitments and contingencies (Note I)
Stockholders' (deficit);
Preferred stock, $.01 par value; 5,000,000 shares authorized Convertible
preferred stock, Series A, $.01 par value; issued and
outstanding 3,105 and 0 shares at December 31, 1996 and
1997, respectively ................................................... 2,015,522 --
Convertible preferred stock, Series B, $.01 par value; issued and
outstanding 23,800 shares at December 31, 1996 and 1997,
respectively, $23,800,000 liquidation preference at
December 31, 1997 .................................................... 23,800,000 23,800,000
Convertible preferred stock, Series C, $.01 par value; issued and
outstanding 5,000 shares at December 31, 1996 and 1997,
respectively, $5,500,000 liquidation preference at
December 31, 1997 .................................................... 5,100,000 5,500,000
Convertible preferred stock, Series D, $.01 par value; issued and
outstanding 0 and 908 shares at December 31, 1996 and 1997,
respectively, $1,023,231 liquidation preference at
December 31, 1997 .................................................... -- 1,023,231
Common stock, $.01 par value; 70,000,000 shares authorized;
issued 17,199,458 and 21,444,894 shares at December 31,
1996 and 1997, respectively ...................................... 171,994 214,448
Additional paid in capital .............................................. 151,323,022 160,957,800
Accumulated deficit ..................................................... (188,994,811) (206,384,995)
------------- -------------
(6,584,273) (14,889,516)
Less-treasury stock (777 shares at cost at December 31, 1996 and 19
respectively) ........................................................... (2,331) (2,331)
------------- -------------
Total stockholders' (deficit) .......................... (6,586,604) (14,891,847)
------------- -------------
Total liabilities and stockholders' (deficit) .......... $ 10,504,608 $ 8,811,565
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 163
SERAGEN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(AS RESTATED)
Revenue:
Contract revenue and license fees ....... $ 3,337,388 $ 5,542,315 $ 4,713,686
Operating expenses:
Cost of contract revenue and license fees 3,337,388 4,504,243 4,281,174
Research and development ................ 14,086,632 13,959,405 10,601,362
General and administrative .............. 4,904,226 5,148,465 5,738,703
------------- ------------- -------------
22,328,246 23,612,113 20,621,239
------------- ------------- -------------
Loss from operations ................. (18,990,858) (18,069,798) (15,907,553)
Loss incurred in connection with Canadian
affiliate ............................... (390,136) (2,923,864) --
Interest income .......................... 92,924 120,740 127,322
Interest expense ......................... (1,813,128) (5,453,638) (172,366)
------------- ------------- -------------
Net loss before extraordinary income . (21,101,198) (26,326,560) (15,952,597)
------------- ------------- -------------
Extraordinary income - forgiveness of
indebtedness ............................. -- -- 2,050,000
------------- ------------- -------------
Net loss ............................. (21,101,198) (26,326,560) (13,902,597)
------------- ------------- -------------
Preferred stock dividends and accretion .. -- (10,394,918) (3,487,587)
------------- ------------- -------------
Net loss applicable to common stockholders $ (21,101,198) $ (36,721,478) $ (17,390,184)
============= ============= =============
Loss Per Common Share:
Basic ................................... $ (1.29) $ (2.20) $ (0.88)
============= ============= =============
Weighted Average Number of Common Shares
Outstanding:
Basic ................................... 16,355,587 16,724,493 19,826,864
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 164
SERAGEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Convertible Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ............ -- -- -- --
Exercise of stock options ............. -- -- -- --
Warrants issued in connection with
lines of credit ...................... -- -- -- --
Warrants issued in connection with
investment in affiliate .............. -- -- -- --
Shares issued for commission related
to corporate partner agreement ....... -- -- -- --
Purchase of treasury stock ............ -- -- -- --
Sales of treasury Stock ............... -- -- -- --
Net loss .............................. -- -- -- --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1995 ............ -- -- -- --
Exercise of stock options ............. -- -- -- --
Stock issuance ........................ -- -- -- --
Issuance of preferred stock ........... $ 4,000,000 $ 23,800,000 $ 5,000,000 --
Warrants issued in connection with
series B preferred stock ............. -- -- -- --
Preferred stock redemption liability .. (1,236,753) -- -- --
Dividends ............................. 171,688 -- 100,000 --
Preferred stock conversion ............ (919,413) -- -- --
Purchase of treasury stock ............ -- -- -- --
Sale of treasury stock ................ -- -- -- --
Net loss .............................. -- -- -- --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1996 ............ 2,015,522 23,800,000 5,100,000 --
Exercise of stock options ............. -- -- -- --
Stock issuance in connection with Lilly
Amendment ............................. -- -- -- --
Preferred stock redemption liability .. 1,236,753 -- -- --
Dividends ............................. 727,746 -- 400,000 --
Preferred stock conversion ............ (2,956,790) -- -- --
Conversion of Preferred Series A to
Preferred Series D .................... (1,023,231) -- -- $ 1,023,231
Gain from sale of assets and operating
division to Boston University ......... -- -- -- --
Compensation expense associated with
options issued to non-employees ....... -- -- -- --
Net loss .............................. -- -- -- --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1997 ............ $ -- $ 23,800,000 $ 5,500,000 $ 1,023,231
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Additional Accumulated
Paid-In Capital Deficit Treasury
Common Stock (As restated) (As restated) Stock
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ............ $ 162,141 $ 134,868,314 $ (131,172,135) $ (74,098)
Exercise of stock options ............. 572 84,216 -- --
Warrants issued in connection with
lines of credit ...................... -- 4,164,996 -- --
Warrants issued in connection with
investment in affiliate .............. -- 914,000 -- --
Shares issued for commission related
to corporate partner agreement ....... 2,200 1,757,800 -- --
Purchase of treasury stock ............ -- -- -- (201,939)
Sales of treasury Stock ............... 299 (29,746) -- 183,083
Net loss .............................. -- -- (21,101,198) --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1995 ............ 165,212 141,759,580 (152,273,333) (92,954)
Exercise of stock options ............. 1,068 79,144 -- --
Stock issuance ........................ 50 20,452 -- --
Issuance of preferred stock ........... -- -- (338,640) --
Warrants issued in connection with
series B preferred stock ............. -- 8,618,000 (8,618,000) --
Preferred stock redemption liability .. -- -- -- --
Dividends ............................. -- -- (1,438,278) --
Preferred stock conversion ............ 5,664 913,749 -- --
Purchase of treasury stock ............ -- -- -- (107,750)
Sale of treasury stock ................ -- (67,903) -- 198,373
Net loss .............................. -- -- (26,326,560) --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1996 ............ 171,994 151,323,022 (188,994,811) (2,331)
Exercise of stock options ............. 1 74 -- --
Stock issuance in connection with Lilly
Amendment ............................. 10,000 790,000 -- --
Preferred stock redemption liability .. -- -- -- --
Dividends ............................. -- -- (3,487,587) --
Preferred stock conversion ............ 32,453 2,924,337 -- --
Conversion of Preferred Series A to
Preferred Series D .................... -- -- -- --
Gain from sale of assets and operating
division to Boston University ......... -- 5,675,313 -- --
Compensation expense associated with
options issued to non-employees ....... -- 245,054 -- --
Net loss .............................. -- -- (13,902,597) --
---------------- ---------------- ---------------- ----------------
Balance, December 31, 1997 ............ $ 214,448 $ 160,957,800 $ (206,384,995) $ (2,331)
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Stockholder's
Equity (Deficit)
(As restated)
----------------
<S> <C>
Balance, December 31, 1994 ............ $ 3,784,222
Exercise of stock options ............. 84,788
Warrants issued in connection with
lines of credit ...................... 4,164,996
Warrants issued in connection with
investment in affiliate .............. 914,000
Shares issued for commission related
to corporate partner agreement ....... 1,760,000
Purchase of treasury stock ............ (201,939)
Sales of treasury Stock ............... 153,636
Net loss .............................. (21,101,198)
----------------
Balance, December 31, 1995 ............ (10,441,495)
Exercise of stock options ............. 80,212
Stock issuance ........................ 20,502
Issuance of preferred stock ........... 32,461,360
Warrants issued in connection with
series B preferred stock ............. --
Preferred stock redemption liability .. (1,236,753)
Dividends ............................. (1,166,590)
Preferred stock conversion ............ --
Purchase of treasury stock ............ (107,750)
Sale of treasury stock ................ 130,470
Net loss .............................. (26,326,560)
----------------
Balance, December 31, 1996 ............ (6,586,604)
Exercise of stock options ............. 75
Stock issuance in connection with Lilly
Amendment ............................. 800,000
Preferred stock redemption liability .. 1,236,753
Dividends ............................. (2,359,841)
Preferred stock conversion ............ --
Conversion of Preferred Series A to
Preferred Series D .................... --
Gain from sale of assets and operating
division to Boston University ......... 5,675,313
Compensation expense associated with
options issued to non-employees ....... 245,054
Net loss .............................. (13,902,597)
----------------
Balance, December 31, 1997 ............ $ (14,891,847)
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 165
SERAGEN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996
1995 (AS RESTATED) 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................................ $ (21,101,198) $ (26,326,560) $ (13,902,597)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................... 969,104 945,225 953,832
Loss incurred in connection with Canadian affiliate .............. 390,136 2,923,864 --
Loss on disposal of property and equipment ....................... 2,240 71,811 4,593
Extraordinary income - forgiveness of indebtedness .................. -- -- (2,050,000)
Compensation associated with stock issuance and warrants ......... -- 20,502 245,054
Amortization of discount on long-term debt ....................... 687,614 687,615 171,903
Amortization of prepaid interest ................................. 636,319 3,528,677 --
Amortization of debt issuance costs .............................. 79,719 442,117 --
Non-cash charge for issuance of common shares to Lilly .............. -- -- 800,000
Changes in operating assets and liabilities:
Contract receivable .............................................. (439,484) 200,794 277,071
Unbilled contract receivable ..................................... (154,368) (337,836) (110,080)
Prepaid expenses and other current assets ........................ 192,955 49,882 213,291
Accounts payable ................................................. 94,701 386,151 (664,469)
Related party payable ................................................ -- -- 3,422,833
Deferred commission .............................................. -- -- --
Accrued commission payable ....................................... (300,000) (300,000) --
Accrued expenses ................................................. 385,070 180,888 (353,737)
Deferred revenue ................................................. -- -- 5,000,000
------------- ------------- -------------
Net cash used in operating activities .................................... (18,557,192) (17,526,870) (5,992,306)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of marketable securities ............................ 2,034,948 -- --
Purchases of property and equipment ..................................... (351,840) (423,015) (280,045)
Cash received for net book value of assets purchased by Boston University -- -- 3,910,671
Decrease in other assets ................................................ 2,970 5,353 68,535
(Increase) decrease restricted cash account ............................. (47,445) (175,000) 435,318
------------- ------------- -------------
Net cash provided by (used in) investing activities ...................... 1,638,633 (592,662) 4,134,479
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from preferred stock issuances ................................. -- 9,000,000 --
Net proceeds from common stock issuances ................................ 238,424 210,682 75
Purchases of treasury stock ............................................. (201,939) (107,750) --
Proceeds from issuance of long-term debt ................................ 12,500,000 11,300,000 --
Repayments of long-term debt ............................................ (197,452) (248,493) (37,418)
Debt and preferred stock issuance costs ................................. (521,796) (338,680) --
Dividends paid .......................................................... -- (583,295) --
Cash gain from sale of assets and operating
division to Boston University ........................................... -- -- 5,675,313
------------- ------------- -------------
Net cash provided by financing activities ................................ 11,817,237 19,232,464 5,637,970
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents ..................... (5,101,322) 1,112,932 3,780,143
Cash and cash equivalents, beginning of period ........................... 5,536,782 435,460 1,548,392
------------- ------------- -------------
Cash and cash equivalents, end of period ................................. $ 435,460 $ 1,548,392 $ 5,328,535
============= ============= =============
Supplemental disclosures of cash flows information:
Cash paid for interest .................................................. $ 489,195 $ 761,981 $ 463
============= ============= =============
Supplemental non cash activities:
Issuance of common stock for strategic alliance with Lilly .............. $ 1,760,000 $ -- $ --
Issuance of warrants and put rights to shareholders of
Canadian affiliate ...................................................... 2,990,000 -- --
Conversion of series A preferred stock to common stock .................. -- 919,413 2,956,790
Conversion of long-term debt to series B preferred stock ................ -- 23,800,000 --
Issuance of warrants to Series B preferred stockholders ................. -- 8,618,000 --
Preferred stock dividends ............................................... -- 271,688 1,127,745
Conversion of Series A preferred to Series D preferred stock ............ -- -- 1,023,231
Conversion of conversion cap liability to Series D preferred ............ -- -- 1,236,753
Accrued but unpaid Series B dividends ................................... -- 583,295 2,359,841
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 166
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
Seragen, Inc. (the "Company" or "Seragen") is engaged in the research
and development of a new class of therapeutic products known as fusion proteins.
The Company was established in 1979 and became a majority-owned investment of
Boston University ("Boston University" or "B.U.") in 1987. Substantially all of
the Company's cash requirements from that time until the Company's initial
public offering in April 1992 were funded by loans from B.U. The Company
completed its initial public offering in April 1992, a second public offering of
common stock in March 1993 and a private placement of units in February 1994. In
August 1994, the Company signed an agreement to form a global strategic alliance
with Eli Lilly and Company ("Lilly") which was subsequently amended in April
1997 (see Notes D and J). In June 1995, the Company finalized three separate
lines of credit which guaranteed a total of $23.8 million in bank financing (see
Note E) which were subsequently converted into Series B Preferred Stock. In
November 1995, the Company formed Seragen Biopharmaceuticals Ltd. ("SBL"), an
affiliate to conduct research and development and clinical trials of the
Company's proprietary fusion protein products in Canada (see Note G).
On May 11, 1998, the Company executed an Agreement and Plan of
Reorganization (the "Ligand Merger Agreement") with Ligand Pharmaceuticals, Inc.
("Ligand") and Knight Acquisition Corporation, a wholly-owned subsidiary of
Ligand ("Knight"). Subject to approval by a majority of the outstanding voting
shares of capital stock of the Company and certain other conditions, Knight will
merge with and into the Company, with the result that the Company will become a
wholly-owned subsidiary of Ligand (the "Ligand Merger"). This transaction is
expected to close in the third quarter of 1998. Simultaneously with the
execution of the Ligand Merger Agreement, the Company and its subsidiary Seragen
Technology, Inc. ("STI") entered into an Accord and Satisfaction Agreement (the
"Accord") with the Trustees of B.U., Seragen LLC, Marathon Biopharmaceuticals,
LLC ("Marathon"), United States Surgical Corporation ("USSC"), Leon C. Hirsch,
Turi Josefsen, Gerald S.J. and Loretta P. Cassidy, Reed R. Prior, Jean C.
Nichols, Ph.D., Elizabeth C. Chen, Robert W. Crane, Shoreline Pacific
Institutional Finance, Lehman Brothers Inc., 520 Commonwealth Avenue Real Estate
Corp., and 660 Corporation, pursuant to which those parties agreed to forbear
from exercising all specified rights against the Company and STI for so long as
the Ligand Merger Agreement continues in effect and to release the Company from
specified liabilities, including the liabilities to B.U., Marathon and USSC
discussed above, in the event that the Ligand merger is consummated. The terms
of the Ligand Merger Agreement and the Accord are described in the Company's
Form 8-K dated as of May 11, 1998. There can be no assurance that the Ligand
Merger will be consummated.
In May 1996, the Company raised $3.8 million through the sale of Series
A Preferred Stock (see Note J). On September 30, 1996, the Company raised $5
million through the sale of Series C Preferred Stock (see Note J). In February
1997, the Company entered into an agreement to sell its operating division to
B.U. for $5 million (see Note B) and the Company simultaneously entered into a
service agreement under which B.U. will perform research and development
activities on behalf of the Company. After receiving shareholder approval and
ratification, the Company closed the sale of the operating division on December
31, 1997. Approximately 90 of the Company's employees were transferred to B.U.
upon closing. In July 1997, the Company obtained $5 million through an option
agreement with USSC.
The Company has incurred losses of approximately $206 million since
inception and has funded these losses principally through the issuance of debt
and equity securities. The Company has a working capital deficit as of December
31, 1997, and is dependent on raising additional capital in the short term to
satisfy its ongoing capital needs and to continue its operations. Management
continues to pursue additional funding arrangements, strategic partnerships and
the sale of the Company; however, no assurance can be given that any such
arrangements will in fact be available to the Company. These conditions raise
substantial doubt about the Company's ability to continue as a going concern. If
the Company is unable to obtain financing on acceptable terms in order to
maintain operations through the next fiscal year, it could be forced to curtail
or discontinue its operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-7
<PAGE> 167
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
In March 1997, the Company restated its September 30, 1996 financial
statements to reflect the Series A, B and C Preferred Stock at their liquidation
value. Such restatement resulted in an increase in net loss attributable to
common stockholders of $9.6 million for the three and nine month periods ended
September 30, 1996, which includes an $8.6 million dividend representing the
value ascribed to the warrants issued in connection with the Series B Preferred
Stock. In September 1997, the Company restated its December 31, 1996 financial
statements to reflect a change in the accounting treatment for the Company's
Amended Sales and Distribution Agreement with Lilly on May 28, 1996. Such
restatement resulted in an increase in the net loss applicable to common
stockholders of $1,740,000 for the year ended December 31, 1996. (See Note O)
B. SALE OF MANUFACTURING AND CLINICAL OPERATIONS TO BOSTON UNIVERSITY:
On February 14, 1997, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") to sell its manufacturing and
clinical operations facilities to B.U. or a designated affiliate for $5.0
million. After receiving shareholder approval and ratification, the Company
closed the sale of its operating division on December 31, 1997. B.U. assumed
responsibility for the facility's operations, including responsibility for
operating costs, as of February 14, 1997.
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into a service agreement (the "Service Agreement") with B.U.
providing for the purchase by the Company of certain services related to product
research, development, manufacturing, clinical trials, quality control, and
quality assurance. The Service Agreement expires in January 1999, and is subject
to certain early termination provisions, including the option of B.U. to
terminate the agreement if losses during a contract year exceed $9.0 million and
the Company does not reimburse B.U. for the losses in excess of $9.0 million.
The Service Agreement may be renewed for two successive one-year terms at the
option of the Company. The Company has the option to repurchase the assets
comprising the manufacturing and clinical operations facilities. The Company has
agreed to pay B.U. approximately $5.5 million and $6.6 million in years 1 and 2
of this contract, respectively. The fees can be mutually increased or decreased,
but may not be reduced to less than $4.3 million per contract year. Seragen and
B.U. are currently negotiating a reduction in the fees payable in 1997 and for
1998 based on the actual service rendered in 1997 and those anticipated for
1998. The Service Agreement has reduced substantially the Company's operating
costs in research and development, as the Company is contracting solely for the
services that the Company requires for clinical and manufacturing purposes.
The Company recorded a gain of $1,089,328 on the sale of the operating
facility and $4,585,987 for the excess of the reimbursed operating costs over
the amount due to B.U. pursuant to the Service Agreement for the period from
February 14, 1997, until the closing of the transaction on December 31, 1997 as
a contribution of capital.
C. SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
The Company considers all highly liquid investments that have a maturity
on date of acquisition of three months or less to be cash equivalents. Cash
equivalents at December 31, 1996 and 1997 consist of money market funds.
RESTRICTED CASH
The Company maintains a restricted cash balance of $175,000 at December
31, 1997, which is available under a letter of credit required by an officer of
the Company with whom the Company entered into an employment
F-8
<PAGE> 168
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
agreement. The restricted cash balance at December 31, 1996 included $435,318
available under a letter of credit requested by a lessor with whom the Company
had a sale/leaseback arrangement which expired in 1997.
CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in deposits with federally insured
banks and money market funds. At December 31, 1996 and 1997, all investments
were in funds which have an average maturity of less than one year. Financial
instruments that subject the Company to credit risk consists primarily of billed
and unbilled contract receivables. As of December 31, 1995, 1996, and 1997 one
customer accounted for 100% of billed and unbilled contract receivables. Revenue
from significant customers, which accounted for greater than 10% of total
revenue are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A 100% 72% 91%
Customer B - 27% -
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Betterments and major repairs
are capitalized and included in property and equipment accounts while
expenditures for maintenance and repairs are charged to expense. When assets are
retired or otherwise disposed of, the cost of the assets and related accumulated
depreciation and amortization are removed from the accounts and any resulting
gain or loss is reflected in income. The accompanying statements of operations
provides for depreciation and amortization using the straight-line method over
their useful lives, as follows:
<TABLE>
<CAPTION>
DECEMBER, 31
ESTIMATED -----------------------------------
USEFUL LIFE 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
Laboratory equipment ............ 3 - 7 Years $ 3,302,145 $ 2,757
Production equipment ............ 3 - 7 Years 378,474 --
Furniture and fixtures .......... 3 - 8 Years 627,989 124,153
Leasehold improvements .......... Life of Lease 9,683,789 --
------------ ------------
13,992,397 126,910
Less accumulated depreciation and
amortization .................... (9,388,282) (111,846)
------------ ------------
$ 4,604,115 $ 15,064
============ ============
</TABLE>
In connection with the sale of the Company's operating division, substantially
all of the Company's property and equipment was sold to B.U. and realized a gain
of $1,089,328 which was recorded as a component of additional paid in capital.
(See Note B)
NET LOSS PER COMMON SHARE
In March 1997, The Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share, which established new standards for
calculating and presenting earning per share. Basic loss per common share was
computed by dividing net loss applicable to common shareholder by the weighted
average number of
F-9
<PAGE> 169
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
common shares outstanding during the year. Diluted net loss per share presented
for the years ended December 31, 1995, 1996, and 1997 does not include potential
common stock (preferred stock, options and warrants, see Notes E, J and K) as
their effects would be antidilutive. This accounting change had no effect on the
Company's historical loss per common share.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
REVENUE RECOGNITION
Contract revenue is recognized as earned under the contract provisions.
License fees are recognized as earned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive
Income and SFAS No.131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
INDUSTRY UNCERTAINTIES
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, the ability to raise additional capital,
development by the Company or its competitors of new technological innovations,
dependence on key personnel, protection of proprietary technology, and
compliance with FDA government regulations.
D. COLLABORATIVE ARRANGEMENTS:
ELI LILLY AND COMPANY
On August 3, 1994, the Company and Lilly signed an agreement to form a
global strategic alliance that gave Lilly exclusive worldwide development,
distribution, and marketing rights, except in certain Asian countries, to the
Company's Interleukin-2 Fusion Protein ("IL-2 Fusion Protein") for the treatment
of cancer. Lilly also had the option to obtain worldwide development,
distribution, and marketing rights for additional indications for IL-2 Fusion
Protein and for other Company products under development. The Company retained
exclusive rights to promote IL-2
F-10
<PAGE> 170
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
Fusion Protein and future fusion proteins for dermatologic applications outside
of oncology and was to be responsible for bulk manufacturing for all
indications.
On August 4, 1994, under the terms of the alliance, Lilly made an
initial payment to the Company of $10 million, $5 million representing payment
for 787,092 shares of common stock at approximately $6.35 per share and $5
million representing an advance against Lilly's purchase of bulk product from
the Company. Lilly also agreed to pay the Company an additional $3 million based
on meeting certain regulatory milestones in the development of IL-2 Fusion
Protein for cutaneous T-cell lymphoma ("CTCL"). In addition, Lilly reimburses
the Company for costs incurred in the clinical development of IL-2 Fusion
Protein for CTCL, including costs for Phase III clinical trials. The Company
recorded approximately $3,337,000, $3,979,000, and $4,281,000 of contract
revenue for such reimbursed development costs during the years ended December
31, 1995, 1996 and 1997, respectively. In connection with this agreement, the
Company paid $600,000 in cash and issued 220,000 shares of common stock valued
at $1,760,000 to its investment bank for services provided in connection with
the Lilly agreement. In 1995, the Company charged $300,000 of such payments to
additional paid in capital and recorded the additional payments as prepaid
expense to be recognized upon the recognition of contract revenues and license
fees from Lilly in future periods.
On May 28, 1996, Lilly and the Company amended the Sales and
Distribution Agreement relating to the $5.0 million advance paid by Lilly in
August 1994 against Lilly's future purchases of bulk product from the Company.
Associated with the original agreement was $2,060,000 of deferred commission
expense to be recognized upon the recognition of product revenue from Lilly. The
amended agreement states that the $5.0 million payment is non-refundable and
Seragen has no obligation to refund the advance should no bulk purchases be made
by Lilly. To the extent Lilly purchases bulk product in the future, the Company
is required to pay Lilly a royalty equal to 75% of the purchase price, up to
$5.0 million of total royalties. The Company will recognize the $5.0 million
non-refundable payment and amortize the related deferred commission upon the
sale of bulk product to Lilly or at such time Lilly acknowledges it will not
purchase any bulk material. The Company restated its original accounting
treatment. (See Note O). The Company previously recognized the $5.0 million
non-refundable payment as revenue, expensed $2.06 million of deferred commission
in the quarter ended June 30, 1996 and expensed $1.2 million associated with
providing the bulk product to Lilly in the quarter ended December 31, 1996.
On April 7, 1997, the Company entered into an amendment to its Sales and
Distribution Agreement and Development Agreement with Lilly. Pursuant to the
amendment, Lilly relinquished, subject to certain limitations, all development
and promotion rights to IL-2 Fusion Protein non-cancer indications, as well as
rights to the Company's other molecules. Lilly did, however, retain rights to
distribute all intravenous and intramuscular formulations of IL-2 Fusion
Protein, for both cancer and non-cancer indications, except, in the case of
cancer indications, in certain Asian countries and, in the case of non-cancer
indications, certain Asian countries and member countries of the European Union.
Pursuant to the amendment, Lilly agreed to pay to Ajinomoto Co., Inc.
("Ajinomoto") on behalf of the Company $4.3 million: Lilly paid $2.15 million to
Ajinomoto for a license granted by Ajinomoto directly to Lilly; and Lilly has
agreed to pay, subject to certain conditions, up to $2.15 million of the
Company's $2.25 million obligation to Ajinomoto under the Company's restructured
agreement with Ajinomoto (See Note I). Pursuant to the amendment, Lilly credited
$1.5 million of the amount paid by Lilly to Ajinomoto on behalf of the Company
against the $1.5 million milestone payment from Lilly to the Company under the
Sales and Distribution Agreement between the Company and Lilly for the
submission by the Company of a U.S. Biologics License Application ("BLA") for
CTCL to the Food and Drug Administration ("FDA") which was completed on December
9, 1997.
Lilly is not obligated to make any further payments in respect of the
Company's obligations to Ajinomoto if Lilly terminates the Sales and
Distribution Agreement between it and the Company as a result of a failure by
the Company to meet specified clinical, regulatory and financial milestones and
other requirements. Such milestones
F-11
<PAGE> 171
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
have not been met by the Company and, as a result, Lilly has the right at any
time to terminate its arrangements with the Company with 30 days' notice. The
Company has received no indication from Lilly that Lilly intends to exercise
that right. If Lilly were to terminate its agreements with the Company, the
Company would be obligated to pay the $2.15 million payment to Ajinomoto that
Lilly has agreed to make on the Company's behalf, and Lilly's obligations under
the agreements to provide financial support to the Company's clinical trial
efforts would cease.
In exchange for the amended Sales and Distribution Agreement, the
Company issued to Lilly in a private placement 1.0 million shares of its Common
Stock. The shares of common stock issued to Lilly are valued at the closing
price of the Company's Common Stock as reported on Nasdaq on the date of
issuance of the shares to Lilly, less a discount of 20% to reflect a discount
from the Nasdaq closing price because the shares are not registered under the
Securities Act of 1933. In the quarter ended June 30, 1997, the Company valued
the 1.0 million shares of common stock issued to Lilly at $800,000 based on the
April 7, 1997 Nasdaq closing price of $1.00, less 20%, and has recorded it as
research and development expense.
NOVARTIS
In March 1996, the Company entered into a license agreement with
Novartis, formerly Sandoz Pharmaceutical, Limited, whereby the Company granted
Novartis a non-exclusive sub-license of certain patents in exchange for a $1.5
million non-refundable payment. Under the terms of the license agreement,
beginning on January 1, 2001 Novartis will be required to pay a 0.75% royalty on
the net sales price of licensed products that are sold under the sub-license
agreement. The agreement is to remain in effect until expiration of the
Company's licensed patents, or earlier upon termination as defined.
E. LOAN GUARANTEES AND SERIES B PREFERRED STOCK:
On June 7, 1995, the Company finalized three separate lines of credit
which were guaranteed by three different entities for a total of $23.8 million
in bank financing for the Company. B.U., the Company's majority stockholder, was
the lead guarantor and provided a guaranty of $11.8 million. Two other
individual guarantors guaranteed a total of $12 million. Upon the closing of the
lines of credit, the Company issued warrants to the guarantors to purchase
2,776,664 shares of its common stock at an exercise price of $4.75 per share.
The warrants were exercisable immediately and expire in 2005. The Company
estimated the fair market value of the warrants on the date of issuance to be
$1.50 per warrant or a total of $4,164,996. The Company recorded this amount as
prepaid interest to be recognized as interest expense over the four-year life of
the loan guarantees.
As of December 31, 1995, the Company borrowed $12.5 million of the total
$23.8 million and recorded the borrowings as long-term debt. The Company
borrowed the remaining $11.3 million available through June 30, 1996. On July 1,
1996, the Company restructured its arrangement with the guarantors of the
Company's $23.8 million bank financing under which the guarantors directly
assumed the liability with the banks and the Company was released from its
liability to the banks. In exchange for the guarantors satisfying the Company's
liability to the banks, the guarantors were issued 23,800 shares of Series B
Convertible Preferred Stock ("Series B Shares"). Each Series B Share is
convertible at any time at the holder's option into a number of shares of
Company's Common Stock determined by dividing $1,000 by the average of the
closing sale prices of the Company's Common Stock for the ten consecutive
trading days immediately preceding the conversion date.
The Company has not paid the cash dividends due December 31, 1996, March
31, 1997, June 30, 1997, September 30, 1997, and December 31, 1997, on the
Series B Shares, nor has the Company made the royalty payments due to STI on
January 1, 1997, and April 1, 1997, July 1, 1997, October 1, 1997, and January
1, 1998. Correspondingly, STI has not paid the dividends due January 1, 1997,
and April 1, 1997, July 1, 1997, October 1,
F-12
<PAGE> 172
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1997, and January 1, 1998, on the Class B Shares. The Company does not expect
STI to make the dividend payments due on the Class B Shares on April 1, 1998.
The Series B shareholders also received warrants to purchase a total of
5,950,000 shares of Seragen Common Stock at an exercise price of $4.00 per
share. The Company has estimated the average fair market value of these warrants
on the date of issuance to be $1.45 per warrant or a total of $8,617,951. The
value ascribed to the warrants and the issuance costs have been recorded as a
preferred stock dividend with an offset to additional paid-in capital. The
warrants are exercisable commencing on January 1, 1997 and expire on July 1,
2006. In addition to the warrants issued on July 1, 1996, the investors receive
additional warrants for certain dilutive events, subject to various provisions
as defined. The investors had received warrants to purchase an additional
2,217,196 and 8,781,813 shares of Common Stock in 1996 and 1997, respectively
related to the antidilution provisions. These additional warrants are priced,
exercisable and expire under the same terms of the initial July warrants.
The holders of the Series B Shares are entitled to vote, on any matter
submitted to a vote of the shareholders of the Company, and are entitled to a
number of votes equal to the product of (x) the number of Series B Shares held
on the record date for the determination of the stockholders entitled to vote on
such matters or, if no record date is established, in accordance with applicable
provisions of Delaware law, and (y) $1,000, divided by $4.00. Each Series B
Share has a liquidation preference equal to the sum of (a) $1,000, plus (b) an
amount equal to any accrued and unpaid dividends from the date of issuance of
the Series B Shares so that such amount must be paid on each Series B Share in
the event of a voluntary or involuntary liquidation, dissolution or winding up
of the Company before any distribution or payment is made to any holders of any
shares of the Common Stock or any other class or series of the Company's capital
stock which is junior to the Series B Shares. At any time, with the approval of
the Company's Board of Directors, Audit Committee or comparable body, the
Company may redeem any or all of the Series B Shares at a price of $1,000 per
share plus any accrued and unpaid dividends from the date of issuance.
In connection with the restructuring of the bank debt into Series B
Shares, the Company expensed approximately $3.0 million of prepaid interest and
$558,000 of debt issuance costs associated with the outstanding loans. Preferred
stock dividends related to the Series B Shares were approximately $9.9 million
in 1996, which consists of $8.6 million for the value ascribed to the warrants,
$1.2 million in cash dividends and $99,000 in preferred stock issuance costs.
The Company recorded dividends of $1,166,590 and $2,359,841 in the years ended
December 31, 1996 and 1997, respectively.
The holders of Series B Shares are entitled to receive a cumulative cash
dividend payable quarterly in arrears on the last day of March, June, September,
and December of each year commencing on September 30, 1996 at an annual rate
equal to the prime rate plus 1 1/2% through June 1999 and at an increasing
percentage rate thereafter up to a maximum rate of the prime rate plus 5% in
July 2003. In connection with the issuance of the Series B Shares the Company
formed STI. The Company transferred all of its existing and future United States
patents and patent applications (the "Patents") to STI in exchange for 214,200
shares of STI's Class A Common Stock and 23,800 shares of STI's Class B Common
Stock (the "Class B Shares"). Each share of STI Class A Common Stock is owned by
the Company. The Company has transferred the Class B Shares to the holders of
the Series B Shares.
STI has no operations, and its sole asset is the Patents. Its authorized
capital stock consists of 214,200 shares of Class A Common Stock and 23,800
shares of Class B Common Stock, all of which as described in the paragraph
above, is issued and outstanding. Each share of STI Class A Common Stock and STI
Class B Common Stock is entitled to one vote on all matters submitted to a vote
of STI shareholders, voting together as a single class.
Simultaneously with the contribution of the Patents to STI, the Company
entered into a license agreement with STI pursuant to which STI granted to the
Company an irrevocable worldwide exclusive license with respect
F-13
<PAGE> 173
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
to the Patents (the "Irrevocable License Agreement"). Under the terms of the
Irrevocable License Agreement, the Company is obligated to pay quarterly
royalties to STI in an amount equal to the amount of any dividend that the
holders of the Series B Shares are entitled to receive but have not received by
the royalty due date (which is one day after each quarterly dividend payment
date for the Series B Shares). The shares of STI Class B Common Stock, in turn,
are entitled to receive cumulative dividends equal to any royalty payable to STI
under the Irrevocable License Agreement.
STI has executed a collateral assignment of the Patents in favor of the
holders of the Class B Shares, which is being held by an escrow agent. The
escrow agent is required to deliver collateral assignment to the holders of the
Class B Shares if dividends on the Class B Shares are in arrears and STI fails
for 60 days, after the receipt of notice from the holders of the Class B Shares,
to pay the dividends due. Likewise, the holders of Class B Shares have executed
a reassignment of the Patents to STI, which also is being held by the escrow
agent. The escrow agent is obligated to deliver the reassignment of the Patents
to STI upon the redemption by STI of all of the Class B Shares. The Class B
Shares are required to be redeemed upon the redemption or conversion of Series B
Shares in a number equal to the number of Series B Shares redeemed or converted.
The collateral assignment of the Patents secures only STI's dividend payment
obligations on the Class B Shares and does not secure any other amounts (e.g.,
the liquidation preference of the Series B Shares). The collateral assignment of
the Patents has no effect until the escrow agent is instructed to deliver it to
the holders of the Class B Shares.
F. TECHNOLOGY PURCHASE AND ROYALTY AGREEMENT:
In 1988, B.U. sold to the Company all rights, title and interest to
certain technology in exchange for a continuing royalty on all revenue derived
from such technology, as defined, until the expiration of all patents relative
to the technology. Upon the expiration of all patents, the Company will pay B.U.
a royalty on revenues, as defined, for a period of 10 years after the expiration
of all patents. B.U. has retained a collateral interest in the technology as
long as royalties are due. Upon an event of default, the technology will revert
to B.U. No royalty amounts were due or have been paid to date under this
agreement. This technology has been assigned as collateral to the Series B
Preferred Stockholders.
G. INVESTMENT IN CANADIAN AFFILIATE:
On November 21, 1995, the Company formed Seragen Biopharmaceuticals Ltd.
("SBL"), a privately held Canadian research and development company located in
Montreal. In a private financing, a group of six Canadian investors contributed
approximately $10.0 million, acquiring units representing 51% of SBL. Each unit
consists of either a share of Class A or Class B Common Stock of SBL and a
warrant to acquire a share of Seragen Common Stock. The Company issued warrants
to purchase 519,033 shares of Seragen Common Stock at an exercise price of $8.79
per share. The warrants became exercisable on October 1, 1997 and expire on
September 30, 2005. The Canadian investors have the option to exercise one of
three different put rights related to their SBL shares after January 1, 1999, or
earlier upon the occurrence of certain events as defined. The Company is
currently in default of its obligation to register certain shares underlying
certain put rights of SBL. Put Right 1 obligates the Company to purchase the
investors' 1,557,097 shares at $8.57 (Canadian $) plus 11.4% compounded
annually. The Company has the option to settle the purchase of the investors'
SBL shares in cash or Company common stock, but the investors can require 50% of
the purchase price to be paid in cash. Put Right 2 obligates the Company to
purchase the investors' shares at a price of 20 times SBL's per share income
over the four most recent quarters. Put Right 3 obligates the Company to
exchange the investors' shares for the Company's shares (or the value of such
shares) using the product of $8.57 (Canadian $) and the number of puts exercised
divided by 9.487. The Company has the option to settle Put Rights 2 and 3 in
cash or Seragen common stock. The put rights will terminate if SBL sells
F-14
<PAGE> 174
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
shares in an initial public offering. As a result of the delisting of Seragen
Common Stock from the Nasdaq National Market, the investors in SBL may claim
that they are entitled to require the Company to purchase their SBL shares for
cash. See "Management's Discussion and Analysis." The Company received 49% of
SBL's Class A and Class B shares in exchange for issuing the warrants to
purchase Seragen Common Stock, granting of the put rights, and granting SBL the
exclusive right to promote, sell and distribute in Canada pharmaceutical
formulations comprising fusion proteins for all indications of fusion proteins
and for the treatment of HIV in certain countries (subject to the rights granted
to Lilly).
In 1995, the Company determined the fair market value of the warrants
and the put rights to be $914,000 and $2,076,000, respectively. The Company
recorded these amounts as an investment in affiliate under the equity method.
Loss incurred in connection with Canadian affiliate consists of the Company's
proportionate share of SBL's loss, based on the equity method and accretion of
its obligation under the put rights. At December 31, 1996, the Company reduced
its investment to zero and reflected an affiliate put option liability of
$2,400,000 which reflects the Company's maximum current obligation under the put
options. The put option obligation liability represents the estimated put option
liability less the net assets of the Canadian affiliate available to satisfy
such liability if the put option were exercised.
Summarized unaudited financial information for Seragen
Biopharmaceuticals Ltd. for 1997 in U.S. dollars is as follows:
<TABLE>
<CAPTION>
BALANCE SHEET DATA STATEMENT OF OPERATIONS DATA
AS OF DECEMBER 31, 1997 FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------- ------------------------------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
Current assets............................... $ 8,928,799 Investment income..................... $ 306,517
Noncurrent assets............................ - Operating expenses.................... 283,572
-----------
Current liabilities.......................... 77,616 Net income............................ $ 22,945
Stockholders' Equity......................... 8,851,183
</TABLE>
H. INCOME TAXES:
As of December 31, 1997, the Company had net operating loss carry
forwards for federal income tax purposes of approximately $189 million expiring
at various dates from 1998 through 2013 which are available to reduce future
federal income taxes. Pursuant to a quasi-reorganization in 1985, approximately
$11 million of these loss carryforwards will be credited to additional paid-in
capital if realized. (Upon consummation of this quasi-reorganization,
approximately $14 million of accumulated deficit was charged to additional
paid-in capital.) In addition, the Company had research and experimental and
investment tax credit carryforwards of approximately $6 million. The tax credits
expire at various dates from 1998 through 2013. The Tax Reform Act of 1986
contains provisions which may limit the net operating loss and credit
carryforwards available to be used in any given year as the result of
significant changes in equity ownership.
F-15
<PAGE> 175
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
The net operating loss carryforwards and tax credits expire approximately as
follows:
<TABLE>
<CAPTION>
NET OPERATING RESEARCH INVESTMENT TAX
LOSS TAX CREDIT CREDIT
EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS CARRYFORWARDS
- --------------- ------------- ------------- --------------
<S> <C> <C> <C>
1998 $2,504,000 $168,000 $7,000
1999 3,548,000 216,000 19,000
2000 2,224,000 -- 15,000
2001 223,000 -- --
2002 4,440,000 -- --
2003 - 2013 176,509,000 5,157,000 --
------------ ------------ ------------
$189,448,000 $ 5,541,000 $ 41,000
============ ============ ============
</TABLE>
The components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net Operating loss carryforwards $ 69,694,000 $ 70,291,000
Research and development credits 4,912,000 5,541,000
Investment tax credits ......... 45,000 41,000
Temporary differences .......... 1,727,000 2,980,000
------------ ------------
76,378,000 78,853,000
Valuation allowance ............ (76,378,000) (78,853,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The valuation allowance has been provided due to the uncertainty surrounding the
realization of the deferred tax assets.
I. OBLIGATIONS:
EQUIPMENT LOAN
On February 19, 1993, the Company obtained an equipment loan of $750,000
collateralized by certain existing used equipment. The Company also issued a
warrant to purchase 10,757 shares of common stock at a purchase price of $12.55
per share in connection with this equipment loan. The warrant expires on
February 19, 2000. The loan was paid in full as of December 31, 1997.
LICENSE FEES
In December 1994, the Company entered into a license agreement with
Ajinomoto which provides the Company with exclusive worldwide rights under
Ajinomoto's IL-2 gene patents for the Company's fusion proteins. On June 1,
1997, the Company restructured its license agreement with Ajinomoto (see Note
E). Prior to the restructuring, the Company was obligated to pay Ajinomoto a
license fee of $4.3 million payable upon the occurrence of certain specified
events, but no later than March 31, 1997 (extended by agreement of Ajinomoto to
May 31, 1997), and royalties ranging from 2% to 4% on sales of the licensed
product by the Company or its sublicensees, but with minimum royalties of
$100,000 for the third year of the agreement, $200,000 for the fourth year of
the agreement, and $300,000 for the fifth and following years of the agreement.
In addition, prior to the restructuring, the rights granted by Ajinomoto to the
Company pursuant to the License Agreement were exclusive. Under the terms of the
restructuring, the future license fees payable by the Company to Ajinomoto were
reduced to the following
F-16
<PAGE> 176
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
amounts: a $2.25 million fee payable in the amount of $800,000 by June 30, 1998,
or approval by the FDA of a BLA filed by the Company for the licensed product,
whichever comes first, in the amount of $800,000 by June 30, 1999, and in the
amount of $650,000 by March 31, 2000; and a reduced royalty of 1% on end-user
net sales of the licensed product by the Company or its sublicensee.
The Company amended its agreements with Lilly whereby Lilly will pay
certain license fees to Ajinomoto on behalf of the Company, subject to certain
limitations (see Note D). Lilly assumed $2.15 million of the obligation at
December 31, 1997. The restructuring provides that the license granted by
Ajinomoto to the Company will be non-exclusive. Accordingly, in the quarter
ended June 30, 1997, the Company reduced its obligation to Ajinomoto from $4.3
million to $2.25 million and recorded extraordinary income of $2.05 million for
the forgiveness of indebtedness.
LICENSE AND OPTION AGREEMENT WITH UNITED STATES SURGICAL CORPORATION
On July 31, 1997, the Company entered into an evaluation license and
option agreement (the "USSC License Agreement") with USSC granting USSC an
option on worldwide rights to the Company's DAB389EGF molecule (the "EGF Fusion
Protein") for restenosis in cardiovascular applications. Leon C. Hirsch is the
Chairman of USSC and beneficially owns 7.8% of the common stock of USSC. Turi
Josefsen is a director of USSC and beneficially owns 1.8% of the common stock of
USSC. John R. Silber is a director of USSC and beneficially owns .02% of the
common stock of USSC. Pursuant to the USSC License Agreement, USSC made an
initial payment to the Company of $5.0 million on July 31, 1997. Under the USSC
License Agreement, USSC is entitled to acquire an exclusive license to the EGF
Fusion Protein technology, at any time during a 15-month evaluation period, upon
the payment to the Company of an additional $5.0 million. In addition, the
Company issued to USSC a warrant for the purchase of 500,000 shares of the
Company's Common Stock at a purchase price of $0.5625 per share, the closing
sale price for shares of the Company's Common Stock on the date prior to the
date the warrant was issued. The Company charged $175,000 for such warrant to
general and administrative expense in the year ended December 31, 1997. USSC has
agreed to fund trials associated with the development of EGF Fusion Protein for
restenosis. If USSC's option to obtain any exclusive license of the EGF Fusion
Protein technology is exercised, milestone payments will be payable by USSC to
the Company up to a maximum amount of $22.5 million. In addition, USSC will be
obligated to pay the Company royalties on commercial sales of the licensed
product. In the event USSC chooses not to exercise the option, the USSC License
Agreement will terminate, and, in exchange, USSC will receive $5.0 million worth
of the Company's Common Stock valued at the average of the closing prices of the
Company's Common Stock (i) for the ten trading days preceding the date of the
USSC License Agreement or (ii) for the ten trading days preceding the date on
which USSC chooses not to exercise the option, whichever is lower. The Company
has recorded the $5.0 million initial payment from USSC as deferred revenue, a
liability. In the event that USSC exercises its option to license the EGF Fusion
Protein, the $5.0 million will be recorded as revenue at that time. In the event
that USSC chooses not to exercise the option, the $5.0 million will be recorded
as stockholders' equity.
J. CAPITAL STOCK:
In December 1996, the stockholders approved an increase in the number of
authorized shares of common stock to 70,000,000. The Company has 5,000,000
shares of preferred stock authorized to be issued from time to time in one or
more series. Each series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights.
F-17
<PAGE> 177
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
COMMON STOCK
In June 1995, the Company issued 220,000 shares of common stock at $8.00
per share in payment of commissions incurred in connection with the formation of
the alliance with Lilly.
In April 1997, the Company issued 1,000,000 shares of Common Stock to
Lilly in a private placement (see Note D).
SERIES A SHARES
On May 29, 1996, the Company raised gross proceeds of $4 million
(approximately 3.8 million net of offering fees) through the sale of 4,000
shares of Seragen convertible Series A Stock ("Series A Shares") to investors
outside the United States pursuant to Regulation S under the Securities Act of
1993. The Series A Shares were convertible at the option of the holders,
beginning July 15, 1996, into shares of Seragen Common Stock at a per share
conversion price equal to the lesser of $4.125 or 73 percent of the average
closing bid prices for a five day period prior to the conversion date. The
Series A Shares were subject to a contractual cap on conversion that limited the
total number of shares of Common Stock into which the Series A Shares may have
been converted to a maximum of 3,321,563 shares. The Company and the holder of
the Series A Shares eliminated this cap by agreement dated November 11, 1997.
Terms of the Series A Shares also provided for 8% cumulative dividends payable
in shares of Seragen Common Stock at the time of each conversion. The holders of
the Series A Shares were not entitled to vote separately, as a series or
otherwise, on any matter submitted to a vote of the shareholders of the Company.
Each Series A Share had a liquidation preference equal to the sum of (a) $1,000,
plus (b) an amount equal to any accrued and unpaid dividends from the date of
issuance of the Series A Shares. Such amount was required to be paid on each
Series A Share in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company before any distribution or payment was
made to any holders of any shares of the Common Stock or any other class or
series of the Company's capital stock which was junior to the Series A Shares.
From May 29, 1996 through November 25, 1997, 3,077 Series A Shares were
converted into 3,746,469 shares of Common Stock at conversion prices ranging
from $0.372 to $2.774 per share of which 895 and 2,182 were converted in 1996
and 1997, respectively. By their terms, the remaining Series A Shares
outstanding plus accrued dividends on November 29, 1997 were to be automatically
converted into shares of Seragen Common Stock. However, on November 6, 1997, all
outstanding Series A Shares plus accrued dividends were exchanged for shares of
Series D Preferred stock and the conversion cap liability was reclassified as
preferred stock. (See below).
The Series A Shares were reflected at $2,015,522 at December 31,1996,
representing their liquidation value inclusive of accrued dividends payable from
the issuance date through December 31, 1996. At December 31, 1996, $1,236,753
was reclassified to a current liability representing the 1,361,313 shares of
Common Stock that were required to be redeemed due to the conversion cap
limitation as of December 31, 1996. The Company recorded common stock dividends
of $171,688, and $727,746 in the years ended December 31, 1996 and 1997.
SERIES B SHARES
In July 1996, the Company issued 23,800 shares of Seragen convertible
Series B Preferred Stock pursuant to the conversion of certain loan guarantees
(see Note E).
F-18
<PAGE> 178
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
SERIES C SHARES
On September 30, 1996, the Company raised $5 million through the sale of
5,000 shares of the Company's non-voting convertible Series C Preferred Stock
("Series C Shares") in a private placement to B.U. under Regulation D of the
Securities Act of 1933. The Series C Shares were convertible at the option of
the holder into shares of Seragen Common Stock at a per share conversion price
equal to the lesser of $2.75 or 73 percent of the average closing bid prices for
a five day period prior to the conversion date, up to a maximum of 3,360,625
shares of Seragen Common Stock. Any shares the investor was unable to convert
due to this limitation could be exchanged for $1,150 per share in cash. Terms of
the Series C Shares also provided for 8% cumulative dividends payable in shares
of Seragen Common Stock at the time of each conversion. Each Series C Share had
a liquidation preference equal to $1,000 plus an amount equal to any accrued and
unpaid dividends from the date of issuance of the Series C Shares in the event
of a voluntary or involuntary liquidation, dissolution or winding up of the
Company. Series C Shares which remained outstanding on March 30, 1998 were to be
automatically converted into shares of the Company's Common Stock. The Company's
Series C Shares were reflected at $5,100,00 and $5,500,000 at December 31, 1996,
and 1997. The Company recorded common stock dividends of $100,000 and $400,000
in the years ended December 31, 1996 and 1997, respectively.
Effective March 30, 1998, 1,060 Series C Shares automatically converted,
in accordance with the terms of the Series C preferred stock, into 3,360,625
shares of the Company's common stock and 3,940 Series C Shares were, as required
by the terms of the Series C preferred stock, purchased by the Company for an
aggregate purchase price of $4,530,461. Following these transactions, no Series
C Shares remained outstanding. The purchase price for the Series C Shares
purchased by the Company has not yet been paid by the Company, nor has B.U., the
holder of the Series C Shares, demanded payment of the said purchase price. As a
result, the Company currently is indebted to B.U. for this amount.
SERIES D SHARES
On November 26, 1997, the Company issued 923 shares of its Series D
Preferred Stock (the "Series D Shares") in exchange for all the outstanding
Series A Shares. The Series D Shares are convertible at the option of the
holders into shares of Seragen Common Stock at a per share conversion price
equal to the lesser of $4.125 or 73 percent of the average closing bid prices
for a five day period prior to the conversion date. Terms of the Series D Shares
also provide for 8% cumulative dividends, from May 29, 1996, payable in shares
of Seragen Common Stock at the time of each conversion. The holders of the
Series D Shares are not entitled to vote separately, as a series or otherwise,
on any matter submitted to a vote of the shareholders of the Company. The Series
D Shares are redeemable for $1,150 cash per share at the option of the Company.
Each Series D Share has a liquidation preference equal to the sum of (a) $1,000,
plus (b) an amount equal to any accrued and unpaid dividends from the date of
the original issuance of the Series A Shares (subsequently converted into a
Series D Share). Such amount must be paid on each Series D Share in the event of
a voluntary or involuntary liquidation, dissolution or winding up of the Company
before any distribution or payment is made to any holders of any shares of the
Common Stock or any other class or series of the Company's capital stock which
is junior to the Series D Shares. At December 31, 1997, 908 shares of Series D
Shares were outstanding. The Series D Shares were reflected at $1,023,231 at
December 31, 1997, representing their liquidation value which includes $115,231
of accrued dividends payable from the original issuance date of the Series A
Shares through December 31, 1997.
F-19
<PAGE> 179
K. STOCK OPTIONS AND WARRANTS:
EMPLOYEE STOCK OPTION PLANS
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
The Company's stock option plans allow for the grant of incentive stock
options at prices not less than fair value on the date of grant, as determined
by the Board of Directors, and nonqualified stock options at prices determined
by the Board of Directors.
The Company granted options under the 1981 Stock Option Plan until the
plan termination in 1991. Accordingly, no additional grants may be made under
this plan; however, options outstanding may still be exercised prior to their
expiration date. The options generally vest ratably over 4 years and expire 10
years from date of grant.
The Company's 1992 Long Term Incentive Plan (the "1992 Plan") provides
for the grant of incentive stock options, nonstatutory options, stock
appreciation rights, restricted stock, deferred stock and other stock based
awards. Officers, employees and consultants are eligible to receive awards under
this plan; however, only officers and employees of the Company are eligible to
receive incentive stock options. Incentive stock options will not be granted at
less than fair market value or exercisable later than ten years from the date of
the grant. Nonstatutory options will be exercisable at the price established by
the Board of Directors or a committee thereof. In December 1997, shareholders
approved an amendment to the Company's 1992 Plan increasing the number of shares
available under the plan from 2,300,000 to 16,000,000. All incentive stock
options issued to date pursuant to this plan vest over a three to five-year
period.
NON-EMPLOYEE DIRECTORS NON-QUALIFIED STOCK OPTION PLAN
The Company's 1992 Non-Employee Directors Non-Qualified Stock Option
Plan provides for the granting of nonstatutory stock options at fair market
value to Directors of the Company who are not officers or employees of the
Company or Trustees of B.U. There are 200,000 common shares reserved for
issuance pursuant to this plan. Commencing with the first date on which elected
to serve as a director of the Company or on February 5, 1992, whichever is
later, each eligible Director shall be granted an option to purchase 5,000
shares of Common Stock at the fair market value of the Common Stock on the date
the option is granted, provided, however, that for any eligible Director who has
previously been awarded options to purchase stock in connection with his service
as a director of the Company, the grant shall be reduced by the number of shares
underlying the previous grants. At the commencement of each subsequent twelve
month period in which the Director is elected to continue in office, an
additional option to purchase 1,000 shares at fair market value shall be
granted. The options acquired under the plan shall be exercisable upon
completion of a full term of office as a member of the Board of Directors after
the grant and if for any reason the term is not completed, or if the Director
has failed to attend at least seventy-five percent (75%) of the regularly called
meetings of the Board of Directors during such term, the option will be
forfeited. There are no shares available for future grant at December 31, 1997.
A summary of the status of the Company's stock options as of December
31, 1995, 1996 and 1997 and changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- ------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,954,330 $ 9.12 1,773,440 $ 8.36 6,803,029 $ 2.60
Granted ........................ 283,264 5.57 5,728,592 1.37 12,856,546 0.54
Exercised ...................... (117,014) 0.98 (111,825) 0.72 (100) 0.75
Canceled ....................... (347,140) 12.46 (587,178) 9.79 (1,038,014) 8.93
----------- ----------- -----------
</TABLE>
F-20
<PAGE> 180
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Outstanding at end of year .... 1,773,440 8.36 6,803,029 2.60 18,621,461 0.82
============ ========== ============
Options exercisable at year-end 1,072,887 1,283,802 5,732,465
============ ========== ============
</TABLE>
In connection with the sale of the operating division to B.U., the
Company transferred approximately 90 employees to B.U. Options that had been
granted to these transferred employees were automatically converted to
non-qualified stock options. Vesting is contingent upon continued employment
with B.U. and will continue vesting according to their original vesting
schedules. The Company will record a compensation charge of $1,197,827 over the
remaining vesting periods.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option and purchase plans. In October 1995, Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") was issued and requires the Company to elect
either expense recognition or disclosure-only alternative for stock-based
employee compensation. The expense recognition provision encouraged by SFAS No.
123 would require fair-value based financial accounting to recognize
compensation expense for the employee stock compensation plans. The Company has
determined that it will elect the disclosure-only alternative.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted and stock issued pursuant to the employee
stock purchase plan as of December 31, 1995, 1996 and 1997 using the
Black-Scholes option-pricing model prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the years
ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rates ................... 6.01% -7.47% 5.52% - 5.77% -
6.73% 6.89%
Expected dividend yield .................... -- -- --
Expected lives ............................. 7.5 years 7.5 years 7.5 years
Expected volatility ........................ 96% 96% 107%
Weighted-average grant-date fair value of
options granted during the period .......... $ 4.73 $ 1.17 $ 0.48
Weighted-average exercise price ............ $ 8.36 $ 2.60 $ 0.82
Weighted-average remaining contractual life
of options outstanding ..................... 6.20 years 9.25 years 9.04 years
Weighted average exercise price of 1,283,802
and 5,732,465 options exercisable at
December 31, 1996 and 1997, respectively ... $ 8.16 $ 7.37 $ 0.94
The effect of applying SFAS No. 123 would be as follows:
</TABLE>
F-21
<PAGE> 181
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
---------------- ---------------- --------------
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders ............................. $ (21,311,315) $ (37,672,478) $ (21,280,184)
Pro forma net loss per common share ...... $ (1.30) $ (2.25) $ (1.07)
</TABLE>
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The total fair value of the options granted and stock issued under the
employee stock purchase plan during 1995, 1996 and 1997 was computed as
approximately $1,285,000, $6,795,000 and $6,076,000, respectively. Of these
amounts, approximately $210,000, $951,000 and $3,890,000 would be charged to
operations for the years ended December 31, 1995, 1996 and 1997, respectively.
The resulting pro forma compensation expense may not be representative
of the amount to be expected in future years as pro forma compensation expense
may vary based upon the number of options granted.
The pro forma net loss applicable to common stockholders and pro forma
net loss per common share presented above have been computed assuming no tax
benefit. The effect of a tax benefit has not been considered since a substantial
portion of the stock options granted are incentive stock options and the Company
does not anticipate a future deduction associated with the exercise of these
stock options.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") allowed
employees to purchase the Company's common stock, and 200,000 common shares were
reserved for issuance pursuant to this plan.
All employees of the Company who had been employed for at least three
months by the Company were eligible to participate in this plan. Shares were
purchased through the accumulation of payroll deductions of 1% to 10% of each
participant's compensation (up to a maximum of $25,000 per year). The purchase
price of the shares was 85% of the fair market value of the stock at certain
predetermined dates, as defined. The Company issued 29,864, and 42,855 shares
under the Purchase Plan in the years ended December 31, 1995 and 1996,
respectively. In February 1997, the Board of Directors voted to terminate the
Purchase Plan.
WARRANTS
As of December 31, 1997, the following warrants were outstanding:
F-22
<PAGE> 182
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WARRANTS
OUTSTANDING EXERCISE PRICE EXPIRATION DATE
----------- -------------- ---------------
<S> <C> <C> <C>
Equipment Loan .......... 10,757 $ 12.55 2/2/00
Private Placement ....... 281,751 10.00 2/4/99
Loan Guarantee .......... 2,776,664 4.75 6/7/05
Canadian Affiliate ...... 519,033 8.79 9/30/05
Series B Preferred Stock 16,949,009 4.00 7/1/06
U.S. Surgical Corporation 500,000 0.56 8/1/02
----------
21,037,214
==========
</TABLE>
L. COMMITMENTS:
ROYALTY ARRANGEMENTS
The Company has various royalty arrangements with third parties which
expire beginning in 1998 and ending in 2014. The Company is obligated to pay
royalties ranging from .5% to 5% of net sales. To date, the Company has paid no
royalties under these arrangements.
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with key employees
that provide for minimum salary and severance payments as defined.
EMPLOYEE BENEFITS
The Company has a 401(k) savings plan in which substantially all of its
permanent employees are eligible to participate. Participants may contribute up
to 15% of their annual compensation to the plan, subject to certain limitations.
Although the Company may make matching contributions, there were no such
contributions to the plan in 1995, 1996 and 1997.
M. RELATED PARTIES:
CONSULTING CONTRACTS
The Company incurred consulting fees to stockholders and directors of
approximately $155,000, $169,000 and $50,000 for the years ended December 31,
1995, 1996 and 1997, respectively. The Company also incurred expenses relating
to research grants to, and clinical trials performed at, B.U. of approximately
$185,000 and $175,000 for the years ended December 31, 1995 and 1996,
respectively. There were no expenses incurred related to these research grants
in 1997. The Company also recorded $63,000 of grant revenue on an NIH grant
relating to a subcontract from B.U. in 1996. The full amount was paid as of
December 31, 1996.
The Company incurred consulting fees to other option holders of
approximately $18,000 and $12,000 for the years ended December 31, 1995 and
1996, respectively. There were no consulting fees to other option holders
incurred in 1997. The Company also incurred expenses relating to research grants
to the institution employing one of the option holders of approximately $150,000
for the year ended December 31, 1995.
F-23
<PAGE> 183
N. ACCRUED EXPENSES:
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997
---------- ----------
<S> <C> <C>
Clinical and research ........ $1,158,421 $1,048,940
Professional service fees .... 219,062 382,800
Payroll, vacation and benefits 632,778 323,840
Other expenses ............... 583,911 484,855
---------- ----------
$2,594,172 $2,240,435
========== ==========
</TABLE>
O. RESTATEMENT OF DECEMBER 31, 1996 FINANCIAL STATEMENTS:
In September of 1997, the Company restated its 1996 financial statements
to reflect a change in the accounting treatment for the Company's amended Sales
and Distribution Agreement with Lilly on May 28, 1996. The restatement consists
of (1) recording the $5.0 million payment by Lilly in 1994 as an advance against
future purchases of bulk product by Lilly (the Company had previously recorded
such amount as revenue in the quarter ended June 30, 1996), (2) capitalizing as
a deferred expense $2,060,000 of commissions paid by the Company in connection
with the $5.0 million payment from Lilly in 1994, and (3) reversing a $1.2
million expense accrual associated with providing the bulk material to Lilly
(previously recorded by the Company in the fourth quarter of 1996). (See Note
D). The following table presents the net loss, the net loss applicable to common
stockholders, and the net loss per share as originally reported, and as
restated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(As reported) (As restated)
<S> <C> <C>
Net loss ................................. $(24,586,560) $(26,326,560)
Basic and diluted net
loss applicable to common stockholders ... (34,981,478) (36,721,478)
Basic and diluted net loss per share ..... $ (2.09) $ (2.20)
</TABLE>
F-24
<PAGE> 184
SERAGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, MARCH 31, 1998
1997 (UNAUDITED)
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 5,328,535 $ 4,588,786
Restricted cash ..................................................... 175,000 200,000
Contract receivable ................................................. 208,190 634,233
Unbilled contract receivable ........................................ 944,063 1,014,994
Prepaid expenses and other current assets ........................... 72,065 71,442
------------- -------------
Total current assets ........................................ 6,727,853 6,509,455
Property and equipment, net ................................................. 15,064 13,054
Deferred commission ......................................................... 2,060,000 2,060,000
Other assets ................................................................ 8,648 9,324
------------- -------------
Total assets ................................................ $ 8,811,565 $ 8,591,833
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable .................................................... $ 447,008 $ 264,206
Related party payable ................................................... 3,422,833 5,887,835
Dividend payable - Series B Preferred Stock ............................. 2,943,136 3,528,383
Accrued expenses .................................................... 2,240,435 1,678,640
Preferred stock redemption liability ................................ -- 4,530,461
Short-term obligation ............................................... 800,000 800,000
------------- -------------
Total current liabilities ................................... 9,853,412 16,689,525
------------- -------------
Non-current liabilities:
Deferred revenue .................................................... 10,000,000 10,000,000
Long-term obligation ................................................ 1,450,000 1,450,000
Canadian affiliate put option liability ................................ 2,400,000 2,400,000
------------- -------------
Total non-current liabilities ............................... 13,850,000 13,850,000
------------- -------------
Commitments and contingencies
Stockholders' (deficit);
Convertible preferred stock, Series B, $.01 par value; issued and
outstanding 23,800 shares at December 31, 1997 and March 31, 1998,
respectively
$23,800,000 at liquidation preference .............................. 23,800,000 23,800,000
Convertible preferred stock, Series C, $.01 par value; issued and
outstanding 5,000 and 0 shares at December 31, 1997, and
March 31,1998, respectively at $5,500,000 liquidation preference .. 5,500,000 --
Convertible preferred stock, Series D, $.01 par value; issued and
outstanding 908 and 310 shares at December 31, 1997, and
March 31,1998, respectively at liquidation preference .............. 1,023,231 354,926
Common stock, $.01 par value; 70,000,000 shares authorized;
issued 21,444,894 and 27,273,857 shares at December 31,1997
and March 31, 1998, respectively ................................... 214,448 272,731
Additional paid in capital .............................................. 160,957,800 163,571,997
Accumulated deficit ..................................................... (206,384,995) (209,945,015)
------------- -------------
(14,889,516) (21,945,361)
Less-treasury stock (777 shares at cost at December 31,1997 and
March 31, 1998, respectively) ....................................... (2,331) (2,331)
------------- -------------
Total stockholders' (deficit) ............... (14,891,847) (21,947,692)
------------- -------------
Total liabilities and stockholders' (deficit) $ 8,811,565 $ 8,591,833
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 185
SERAGEN, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Revenue:
Contract revenue and license fees ....... $ 911,625 $ 747,174
------------ ------------
Operating expenses:
Cost of contract revenue ................ 882,034 747,098
Research and development ................ 2,516,840 1,494,661
General and administrative .............. 1,189,803 606,281
------------ ------------
4,588,677 2,848,040
------------ ------------
Loss from operations ........... (3,677,052) (2,100,866)
------------ ------------
Interest income ........................... 14,703 44,145
Interest expense .......................... 172,366 --
------------ ------------
Net loss ....................... (3,834,715) (2,056,721)
------------ ------------
Preferred stock dividends and accretion ... 720,703 1,503,299
------------ ------------
Net loss applicable to common
stockholders .............................. $ (4,555,418) $ (3,560,020)
============ ============
Net loss per common share ................. $ (0.25) $ (0.15)
============ ============
Weighted average common shares used in
computing net loss per share .............. 17,936,675 23,243,684
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 186
SERAGEN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $(3,834,715) $(2,056,721)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................... 232,351 2,010
Amortization of discount on long-term debt ............ 171,903 --
Compensation expense for Marathon employee options .... -- 116,567
Changes in operating assets and liabilities:
Contract receivable ................................... 111,298 (426,043)
Unbilled contract receivable .......................... (67,806) (70,931)
Prepaid expenses and other current assets ............. 87,171 623
Accounts payable ...................................... (502,156) (182,802)
Related Party Payable ................................. -- 2,465,002
Deposits received from Boston University .............. 4,500,000 --
Accrued expenses ...................................... (148,779) (561,794)
----------- -----------
Net cash (used in) provided by operating activities ......... 549,267 (714,089)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment .................... (4,800) --
Decrease in other assets ............................... 37,972 (676)
(Increase) decrease restricted cash account ............ -- (25,000)
----------- -----------
Net cash (used in) provided by investing activities .... 33,172 (25,676)
----------- -----------
Cash flows from financing activities:
Net proceeds from common stock issuances ................ 75 16
Repayments of long-term debt ............................ (8,017) --
----------- -----------
Net cash (used in) provided by financing activities .......... (7,942) 16
----------- -----------
Net increase (decrease) in cash and cash equivalents ......... 574,497 (739,749)
Cash and cash equivalents, beginning of period ............... 1,548,392 5,328,535
----------- -----------
Cash and cash equivalents, end of period ..................... $ 2,122,889 $ 4,588,786
=========== ===========
Supplemental disclosures of cash flows information:
Cash paid for interest ................................... $ 463 $
=========== ===========
Supplemental non cash activities:
Conversion of Series A preferred stock to common stock ... $ 738,205 $
Conversion of Series C preferred stock to common stock
and redemption liability ............................... $ $ 6,274,833
Conversion of Series D preferred stock to common stock ... $ $ 929,357
Series C and D preferred dividends ....................... $ $ 109,718
Accrued but unpaid Series B dividends .................... $ 149,113 $ 3,379,270
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 187
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been
prepared by the Company in accordance with generally accepted accounting
principles.
Certain information and footnote disclosure normally included in the
Company's audited annual financial statements has been condensed or omitted in
the Company's interim financial statements. In the opinion of management, the
interim financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair representation of the results for the
interim period presented.
The results of operations for the interim period may not necessarily be
indicative of the results of operations expected for the full year, although the
Company expects to incur a significant loss for the year ending December 31,
1998. These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1997, which are
contained in the Company's most recent Annual Report on Form 10-K.
2. LIGAND MERGER AGREEMENT
On May 11, 1998, the Company executed the Ligand Merger Agreement with
Ligand and Knight. Subject to approval by a majority of the outstanding voting
shares of capital stock of the Company and certain other conditions, Knight will
merge with and into the Company, with the result that the Company will become a
wholly-owned subsidiary of Ligand. This transaction is expected to close in the
third quarter of 1998. Simultaneously with the execution of the Ligand Merger
Agreement, the Company and STI entered into the Accord with the Trustees of
B.U., Seragen LLC, Marathon, USSC, Leon C. Hirsch, Turi Josefsen, Gerald S.J.
and Loretta P. Cassidy, Reed R. Prior, Jean C. Nichols, Ph.D., Elizabeth C.
Chen, Robert W. Crane, Shoreline Pacific Institutional Finance, Lehman Brothers
Inc., 520 Commonwealth Avenue Real Estate Corp., and 660 Corporation, pursuant
to which those parties agreed to forbear from exercising all specified rights
against the Company and STI for so long as the Ligand Merger Agreement continues
in effect and to release the Company from specified liabilities, including the
liabilities to B.U., Marathon and USSC discussed above, in the event that the
Ligand merger is consummated. The terms of the Ligand Merger Agreement and the
Accord are described in the Company's Form 8-K dated as of May 11, 1998. There
can be no assurance that the Ligand Merger will be consummated.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
4. LOSS PER SHARE
Effective December 31, 1997, the Company adopted the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. The adoption of this
statement did not require restatement of prior years' earnings per share.
F-28
<PAGE> 188
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. ELI LILLY AND COMPANY
On August 3, 1994, the Company and Lilly signed an agreement to form a
global strategic alliance that gave Lilly exclusive worldwide development,
distribution, and marketing rights, except in certain Asian countries, to the
Company's Interleukin-2 Fusion Protein ("IL-2 Fusion Protein") for the treatment
of cancer. Lilly also had the option to obtain worldwide development,
distribution, and marketing rights for additional indications for IL-2 Fusion
Protein and for other Company products under development. The Company retained
exclusive rights to promote IL-2 Fusion Protein and future fusion proteins for
dermatologic applications outside of oncology and was to be responsible for bulk
manufacturing for all indications.
On August 4, 1994, under the terms of the alliance, Lilly made an
initial payment to the Company of $10 million, $5 million representing payment
for 787,092 shares of common stock at approximately $6.35 per share and $5
million representing an advance against Lilly's purchase of bulk product from
the Company. Lilly also agreed to pay the Company an additional $3 million based
on meeting certain regulatory milestones in the development of IL-2 Fusion
Protein for cutaneous T-cell lymphoma ("CTCL"). In addition, Lilly reimburses
the Company for costs incurred in the clinical development of IL-2 Fusion
Protein for CTCL, including costs for Phase III clinical trials. The Company
recorded approximately $3,337,000, $3,979,000, and $4,281,000 of contract
revenue for such reimbursed development costs during the years ended December
31, 1995, 1996 and 1997, and $912,000 and $747,000 for the three months ended
March 31, 1997 and 1998, respectively. In connection with this agreement, the
Company paid $600,000 in cash and issued 220,000 shares of common stock valued
at $1,760,000 to its investment bank for services provided in connection with
the Lilly agreement. In 1995, the Company charged $300,000 of such payments to
additional paid in capital and recorded the additional payments as prepaid
expense to be recognized upon the recognition of product revenues and license
fees from Lilly in future periods.
On May 28, 1996, Lilly and the Company amended the Sales and
Distribution Agreement relating to the $5.0 million advance paid by Lilly in
August 1994 against Lilly's future purchases of bulk product from the Company.
Associated with the original agreement was $2,060,000 of deferred commission
expense to be recognized upon the recognition of product revenue from Lilly. The
amended agreement states that the $5.0 million payment is non-refundable and
Seragen has no obligation to refund the advance should no bulk purchases be made
by Lilly. To the extent Lilly purchases bulk product in the future, the Company
is required to pay Lilly a royalty equal to 75% of the purchase price, up to
$5.0 million of total royalties. The Company will recognize the $5.0 million
non-refundable payment and amortize the related deferred commission upon the
sale of bulk product to Lilly or at such time as Lilly acknowledges it will not
purchase any bulk material.
On April 7, 1997, the Company entered into an amendment to its Sales and
Distribution Agreement and Development Agreement with Lilly. Pursuant to the
amendment, Lilly relinquished, subject to certain limitations, all development
and promotion rights to IL-2 Fusion Protein non-cancer indications, as well as
rights to the Company's other molecules. Lilly did, however, retain rights to
distribute all intravenous and intramuscular formulations of IL-2 Fusion
Protein, for both cancer and non-cancer indications, except, in the case of
cancer indications, in certain Asian countries and, in the case of non-cancer
indications, certain Asian countries and member countries of the European Union.
Pursuant to the amendment, Lilly agreed to pay to Ajinomoto Co., Inc.
("Ajinomoto") on behalf of the Company $4.3 million: Lilly paid $2.15 million to
Ajinomoto for a license granted by Ajinomoto directly to Lilly; and Lilly has
agreed to pay, subject to certain conditions, up to $2.15 million of the
Company's $2.25 million obligation to Ajinomoto under the Company's restructured
agreement with Ajinomoto (see Note 6). Pursuant to the amendment, Lilly credited
$1.5 million of the amount paid by Lilly to Ajinomoto on behalf of the Company
against the $1.5 million milestone payment from Lilly to the Company under the
Sales and Distribution Agreement between the Company and Lilly for the
submission by the Company of a U.S. Biologics
F-29
<PAGE> 189
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
License Application ("BLA") for CTCL to the Food and Drug Administration ("FDA")
which was completed on December 9, 1997.
Lilly is not obligated to make any further payments in respect of the
Company's obligations to Ajinomoto if Lilly terminates the Sales and
Distribution Agreement between it and the Company as a result of a failure by
the Company to meet specified clinical, regulatory and financial milestones and
other requirements. Such milestones have not been met by the Company and, as a
result, Lilly has the right at any time to terminate its arrangements with the
Company with 30 days notice. The Company has received no indication from Lilly
that Lilly intends to exercise that right. If Lilly were to terminate its
agreements with the Company, the Company would be obligated to pay the $2.15
million payment to Ajinomoto that Lilly has agreed to make on the Company's
behalf, and Lilly's obligations under the agreements to provide financial
support to the Company's clinical trial efforts would cease.
In exchange for the amendment of the Sales and Distribution Agreement in
April 1997, the Company issued to Lilly in a private placement 1.0 million
shares of its Common Stock. The shares of common stock issued to Lilly are
valued at the closing price of the Company's Common Stock as reported on Nasdaq
on the date of issuance of the shares to Lilly, less a discount of 20% to
reflect a discount from the Nasdaq closing price because the shares are not
registered under the Securities Act of 1933. In the quarter ended June 30, 1997,
the Company valued the 1.0 million shares of common stock issued to Lilly at
$800,000 based on the April 7, 1997 Nasdaq closing price of $1.00, less 20%, and
has recorded it as research and development expense.
Pursuant to a letter agreement dated May 11, 1998, Lilly has agreed to
assign to Ligand its rights and obligations under its existing agreements with
the Company upon FDA approval of the Company's BLA for CTCL. In the event that
the FDA approves the BLA, this assignment will occur regardless of whether the
Ligand merger has been consummated so long as Ligand is exercising its best
efforts to seek consummation of the merger at the time of regulatory approval.
6. AMENDMENT TO AJINOMOTO LICENSE AGREEMENT
In December 1994, the Company entered into a license agreement with
Ajinomoto which provides the Company with exclusive worldwide rights under
Ajinomoto's IL-2 gene patents for the Company's fusion proteins. On June 1,
1997, the Company restructured its license agreement with Ajinomoto. Prior to
the restructuring, the Company was obligated to pay Ajinomoto a license fee of
$4.3 million payable upon the occurrence of certain specified events, but no
later than March 31, 1997 (extended by agreement of Ajinomoto to May 31, 1997),
and royalties ranging from 2% to 4% on sales of the licensed product by the
Company or its sublicensees, but with minimum royalties of $100,000 for the
third year of the agreement, $200,000 for the fourth year of the agreement, and
$300,000 for the fifth and following years of the agreement. In addition, prior
to the restructuring, the rights granted by Ajinomoto to the Company pursuant to
the License Agreement were exclusive. Under the terms of the restructuring, the
future license fees payable by the Company to Ajinomoto were reduced to the
following amounts: a $2.25 million fee payable in the amount of $800,000 by June
30, 1998, or approval by the FDA of a BLA filed by the Company for the licensed
product, whichever comes first, in the amount of $800,000 by June 30, 1999, and
in the amount of $650,000 by March 31, 2000; and a reduced royalty of 1% on
end-user net sales of the licensed product by the Company or its sublicensee.
The Company amended its agreements with Lilly whereby Lilly will pay
certain license fees to Ajinomoto on behalf of the Company, subject to certain
limitations (see Note 5) and Lilly assumed $2.15 million of the obligation at
April 7, 1997. The restructuring provides that the license granted by Ajinomoto
to the Company will be non-exclusive. Accordingly, in the quarter ended June 30,
1997, the Company reduced its obligation to Ajinomoto from $4.3 million to $2.25
million and recorded extraordinary income of $2.05 million for the
F-30
<PAGE> 190
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
forgiveness of indebtedness. On May 11, 1998, Ajinomoto agreed to assign the
license to Ligand in the event that the Ligand Merger is consummated.
7. SALE OF MANUFACTURING AND CLINICAL OPERATIONS TO BOSTON UNIVERSITY
On February 14, 1997, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") to sell its manufacturing and
clinical operations facilities to B.U. or a designated affiliate for $5.0
million. After receiving shareholder approval and ratification, the Company
closed the sale of its operating division on December 31, 1997. B.U.'s designee,
Marathon assumed responsibility for the facility's operations as of December 31,
1997. The net book value of the assets to be sold to B.U. was approximately $4.5
million as of February 14, 1997. The net book value of the assets sold to B.U.
was approximately $3.9 million as of December 31, 1997. At the closing, B.U.
paid the remaining $500,000 of the purchase price, and a majority of the
Company's employees involved in its manufacturing and clinical operations became
employees of the contract service organization created by B.U. under the name
Marathon.
At March 31, 1997, B.U. had paid the Company $4.5 million as a deposit
and, from the time of execution of the agreement, had assumed responsibility for
the facility's operations, including responsibility for operating costs. Both
the deposit and the operating costs incurred by B.U. were subject to refund in
the event that conditions for closing were not met. The statement of operation
for the period ended March 31, 1997 does not reflect any reimbursements by B.U.
The Company recorded a gain of $1,089,328 on the sale of the operating facility
and $4,585,987 for the excess of the reimbursed operating costs over the amount
due to B.U. pursuant to the Service Agreement for the period from February 14,
1997, until the closing of the transaction on December 31, 1997 as a
contribution of capital.
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into a service agreement (the "Service Agreement") with B.U.
providing for the purchase by the Company of certain services related to product
research, development, manufacturing, clinical trials, quality control, and
quality assurance. The Service Agreement expires in January 1999, and is subject
to certain early termination provisions, including the option of B.U. to
terminate the agreement if losses during a contract year exceed $9.0 million and
the Company does not reimburse B.U. for the losses in excess of $9.0 million.
The Service Agreement may be renewed for two successive one-year terms at the
option of the Company. The Company has the option to repurchase the assets
comprising the manufacturing and clinical operations facilities. The Company
originally agreed to pay B.U. approximately $5.5 million and $6.6 million in
years 1 and 2 of this contract, respectively. Under the agreement, the fees
could be mutually increased or decreased, but not to less than $4.3 million per
contract year. As of May 11, 1998, the Company and B.U. agreed to reduce the
fees payable in the contract year ending January 31, 1999 to $4.3 million. This
reduction in fees applies retroactively to February 1, 1998, the beginning of
the current contract year. The Service Agreement has reduced substantially the
Company's operating costs in research and development, as the Company is
contracting solely for the services that the Company requires for clinical and
manufacturing purposes.
8. LICENSE AND OPTION AGREEMENT WITH UNITED STATES SURGICAL CORPORATION
On July 31, 1997, the Company entered into an evaluation license and
option agreement (the "USSC License Agreement") with United States Surgical
Corporation ("USSC") granting USSC an option on worldwide rights to the
Company's DAB389EGF molecule (the "EGF Fusion Protein") for restenosis in
cardiovascular applications. Leon C. Hirsch is the Chairman of USSC and
beneficially owns 7.8% of the common stock of USSC. Turi Josefsen is a director
of USSC and beneficially owns 1.8% of the common stock of USSC. John R. Silber
is a director of USSC and beneficially owns .02% of the common stock of USSC.
Pursuant to the USSC License
F-31
<PAGE> 191
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Agreement, USSC made an initial payment to the Company of $5.0 million on July
31, 1997. Under the USSC License Agreement, USSC is entitled to acquire an
exclusive license to the EGF Fusion Protein technology, at any time during a
15-month evaluation period, upon the payment to the Company of an additional
$5.0 million. In addition, the Company issued to USSC a warrant for the purchase
of 500,000 shares of the Company's Common Stock at a purchase price of $0.5625
per share, the closing sale price for shares of the Company's Common Stock on
the date prior to the date the warrant was issued. The Company charged $175,000
for such warrant to general and administrative expense in the year ended
December 31, 1997. USSC has agreed to fund trials associated with the
development of EGF Fusion Protein for restenosis. If USSC's option to obtain any
exclusive license of the EGF Fusion Protein technology is exercised, milestone
payments will be payable by USSC to the Company up to a maximum amount of $22.5
million. In addition, USSC will be obligated to pay the Company royalties on
commercial sales of the licensed product. In the event USSC chooses not to
exercise the option, the USSC License Agreement will terminate, and, in
exchange, USSC will receive $5.0 million worth of the Company's Common Stock
valued at the average of the closing prices of the Company's Common Stock (i)
for the ten trading days preceding the date of the USSC License Agreement or
(ii) for the ten trading days preceding the date on which USSC chooses not to
exercise the option, whichever is lower. The Company has recorded the $5.0
million initial payment from USSC as deferred revenue, a liability. In the event
that USSC exercises its option to license the EGF Fusion Protein, the $5.0
million will be recorded as revenue at that time. In the event that USSC chooses
not to exercise the option, the $5.0 million will be recorded as stockholders'
equity. Pursuant to the Accord, USSC has agreed to exercise the option and
release the Company from all claims in the event the Ligand Merger is
consummated, in exchange for merger consideration of $5,000,000 (see Note 2).
9. SERAGEN BIOPHARMACEUTICALS, LTD.
Effective as of May 1, 1998, the Company entered into a settlement
agreement (the "Seragen Canada Settlement Agreement") with its Canadian
affiliate, Seragen Biopharmaceuticals Ltd./Seragen Biopharmaceutique Ltee
("Seragen Canada"), and Sofinov Societe Financiere d'Innovation Inc., Societe
Inovatech du Grand Montreal, MDS Health Ventures Inc., Canadian Medical
Discoveries Fund Inc., Royal Bank Capital Corporation, and Health Care and
Biotechnology Venture Fund (collectively, the "Investor Shareholders"). The
Seragen Canada Settlement Agreement provides for the purchase by Seragen Canada
of all shares of Seragen Canada capital stock currently held by the Investor
Shareholders for an aggregate amount equal to Seragen Canada's cash and liquid
investments on hand after the payment of specified expenses. As of February 28,
1998, Seragen Canada held approximately $9,378,770 in cash and liquid
investments. Such purchase transaction is expected to occur on or prior to July
31, 1998. Upon the consummation of Seragen Canada's purchase of the Investor
Shareholders' Seragen Canada shares, mutual releases among the Company, Seragen
Canada, and the Investor Shareholders will become effective and a November 22,
1995 Shareholders Agreement and other specified agreements executed in
connection with the original organization of Seragen Canada in November 1995
will be terminated. The Seragen Canada Settlement Agreement also provides for
issuance by the Company of an aggregate of $2.4 million worth of its Common
Stock upon the later to occur of (a) the closing date for Seragen Canada's
purchase of the Investor Shareholders' Seragen Canada shares and (b) the earlier
to occur of (i) a qualified offering by the Company of additional shares of its
capital stock with net proceeds to the Company of $10 million and (ii) the
consummation of a disposition of the Company, whether by way of a merger (as
contemplated under the Ligand Merger Agreement) or otherwise, or substantially
all of the Company's assets.
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SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. CONVERSION OF SERIES C PREFERRED STOCK
On September 30, 1996, the Company raised $5 million through the sale of
5,000 shares of the Company's non-voting convertible Series C Preferred Stock
("Series C Shares") in a private placement to B.U. under Regulation D of the
Securities Act of 1933. The Series C Shares were convertible at the option of
the holder into shares of Seragen Common Stock at a per share conversion price
equal to the lesser of $2.75 or 73 percent of the average closing bid prices for
a five day period prior to the conversion date, up to a maximum of 3,360,625
shares of Seragen Common Stock. Any shares the investor was unable to convert
due to this limitation could be exchanged for $1,150 per share in cash. Terms of
the Series C Shares also provided for 8% cumulative dividends payable in shares
of Seragen Common Stock at the time of each conversion. Each Series C Share had
a liquidation preference equal to $1,000 plus an amount equal to any accrued and
unpaid dividends from the date of issuance of the Series C Shares in the event
of a voluntary or involuntary liquidation, dissolution or winding up of the
Company. Series C Shares which remained outstanding on March 30, 1998 were to be
automatically converted into shares of the Company's Common Stock. The Company's
Series C Shares were reflected at $5,100,00 and $5,500,000 at December 31, 1996,
and 1997. The Company recorded common stock dividends of $100,000 and $400,000
in the years ended December 31, 1996 and 1997, respectively.
Effective March 30, 1998, 1,060 Series C Shares automatically converted,
in accordance with the terms of the Series C preferred stock, into 3,360,625
shares of the Company's common stock and 3,940 Series C Shares were, as required
by the terms of the Series C preferred stock, purchased by the Company for an
aggregate purchase price of $4,530,461. Following these transactions, no Series
C Shares remained outstanding. The purchase price for the Series C Shares
purchased by the Company has not yet been paid by the Company, nor has B.U., the
holder of the Series C Shares, demanded payment of the said purchase price. As a
result, the Company currently is indebted to B.U. for this amount. Pursuant to
the Accord and Satisfaction Agreement dated as of May 11, 1998, B.U. has agreed,
with respect to the securities received in exchange for the Series C Shares, to
release the Company from all claims in the event the Ligand Merger is
consummated in exchange for merger consideration of $5,000,000 (see Note 2).
11. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement. It also
requires that an entity 77 classify items of other comprehensive earnings (e.g.,
foreign currency translation adjustments and unrealized gains and losses on
certain marketable securities) by their nature in an annual financial statement.
The Company's total comprehensive earnings for the three month periods ended
March 31, 1998 and 1997 were the same as reported net loss for those periods.
In April 1998, the AICPA issued Statement of Position 98-5 "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this Statement will not have a material impact on the Company's
consolidated financial position or results of operations.
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APPENDIX A
OPINION OF LEHMAN BROTHERS INC.
May 1, 1998
Board of Directors
Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Members of the Board:
We understand that Seragen, Inc. (the "Company") is proposing to merge
into a subsidiary of Ligand Pharmaceuticals Incorporated pursuant to which
Ligand would pay the Company aggregate consideration of $67 million, payable in
cash or stock at Ligand's option, with such consideration being paid in two
installments: $30 million upon closing of the merger and $37 million in
Milestone Consideration (as defined in the Agreement described below) to be
paid on the six month anniversary of final FDA approval ("Final FDA Approval")
of the Company's Interleukin-2 Fusion Protein product DAB(389) IL-2 (the
"Proposed Transaction"). Payments due to the common shareholders have been
fixed at approximately $0.50 per share upon initial closing and $0.23 per share
upon receipt of the Milestone Consideration for a total of $0.73 per share.
The Milestone Consideration will be paid by Ligand only if Final FDA Approval
is received on or before the second anniversary of the closing of the merger.
We further understand that the major allocations of the proceeds are: (i)
payables and accrued expenses, (ii) payment to USSC relating to the termination
of an option in connection with a potential corporate collaboration, (iii)
payments to shareholders of Seragen's Canadian subsidiary, (iv) payments to
preferred stockholders, (v) payments for management's fees and bonuses, and
(vi) payment to Seragen's common stockholders. The terms and conditions of the
Proposed Transaction are set forth in more detail in an Agreement and Plan of
Reorganization by and among Ligand, Knight Acquisition Corp. and the Company to
be dated on or about May 1, 1998 (the "Agreement").
We have been requested by the Board of Directors of the Company to
render our opinion with respect to the fairness, from a financial point of
view, to the Company's common stockholders of the consideration to be offered
to such stockholders in the aggregate in the Proposed Transaction. We have not
been requested to opine as to, and our opinion does not in any manner address
(i) the Company's underlying business decision to proceed with or effect the
Proposed Transaction or (ii) the fairness of the allocation of the aggregate
consideration to be paid by Ligand among the common stockholders and such other
intended recipients.
In arriving at our opinion, we reviewed and analyzed: (1) the
Agreement and the specific terms of the Proposed Transaction, including the
fact that the Milestone Consideration will be paid by Ligand only if Final FDA
Approval is received on or before the second anniversary of the closing of the
merger, (2) publicly available information concerning the Company and Ligand
that we believe to be relevant to our analysis including the Company's Form
10-K for the year ended December 31, 1997 and Ligand's Form 10-K for the year
ended December 31, 1997, (3) financial and operating information with respect
to the business, operations and prospects of the Company and Ligand furnished
to us by the Company and Ligand, respectively, (4) a trading history of the
Company's common stock from January 1995 to the present and Ligand's common
stock from April 1997 to the present and comparisons of those trading histories
with those of other companies that we deemed relevant, (5) a comparison of the
historical financial results and present financial condition of the Company and
Ligand with those of other companies that we deemed relevant, (6) a comparison
of the financial terms of the Proposed Transaction with the financial terms of
certain other transactions that we deemed relevant, (7) the results of efforts
to solicit indications of interest and proposals from third parties with
respect to a purchase of, merger or other business combination with the Company
and (8) the Company's current cash flow forecast and limited cash position, its
ability to meet short-term liquidity requirements and the potential
alternatives available to the Company to fund such requirements. In addition,
we
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have had discussions with the managements of the Company and Ligand concerning
their business, operations, assets, financial condition and prospects and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of managements of the
Company and Ligand that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of the Company and Ligand, upon advice of the Company we
have assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
managements of the Company and Ligand as to the future financial performance of
the Company and Ligand. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company and have
not made or obtained any evaluations or appraisals of the assets or liabilities
of the Company. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the consideration offered
to the common stockholders in the aggregate in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. We also have performed various investment
banking services for the Company in the past and have received customary fees
for such services. In the ordinary course of our business, we may trade in the
securities of the Company and Ligand for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of
the Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any common stockholder of the
Company as to how such stockholder should vote with respect to the Proposed
Transaction.
Very truly yours,
LEHMAN BROTHERS
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APPENDIX B
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Section 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded appraisal
of such holder's shares in accordance with this subsection. An affidavit of
the secretary or assistant secretary or
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of the transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior to
the date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
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(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX C
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LIGAND PHARMACEUTICALS INCORPORATED,
KNIGHT ACQUISITION CORPORATION
AND
SERAGEN, INC.
DATED AS OF MAY 11, 1998
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LIGAND PHARMACEUTICALS INCORPORATED,
KNIGHT ACQUISITION CORPORATION
AND
SERAGEN, INC.
DATED AS OF MAY 11, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4 Certificate of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.6 Consideration to Be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.7 Distribution of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.8 Effect on Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.10 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.11 No Further Ownership Rights in Company Capital Stock . . . . . . . . . . . . . . . . . 19
1.12 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . 20
1.13 Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.14 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.15 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 21
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Subsidiaries and Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.5 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.7 Company Financial Statements; SEC Documents . . . . . . . . . . . . . . . . . . . . . 24
2.8 Ownership of Parent Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.9 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.10 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.11 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.12 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.13 Title to Properties; Absence of Liens and Encumbrances . . . . . . . . . . . . . . . . 29
2.14 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.15 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . 32
2.16 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.17 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.18 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.20 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.21 Relationships With Suppliers and Licensors . . . . . . . . . . . . . . . . . . . . . . 35
2.22 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.23 Brokers' and Finders' Fees; Third Party Expenses . . . . . . . . . . . . . . . . . . . 36
2.24 Permits and Licenses; No Debarment . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.25 Employee Matters and Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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2.26 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.27 Distribution of Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.28 Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.29 Opinion of Lehman Brothers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.30 Representation Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . . . . . . . . . 41
3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.4 SEC Documents; Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . 43
3.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.7 Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.8 Ownership of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.9 Subsidiaries and Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.11 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.12 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.13 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.14 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.2 Conduct of Business of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.3 Other Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.4 Employee Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.5 Option and Asset Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.1 Stockholders' Meeting; Proxy Material; Registration Statement . . . . . . . . . . . . 50
5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.4 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.6 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.8 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.9 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.10 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.11 Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . . . . . 54
5.12 Company Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.13 Preclosing Company Payables; Preclosing Company Revenues . . . . . . . . . . . . . . . 54
5.14 Marathon Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.15 Obligations of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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5.16 Development Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.17 FDA Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.18 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.19 Certain Escrow Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE VI CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.1 Conditions to Obligations of Each Party to Effect the Merger . . . . . . . . . . . . . 57
6.2 Additional Conditions to Obligations of the Company . . . . . . . . . . . . . . . . . 58
6.3 Additional Conditions to the Obligations of Parent and Merger Sub . . . . . . . . . . 59
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Survival of Representations, Warranties and Agreements; Right of Set-off . . . . . . . 64
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.5 Entire Agreement: Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.7 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.9 Consent to Jurisdiction and Forum Selection . . . . . . . . . . . . . . . . . . . . . 66
8.10 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.11 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.12 Corporate Transaction involving Parent . . . . . . . . . . . . . . . . . . . . . . . . 67
8.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.14 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.15 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
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INDEX OF EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
Exhibit 6.2(d) Form of Legal Opinion of Counsel to Parent
Exhibit 6.3(d) Form of Legal Opinion of Counsel to the Company
SCHEDULE DESCRIPTION
Schedule 1.7(a)(i)(A) Escrow Agreement
Schedule 1.8(c) Company Warrants to be Assumed
Company Schedules
Parent Schedules
Schedule 4.1(n) Severance Payments
Schedule 6.2(c) Third Party Consents
Schedule 6.3(c) Third Party Consents
Schedule 6.3(k) Amended License Agreements
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of May 11, 1998 among Ligand Pharmaceuticals Incorporated,
a Delaware corporation ("Parent"), Knight Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and
Seragen, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and
Merger Sub believe it is in the best interests of each company and their
respective stockholders that Parent acquire the Company through the statutory
merger of Merger Sub with and into the Company (the "Merger") and, in
furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding
shares of capital stock of the Company ("Company Capital Stock") may be
converted into the right to receive shares of voting common stock, par value
$.001 per share, of Parent ("Parent Common Stock").
C. As part of the Merger Consideration (as defined in Section 1.6
below), the Company will receive Thirty Seven Million Dollars ($37,000,000)
contingent on receiving Final FDA Approval (as defined in Section 1.6(c)
below), which consideration may be paid in the form of cash, Parent Common
Stock or a combination of both, at the sole discretion of Parent.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The Company, Parent and Merger Sub desire to enter into this
Agreement for the following reasons: (i) if the Company does not consummate a
financing or other transaction, then the Company's current cash position may
not be sufficient to meet its financial obligations at the current level beyond
June 1998; (ii) the Company has filed a biologics license application for
DAB(389)IL-2 with the United States Food and Drug Administration ("FDA") in
December 1997 and currently anticipates participating in a meeting with the
advisory panel to the FDA in June 1998, the results of which are uncertain;
(iii) the Company's ability to commercialize the DAB(389)IL-2 product on an
economically viable basis is uncertain as a result of the Company's obligations
to third parties; (iv) Ligand desires to obtain certain rights to DAB(389)IL-2
and has an existing arrangement with Eli Lilly & Co. ("Lilly") pursuant to
which Ligand has been granted certain rights to DAB(389)IL-2; and (v) in
connection with the execution and performance of this Merger Agreement and as a
result of the Merger, Ligand has represented that it will lose certain rights
under its agreements with Lilly.
F. The Company, as of the date hereof, intends to enter into that
certain Accord and Satisfaction Agreement, of even date herewith (the "Accord
Agreement"), between the Company, Seragen Technology, Inc. ("STI"), Trustees of
Boston University ("BU"), Seragen LLC ("BU Holding"), Marathon
Biopharmaceuticals, LLC ("Marathon"), United States Surgical Corporation
("USSC"), Reed R. Prior
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("Mr. Prior"), Jean C. Nichols, Ph.D. ("Dr. Nichols"), Elizabeth C. Chen ("Ms.
Chen"), Robert W. Crane ("Mr. Crane"), Leon C. Hirsch ("Mr. Hirsch"), Turi
Josefsen ("Ms. Josefsen"), Gerald S.J. and Loretta P. Cassidy (the "Cassidys"),
Shoreline Pacific Institutional Finance ("Shoreline"), Lehman Brothers Inc.
("Lehman"), 520 Commonwealth Avenue Real Estate Corp. and 660 Corporation,
which is a material inducement to Ligand to enter into this Merger Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 7.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite
1200, San Diego, California, unless another place or time is agreed to by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing an Agreement or
Certificate of Merger (or like instrument) with the Secretary of State of
Delaware (the "Merger Agreement"), in accordance with the relevant provisions
of applicable law (the time of confirmation by the Secretary of State of
Delaware of such filing, or such later time as may be set forth in this
Agreement, being referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate
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of Incorporation of the Surviving Corporation shall be amended to read as
follows: "The name of the corporation is Seragen, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub
immediately prior to the Effective Time shall be the initial director(s) of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation. The officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with
the Bylaws of the Surviving Corporation.
1.6 Consideration to Be Issued. Subject to the terms and
conditions of this Agreement, Parent agrees to pay to, or on behalf of, as
specified in Section 1.7 hereof, holders of Company Capital Stock, or cause to
be paid, an aggregate amount of Sixty Seven Million Dollars ($67,000,000) (the
"Merger Consideration"), in the amounts and in the manner set forth in Sections
1.6(a) and (b) herein.
(a) Closing Consideration. Parent shall pay as specified
in Section 1.7 hereof at the Closing an aggregate amount of Thirty Million
Dollars ($30,000,000) (the "Closing Consideration"), payable in the form of
cash in the amount of Four Million Dollars ($4,000,000), and shares of Parent
Common Stock in the amount of Twenty Six Million Dollars ($26,000,000), the
issuance of which has been registered under the Securities Act of 1933, as
amended (the "1933 Act"), as described herein; provided Parent may, in its sole
discretion, increase the amount of cash paid hereunder solely to cover amounts
due pursuant to Sections 1.7(a)(i)(A), (B), (C)(2) and (C)(3) of this
Agreement, in which case the Closing Consideration payable in shares of Parent
Common Stock shall be correspondingly reduced. The Closing Consideration
allocable to the holders of Company Common Stock and Company Series D Preferred
Stock (as defined herein) shall be delivered to the Exchange Agent (as defined
in Section 1.10(a) below) on or before the Closing Date for distribution
pursuant to Section 1.10 below. In addition, the Remaining Closing
Consideration shall be delivered at the Closing pursuant to Section 1.13 below.
(b) Milestone Consideration. Parent shall also pay as
specified in Section 1.7 hereof an aggregate amount of Thirty Seven Million
Dollars ($37,000,000) (the "Milestone Consideration") on the earlier of (i) the
date which is six (6) months after the date of receipt of Final FDA Approval
and (ii) the second anniversary of the Closing Date (the "Milestone Date");
provided, however, that in the event the Final FDA Approval has not been
received by the second anniversary of the Closing Date and, in addition, that
Parent has not breached its obligations under Section 5.16, Parent shall be
relieved of all obligations to pay the Milestone Consideration pursuant to this
Section 1.6(b). The Milestone Consideration, if any, may be paid in the form
of cash (which together with any cash consideration paid pursuant to Section
1.6(a) above shall hereinafter be referred to as the "Cash Consideration"),
shares of Parent Common Stock, the issuance of which has been registered under
the 1933 Act, as described herein, or a combination of both as determined by
Parent in its sole discretion. The Milestone Consideration allocable to the
holders of Company Common Stock and Company Series D Preferred Stock shall be
delivered to the Exchange Agent on or before the Milestone Date for
distribution pursuant to Section 1.10 below. In addition, the Milestone
Consideration allocable to the recipients of the Stakeholder Closing
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Consideration (as defined herein) (the "Variable Company Stakeholders") shall
be delivered on the Milestone Date pursuant to Section 1.13 below.
(c) Final FDA Approval. For purposes of this Agreement,
"Final FDA Approval" shall be deemed to have been received by the Company,
Parent or the Surviving Corporation, as the case may be, at such time as such
party has received such approval from the U.S. Food and Drug Administration
("FDA") as is adequate to permit such party to begin the marketing,
distribution in interstate commerce and selling of DAB(389)IL-2 in the United
States for cutaneous T-Cell lymphoma ("CTCL") if such approval is supported to
any material extent by clinical and development efforts conducted by the
Company prior to the Closing Date. The approval contemplated by the aforesaid
sentence shall include approval by the FDA of the content of the label (the
"Label") under which DAB(389)IL-2 is to be marketed for CTCL; provided,
however, that if, as of the later of the ninetieth day following the Closing
Date and the ninetieth day following receipt by Parent or the Surviving
Corporation, as the case may be, of a "Complete Review" letter from the FDA in
respect of DAB(389)IL-2 for CTCL, Parent or the Surviving Corporation, as the
case may be, has failed to reach agreement with the FDA regarding the contents
of the Label, Parent shall, or shall cause the Surviving Corporation to:
(i) accept the following changes in the Label if
requested by the FDA: (A) patients indicated in the Label restricted to those
patients deemed "heavily pre-treated" or "refractory"; (B) patients indicated
in the Label restricted to those patients who are IL-2 receptor positive; and
(C) imposition of requirements that physicians have extensive training in the
use of DAB(389)IL-2 for CTCL; and
(ii) promptly file a Label incorporating the changes
required to be included in the Label by clause (i) of this sentence.
In the event that Final FDA Approval is not obtained by the Closing
Date, and additional clinical tests and studies or other activities are
necessary after the Closing Date to obtain Final FDA Approval, Parent shall, or
shall cause the Surviving Corporation to, perform such activities so as to
facilitate the earliest possible receipt of Final FDA Approval; provided,
however, neither Parent nor the Surviving Corporation shall be required to
perform such activities to the extent that the aggregate Study Costs (as
hereinafter defined) exceed $4,000,000 annually; and provided further that in
the event that Final FDA Approval on an accelerated basis is conditioned by the
FDA upon its receipt of a Phase IV commitment by Parent or the Surviving
Corporation, as the case may be, such party shall accept such Phase IV
commitment provided such commitment is based on (A) the Company's studies 04-11
and/or 04-14, or (B) substitute studies, the Study Costs of which do not exceed
in the aggregate $4,000,000 annually, and Parent or the Surviving Corporation,
as the case may be, shall acknowledge acceptance of such Phase IV commitment in
the form and manner necessary to facilitate the earliest possible receipt of
Final FDA Approval. For purposes of this Section 1.6(c), "Study Costs" shall
mean the internal, external and overhead costs for clinical development and
regulatory activities calculated in accordance with Parent's current standard
project cost accounting with respect to Parent's PanretinTM Gel and TargretinTM
Gel clinical development and regulatory activities.
During the period from the Closing Date through the earlier of the
receipt of Final FDA Approval and the second anniversary of the Closing Date,
Parent shall not, and shall not cause the Surviving Corporation to, make any
change with respect to the manufacturing processes, standard operating
procedures, work force or facilities and equipment of the Company or Marathon
that could reasonably
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be expected to adversely affect the prospects for, or delay, the receipt by
Parent or the Surviving Corporation, as the case may be, of Final FDA Approval.
In the event that the BLA is transferred to any person other than the
Surviving Corporation, Parent shall cause such transferee to comply in full
with the provisions of this Section 1.6(c).
(d) Stock Consideration. For purposes of determining the
value of the shares of Parent Common Stock, if any, distributed pursuant to
Section 1.6(a) and Section 1.6(b) (collectively, the "Stock Consideration"),
Parent Common Stock shall be valued as follows:
(i) The value of each share of Parent Common
Stock issued as part of the Closing Consideration shall be valued at the
average of the closing prices of a share of Parent Common Stock on the Nasdaq
National Market for the five (5) consecutive trading days immediately preceding
the date of execution of this Agreement.
(ii) The value of each share of Parent Common
Stock issued as part of the Milestone Consideration shall be valued at the
average of the closing prices of the a share of Parent Common Stock on the
Nasdaq National Market for the ten (10) consecutive trading days immediately
preceding the date of issuance of such Parent Common Stock.
All references to numbers of shares of Parent Common Stock in
this Agreement or provisions for the calculation of the number thereof shall be
automatically adjusted to reflect any stock splits, dividends, stock
combinations, reverse splits or similar changes in Parent Common Stock between
the date of this Agreement and the dates shares of Parent Common Stock are
issued pursuant to the Merger.
1.7 Distribution of Merger Consideration.
(a) Distribution of Closing Consideration. The Closing
Consideration shall be distributed as set forth in this Section 1.7(a).
(i) Distribution of Closing Consideration to
Persons Other Than Holders of Company Common Stock. The balance of the Closing
Consideration remaining after distribution of the portion of the Closing
Consideration contemplated by Section 1.7(a)(ii) (the "Remaining Closing
Consideration") shall be distributed as set forth in this Section 1.7(a)(i).
(A) Escrow. A $200,000 portion of the
Cash Consideration included in the Closing Consideration shall be delivered to
State Street Bank & Trust Company of Boston, Massachusetts, as escrow agent, to
be held and distributed in accordance with the terms of an escrow agreement
substantially in the form of Schedule 1.7(a)(i)(A) (the "Escrow Agreement").
(B) Satisfaction of Preclosing Company
Payables. The Cash Consideration included in the Remaining Closing
Consideration remaining after compliance with the provisions of Section
1.7(a)(i)(A) shall be applied to the extent necessary, after application of all
cash held by the Company as of the Closing, to pay and satisfy the Preclosing
Company Payables (as defined in Section 5.13 below) as follows: first to the
obligees of the Preclosing Company Payables other than
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the Executives (as defined in Section 1.7(a)(i)(D)), pro rata; and second, to
each of the Executives, pro rata. In the event the Cash Consideration
remaining after compliance with the provisions of Section 1.7(a)(i)(A) is not
sufficient to satisfy the Preclosing Company Payables of the Executives, such
Preclosing Company Payables shall be satisfied using Stock Consideration
included within the Remaining Closing Consideration.
(C) Distributions Pursuant to Accord
Agreement. The balance of the Remaining Closing Consideration remaining after
compliance with the provisions of Section 1.7(a)(i)(A) and (B) (the
"Distributable Closing Consideration") shall be distributed as set forth in
this Section 1.7(a)(i)(C) and Sections 1.7(a)(i)(D) and (E), all in accordance
with the Accord Agreement.
(1) A $5,000,000 portion of the
Distributable Closing Consideration shall be delivered to USSC.
(2) A $3,769,863 portion of the
Distributable Closing Consideration shall be delivered to BU.
(3) A $2,132,329 portion of the
Distributable Closing Consideration shall be delivered to Marathon.
(4) A $500,000 portion of the
Distributable Closing Consideration shall be delivered to BU.
(5) 3.39113385 percent of the
balance of the Remaining Closing Consideration remaining after the payments
contemplated by Sections 1.7(a)(i)(C)(1), (2), (3) and (4) (the "Stakeholder
Closing Consideration") shall be delivered to Lehman.
(6) 1.69556693 percent of the
Stakeholder Closing Consideration shall be delivered to Shoreline.
(7) 13.91735164 percent of the
Stakeholder Closing Consideration shall be delivered to Mr. Prior; provided,
however, that the amount of Stakeholder Closing Consideration to which Mr.
Prior would otherwise be entitled pursuant to the provisions of this clause (7)
shall be reduced by the amount of the Option Stock Gain (as such term is
defined in that certain Employment Agreement, dated as of November 6, 1996,
between the Company and Mr. Prior, as amended through the date hereof) realized
by Mr. Prior in respect of the Prior ISOs (as defined in the Accord Agreement).
Any Option Stock Gain realized by Mr. Prior in respect of the Prior ISOs in
excess of the amount of Stakeholder Closing Consideration to which Mr. Prior is
entitled pursuant to the preceding sentence without regard to the provisos is
hereinafter referred to as the "Prior Excess Amount."
(8) 4.50267259 percent of the
Stakeholder Closing Consideration shall be delivered to Dr. Nichols; provided,
however, that the amount of Stakeholder Closing Consideration to which Dr.
Nichols would otherwise be entitled pursuant to the provisions of this clause
(8) shall be reduced by the amount of the Option Stock Gain (as such term is
defined in that certain Amended and Restated Employment Agreement, dated as of
September 22, 1997, between the Company and Dr. Nichols, as amended through the
date hereof) realized by Dr. Nichols in respect of the Nichols ISOs (as defined
in the Accord Agreement). Any Option Stock Gain realized by Dr. Nichols in
respect
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of the Nichols ISOs in excess of the amount of Stakeholder Closing Consideration
to which Dr. Nichols is entitled pursuant to the preceding sentence without
regard to the provisos is hereinafter referred to as the "Nichols Excess
Amount."
(9) 3.27467097 percent of the
Stakeholder Closing Consideration shall be delivered to Ms. Chen; provided,
however, that the amount of Stakeholder Closing Consideration to which Ms. Chen
would otherwise be entitled pursuant to the provisions of this clause (9) shall
be reduced by the amount of the Option Stock Gain (as such term is defined in
that certain Employment Agreement, dated as of January 15, 1997, between the
Company and Ms. Chen, as amended through the date hereof) realized by Ms. Chen
in respect of the Chen ISOs (as defined in the Accord Agreement). Any Option
Stock Gain realized by Ms. Chen in respect of the Chen ISOs in excess of the
amount of Stakeholder Closing Consideration to which Ms. Chen is entitled
pursuant to the preceding sentence without regard to the provisos is
hereinafter referred to as the "Chen Excess Amount."
(10) 4.50267259 percent of the
Stakeholder Closing Consideration shall be delivered to Mr. Crane; provided,
however, that the amount of Stakeholder Closing Consideration to which Mr.
Crane would otherwise be entitled pursuant to the provisions of this clause
(10) shall be reduced by the amount of the Option Stock Gain (as such term is
defined in that certain Employment Agreement, dated as of April 30, 1998,
between the Company and Mr. Crane, as amended through the date hereof) realized
by Mr. Crane in respect of the Crane ISOs (as defined in the Accord Agreement).
Any Option Stock Gain realized by Mr. Crane in respect of the Crane ISOs in
excess of the amount of Stakeholder Closing Consideration to which Mr. Crane is
entitled pursuant to the preceding sentence without regard to the provisos is
hereinafter referred to as the "Crane Excess Amount."
(11) 34.06924332 percent of the
Stakeholder Closing Consideration shall be delivered to BU Holding.
(12) 20.21056806 percent of the
Stakeholder Closing Consideration shall be delivered to Mr. Hirsch.
(13) 8.66167203 percent of the
Stakeholder Closing Consideration shall be delivered to Ms. Josefsen.
(14) 5.77444803 percent of the
Stakeholder Closing Consideration shall be delivered to the Cassidys.
(D) Allocation of Cash Consideration and
Stock Consideration Among Persons Receiving Closing Consideration Pursuant to
the Accord Agreement. In the event that the Distributable Closing
Consideration consists of both Cash Consideration and Stock Consideration, the
cash portion of the Distributable Closing Consideration shall be delivered as
follows: (1) first, to Mr. Prior, Dr. Nichols, Ms. Chen and Mr. Crane
(collectively, the "Executives"), pro rata based on the portion of the
Distributable Closing Consideration to which each such person is entitled, up
to an amount equal to one-half of that portion of the Distributable Closing
Consideration to which each of the Executives is entitled, and, (2) second, to
BU and Marathon, pro rata based on the portion of the Distributable Closing
Consideration to which each such person is entitled, up to the amount of the
Distributable Closing Consideration to which each is entitled pursuant to,
respectively, Sections 1.7(a)(i)(C)(2) and (3). In the
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event that any Cash Consideration remains as part of the Distributable Closing
Consideration after compliance with the foregoing sentence, those persons
designated to receive Distributable Closing Consideration pursuant to Sections
1.7(a)(i)(C)(1), (4), (5), (6), (11), (12), (13), and (14) shall receive such
remaining Cash Consideration, pro rata based on the portion of the
Distributable Closing Consideration to which each such person is entitled.
(E) Valuation of Stock Consideration for
Allocation Purposes. For purposes of applying the provisions of this Section
1.7(a)(i), the Stock Consideration shall be valued in accordance with the
provisions of Section 1.6(d)(i), subject to any adjustment for which provision
is made in the final paragraph of Section 1.6(d).
(ii) Distribution of Closing Consideration to
Holders of Company Common Stock. Shares of Parent Common Stock shall be
distributed, in accordance with the provisions of Section 1.10 hereof, among
(A) the holders of shares of the Company's
common stock, par value $.01 per share (the "Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (including, without
limitation, shares of Company Common Stock issued by the Company pursuant to
(1) that certain Settlement Agreement, dated April 29, 1998 (the "Seragen
Canada Settlement Agreement"), between the Company, Seragen Biopharmaceuticals
Ltd./Seragen Biopharmaceutique Ltee ("Seragen Canada"), Sofinov Societe
Financiere d'Innovation Inc., Societe Innovatech du Grand Montreal, MDS Health
Ventures Inc., Canadian Medical Discoveries Fund Inc., Royal Bank Capital
Corporation, and Health Care and Biotechnology Venture Fund and (2) the Prior
ISOs, the Nichols ISOs, the Chen ISOs, and the Crane ISOs), and
(B) holders of shares of the Company's Series
D preferred stock, par value $.01 per share (the "Company Series D Preferred
Stock") at the rate of 0.035746 shares of Parent Common Stock per share of
Company Common Stock held by each holder. For purposes of this Section
1.7(a)(ii), each holder of shares of the Company Series D Preferred Stock shall
be deemed to hold the number of shares of Company Common Stock that would have
been issued to the holder had the holder converted all of his or her Company
Series D Preferred Stock into Company Common Stock immediately prior to the
Effective Time.
(b) Distribution of Milestone Consideration. The
Milestone Consideration shall be distributed as set forth in this Section
1.7(b).
(i) Distribution of Milestone Consideration to
Persons Other Than Holders of Company Common Stock. The balance of the
Milestone Consideration remaining after distribution of that portion of the
Milestone Consideration contemplated in Section 1.7(b)(ii) (the "Remaining
Milestone Consideration") shall be distributed as set forth in this Section
1.7(b)(i), all in accordance with the Accord Agreement.
(A) A $4,500,000 portion of the
Remaining Milestone Consideration shall be delivered to BU Holding.
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(B) A $1,070,766 portion of the
Remaining Milestone Consideration shall be delivered to BU.
(C) A portion of the Remaining Milestone
Consideration equal to the sum of
(x) $103,730 plus
(y) $11,780.82 multiplied by the
number of days elapsed between June 30, 1998 (exclusive of such date), and the
Closing Date (inclusive of such date)
shall be delivered to Marathon.
(D) 3.39113385 percent of the Remaining
Milestone Consideration after the payments contemplated by Section
1.7(b)(i)(A), (B) and (C) (the "Stakeholder Milestone Consideration") shall be
delivered to Lehman.
(E) 1.69556693 percent of the
Stakeholder Milestone Consideration shall be delivered to Shoreline.
(F) 13.91735164 percent of the
Stakeholder Milestone Consideration shall be delivered to Mr. Prior; provided,
however, that the amount of Milestone Consideration to which Mr. Prior would
otherwise be entitled pursuant to the provisions of this clause (F) shall be
reduced by the amount of the Prior Excess Amount, if any; provided further that
an amount of Stakeholder Milestone Consideration to which Mr. Prior is entitled
pursuant to the provisions of this clause (F) equal to the Prior Escrow Amount
(as defined below) shall be delivered to the Escrow Agent pursuant to Section
1.13(b)(i).
(G) 4.50267259 percent of the
Stakeholder Milestone Consideration shall be delivered to Dr. Nichols;
provided, however, that the amount of Milestone Consideration to which Dr.
Nichols would otherwise be entitled pursuant to the provisions of this clause
(G) shall be reduced by the amount of the Nichols Excess Amount, if any;
provided further that an amount of Stakeholder Milestone Consideration to which
Dr. Nichols is entitled pursuant to the provisions of this clause (G) equal to
the Nichols Escrow Amount (as defined below) shall be delivered to the Escrow
Agent pursuant to Section 1.13(b)(i).
(H) 3.27467097 percent of the
Stakeholder Milestone Consideration shall be delivered to Ms. Chen; provided,
however, that the amount of Milestone Consideration to which Ms. Chen would
otherwise be entitled pursuant to the provisions of this clause (H) shall be
reduced by the amount of the Chen Excess Amount, if any.
(I) 4.50267259 percent of the
Stakeholder Milestone Consideration shall be delivered to Mr. Crane; provided,
however, that the amount of Milestone Consideration to which Mr. Crane would
otherwise be entitled pursuant to the provisions of this clause (I) shall be
reduced by the amount of the Crane Excess Amount, if any; provided further that
an amount of Stakeholder Milestone Consideration to which Mr. Crane is entitled
pursuant to the provisions of this clause (I) equal to the
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Crane Escrow Amount (as defined below) shall be delivered to the Escrow Agent
pursuant to Section 1.13(b)(i).
(J) 34.06924332 percent of the
Stakeholder Milestone Consideration shall be delivered to BU Holding.
(K) 20.21056806 percent of the
Stakeholder Milestone Consideration shall be delivered to Mr. Hirsch.
(L) 8.66167203 percent of the
Stakeholder Milestone Consideration shall be delivered to Ms. Josefsen.
(M) 5.77444803 percent of the
Stakeholder Milestone Consideration shall be delivered to the Cassidys.
(ii) Distribution of Milestone Consideration to
Holders of Company Common Stock. A portion of the Milestone Consideration
shall be distributed, in accordance with the provisions of Section 1.10 hereof,
among
(A) the holders of shares of the Company
Common Stock issued and outstanding immediately prior to the Effective Time
(including, without limitation, shares of Company Common Stock issued by the
Company pursuant to (1) the Seragen Canada Settlement Agreement and (2) the
Prior ISOs, the Nichols ISOs, the Chen ISOs, and the Crane ISOs), and
(B) holders of shares of the Company Series D
Preferred Stock on the basis of the number of shares of Company Common Stock
held by each holder at the rate of $0.23 per share of Company Common Stock held
by each holder. For purposes of this Section 1.7(b)(ii), each holder of shares
of the Company Series D Preferred Stock shall be deemed to hold the number of
shares of Company Common Stock that would have been issued to the holder had
the holder converted all of his or her Company Series D Preferred Stock into
Company Common Stock immediately prior to the Effective Time.
(iii) Allocation of Cash Consideration and Stock
Consideration. In the event that the Milestone Consideration consists of both
Cash Consideration and Stock Consideration, each person designated to receive
Milestone Consideration pursuant to this Section 1.7(b) shall receive that
percentage of the Cash Consideration that is included in the Milestone
Consideration that is equal to the percentage of the Milestone Consideration to
which such person is entitled and that percentage of the Stock Consideration
that is included in the Milestone Consideration that is equal to the percentage
of the Milestone Consideration to which such person is entitled.
(iv) Valuation of Stock Consideration for Allocation
Purposes. For purposes of applying the provisions of this Section 1.7(b), the
Stock Consideration shall be valued in accordance with the provisions of
Section 1.6(d)(ii).
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1.8 Effect on Company Capital Stock.
(a) Conversion of Company Capital Stock. Each share of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time (other than any shares of Company Capital Stock to be canceled pursuant to
Section 1.8(b) and any Dissenting Shares (as defined and to the extent provided
in Section 1.9(a)) shall be canceled and extinguished and be converted
automatically into the right to receive that portion of the Merger
Consideration set forth in Section 1.7, upon surrender of the certificate
representing such share of Company Capital Stock in the manner provided in
Section 1.10.
(b) Cancellation of Company-Owned Stock. Each share of
Company Capital Stock owned by the Company or any direct or indirect
wholly-owned subsidiary of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof.
(c) Certain Stock Options and Warrants Not Assumed.
Prior to the Effective Time, the Company and its Board of Directors shall take
all actions necessary to (i) accelerate and effect the exercise and/or
termination of each option to purchase Company Capital Stock ("Company
Options"), whether issued under one of the Company's option plans or otherwise,
and (ii) cause each holder of a warrant to purchase Company Capital Stock (the
"Company Warrants") outstanding at any time prior to the Effective Time to
exercise or agree to the termination of the warrant in full prior to the
Effective Time, other than those holders listed on Schedule 1.8(c) whose
Company Warrants are not terminated pursuant to the Accord Agreement. Except
as set forth on Schedule 1.8(c) attached hereto, Parent will not assume any
warrant not exercised prior to the Effective Time. In the case of each warrant
set forth on Schedule 1.8(c) (the "Assumed Warrants") and to the extent such
Assumed Warrants are not terminated by their terms in connection with the
Merger, Parent shall, effective as of the Effective Time, assume the Assumed
Warrants (and if required by the terms of the Assumed Warrants or if otherwise
appropriate under the terms of the Assumed Warrants, execute a supplemental
agreement at the Closing in connection therewith) and shall reserve, make
available for issuance and, upon exercise of such Assumed Warrants in
accordance with their terms after the Effective Time, issue the number of
shares of Parent Common Stock issuable upon such exercise.
(d) Capital Stock of Merger Sub. Each share of common
stock, par value $.001 per share, of Merger Sub (the "Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation (the
"Surviving Corporation Common Stock"). Each stock certificate of Merger Sub
evidencing ownership of any such shares of Merger Sub Common Stock shall, as of
the Effective Time, evidence ownership of such shares of Surviving Corporation
Common Stock.
(e) Fractional Shares. No fraction of a share of Parent
Common Stock will be issued, but in lieu thereof, each holder of shares of
Company Capital Stock who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall be entitled to receive,
without any interest, from Parent an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii) the
average of the closing prices of a share of Parent Common Stock on the Nasdaq
National Market for the five (5) consecutive trading days ending five (5)
trading days prior to (A) the Closing
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Date with respect to the Closing Consideration and (B) the Milestone Date with
respect to the Milestone Consideration.
1.9 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of Company Capital Stock held by a holder who has
demanded and perfected appraisal or dissenters' rights for such shares in
accordance with Delaware Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("Dissenting
Shares") shall not be converted into or represent a right to receive the
portion of the Merger Consideration otherwise issuable with respect to such
shares pursuant to Section 1.7, but the holder thereof shall only be entitled
to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of Section 1.9(a), if
any holder of shares of Company Capital Stock who demands appraisal of such
shares under Delaware Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive that
amount of Merger Consideration that would have been issuable with respect to
such shares pursuant to Section 1.7 had they not demanded appraisal, without
interest thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of
any written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Delaware Law and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under Delaware Law. The Company shall not, except with the prior
written consent of Parent, which consent shall not be unreasonably withheld,
voluntarily make any payment with respect to any demands for appraisal of
Company Capital Stock or offer to settle or settle any such demands.
1.10 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent
shall designate a bank or trust company with assets of not less than $500
million to act as exchange agent (the "Exchange Agent").
(b) Parent to Provide Merger Consideration. Parent shall
make available to the Exchange Agent (i) the Closing Consideration allocable to
the holders of Company Common Stock and Company Series D Preferred Stock under
Section 1.7 hereof on or before the Closing Date and (ii) the Milestone
Consideration, if any, allocable to the holders of Company Common Stock and
Company Series D Preferred Stock under Section 1.7 hereof on or before the
Milestone Date.
(c) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock and Company Series D Preferred Stock and which shares were converted into
the right to receive the portion of the Merger Consideration issuable with
respect to such shares pursuant to Section 1.7, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title
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to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor the portion of the Merger Consideration issuable
pursuant to Section 1.7 as and when the Exchange Agent receives the Merger
Consideration with respect to the shares of Company Common Stock and Company
Series D Preferred Stock represented by such Certificate, and the Certificate
so surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares
of Company Common Stock and Company Series D Preferred Stock will be deemed
from and after the Effective Time, for all corporate purposes, subject to the
provisions of Section 1.10(d), to evidence the right to receive in accordance
with Section 1.8(a) the portion of the Merger Consideration issuable pursuant
to Section 1.7 as and when the Exchange Agent receives the Merger Consideration
with respect to the shares of Company Common Stock and Company Series D
Preferred Stock represented by such Certificate.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock declared
or made after the date such shares are to be distributed to the holders of the
Company Capital Stock and with a record date after such date will be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions theretofore payable with respect
to whole shares of Parent Common Stock with a record date after the date such
shares of Parent Common Stock are to be delivered by Parent to the Exchange
Agent for distribution to the holders of the Company Capital Stock. The
provisions of the foregoing sentence are in addition to, and not by way of
limitation of, the provisions of the final paragraph of Section 1.6(d).
(e) Transfers of Ownership. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will
be a condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for shares of Parent Common Stock in any name other than that
of the registered holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the
contrary in this Section 1.10, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to a holder of shares of Parent
Common Stock or Company Capital Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.11 No Further Ownership Rights in Company Capital Stock. All
shares of Parent Common Stock issued or cash paid upon the surrender for
exchange of shares of Company Capital Stock in
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accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall, after the Effective Time, be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 1.
1.12 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, cash and such shares of Parent Common Stock, if any, as
may be required to be delivered in exchange therefor pursuant to Section 1.7;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.13 Deliveries.
(a) At the Closing, Parent shall deliver or cause to be
delivered pursuant to Section 1.7(a):
(i) the Escrow Amount (as defined in the Escrow
Agreement) to the Escrow Agent;
(ii) to each of the obligees of Preclosing Company
Payables, Cash Consideration in an amount necessary to pay and satisfy such
obligee's Preclosing Company Payables to the extent such payables have not been
satisfied by the Company at or prior to the Closing; and
(iii) to each of the Variable Company Stakeholders,
the portion of the Remaining Closing Consideration issuable to such Variable
Company Stakeholder pursuant to Section 1.7(a).
(b) At the Milestone Date, Parent shall deliver or cause to be
delivered pursuant to Section 1.7(b)(i)
(i) the Prior Escrow Amount, the Nichols Escrow
Amount and the Crane Escrow Amount to the Escrow Agent;
(ii) to each Variable Company Stakeholder, the
portion of the Milestone Consideration issuable to such Variable Company
Stakeholder pursuant to Section 1.7(b)(i).
1.14 Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall be accounted for as a purchase, not a
pooling of interests. It is also intended by the Company that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"); provided, however, that the
parties hereto acknowledge that such a reorganization within the meaning of
Section 368 of the Code is contingent on the Merger Consideration consisting of
at least eighty percent (80%) Parent Common Stock.
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1.15 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and Merger Sub, the officers
and directors of the Company, Parent and Merger Sub are fully authorized in the
name of their respective corporations to take, and will take, all such lawful
and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants, on behalf of itself and
each of its Subsidiaries (defined below), to Parent and Merger Sub, as of the
date of this Agreement and as of the Closing Date, except as otherwise
expressly provided herein, subject to such exceptions as are specifically
disclosed in the disclosure letter (referencing the appropriate schedule or
section number) supplied by the Company to Parent (the "Company Schedules") and
dated as of the date hereof and updated as of the Closing Date by mutual
agreement of the Parent and Company, as follows:
2.1 Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the corporate power to own, operate and
lease its properties and to carry on its business as now being conducted. The
Company is duly qualified or licensed to conduct its business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have, or would reasonably be expected to have, a Material
Adverse Effect on the Company. For purposes of this Agreement, a "Material
Adverse Effect", with respect to any person or entity, means a material adverse
effect on the business, assets (including intangible assets), financial
condition, results of operations, liabilities or prospects of such person or
entity and its Subsidiaries and Joint Ventures (each as defined in Section
2.3(a) below) taken as a whole; and "Material Adverse Change" shall mean a
change which would have a Material Adverse Effect. The Company has delivered a
true and correct copy of its Certificate of Incorporation and Bylaws, each as
amended to date, to Parent.
2.2 Company Capital Structure. The authorized capital stock of
the Company consists of 70,000,000 shares of Common Stock, par value $0.01, and
5,000,000 shares of Preferred Stock, par value $0.01, of which 4,000 shares are
designated as Series A Preferred Stock, 23,800 shares are designated as Series
B Preferred Stock and 5,000 shares are designated as Series C Preferred Stock,
and 979 shares are designated as Series D Preferred Stock. As of December 31,
1997, there were issued and outstanding:
(a) 20,905,710 shares of Company Common Stock; and
(b) No shares of Series A Preferred Stock, 23,800 shares
of Series B Preferred Stock, 5,000 shares of Series C Preferred Stock and 923
shares of Series D Preferred Stock.
All outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this
Section, as set forth on Schedule 2.2, and as otherwise contemplated by this
Agreement, and except for changes since December 31, 1997 resulting from the
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exercise of Company Options and Company Warrants, there are outstanding (i) no
shares of capital stock or other voting securities of Company, (ii) no
securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of Company and (iii) no options or other
rights to acquire from Company, and no obligation of Company to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or other voting securities of Company (the items in clauses
(i), (ii) and (iii) being referred to collectively as the "Company
Securities"). Except as disclosed above, there are no outstanding obligations
of Company or any of its Subsidiaries or Joint Ventures (as defined in Section
2.3(a) below) to repurchase, redeem or otherwise acquire any Company
Securities.
2.3 Subsidiaries and Joint Ventures.
(a) Schedule 2.3(a) sets forth the name and respective
jurisdiction of incorporation or organization of all of the Company's
Subsidiaries and Joint Ventures. Each of the Company's Subsidiaries is a
corporation or other entity duly incorporated or otherwise organized, validly
existing in good standing (or local law equivalent) under the laws of its
jurisdiction of organization. Each of the Company's Subsidiaries has the
corporate power and authority to own and lease the properties and assets it now
owns and leases and to carry on its business as and where such properties and
assets are now owned or leased and such business is now conducted. The Company
has heretofore delivered to Parent true, correct and complete copies of the
Articles of Incorporation, Bylaws, or equivalent governing instruments, each as
amended to the date hereof, for each such Subsidiary. Each of the Company's
Subsidiaries is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the failure
to be so licensed or qualified and in good standing would have a Material
Adverse Effect. For purposes of this Agreement, (i) "Subsidiary" means, with
respect to any entity, any corporation or organization of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
directly or indirectly owned by such entity, and (ii) "Joint Venture" means,
with respect to any entity, any corporation or organization (other than such
entity and any Subsidiary thereof) of which such entity or any Subsidiary
thereof is, directly or indirectly, the beneficial owner of 40% or more of any
class of equity securities or equivalent profit participation interest.
(b) All of the outstanding capital stock of, or other
ownership interests in, each Subsidiary of the Company that is owned by the
Company, directly or indirectly, is free and clear of any material Lien (as
defined in Section 2.5 below) and free of any other material limitation or
restriction on the Company's rights as owner thereof (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), other than those imposed by applicable law. Except as
set forth on Schedule 2.3(b), there are no existing options, calls or
commitments of any character relating to the issued or unissued capital stock
or other securities or equity interests of any Subsidiary of the Company. The
ownership interests of the Company in any Joint Ventures are owned by the
Company free and clear of any Liens, limitations, restrictions, options, calls
or commitments, other than those that are immaterial.
2.4 Authority. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger and this Agreement by the Company's
stockholders. The Board of Directors of the Company has unanimously (i)
approved this Agreement, the Plan of Merger and the transactions contemplated
hereby and thereby, (ii) determined that the Merger
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is in the best interests of the stockholders of the Company and is on terms
that are fair to such stockholders, and (iii) recommended that the stockholders
of the Company approve this Agreement, the Plan of Merger and the Merger. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
2.5 Non-Contravention. The execution and delivery of this
Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, (i) conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), any provision of the Certificate of Incorporation or
Bylaws of the Company or any of its Subsidiaries; (ii) assuming compliance with
the matters referred to in Section 2.6 and assuming the requisite approval of
the Company's stockholders of the Merger, (a) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any of
its Subsidiaries or Joint Ventures except for any such contravention, conflict
or violation that does not have a Material Adverse Effect on the Company; or (b)
constitute a default under or give rise to a right of termination, cancellation,
acceleration or loss of any material benefit under any (A) material agreement,
contract or other instrument binding upon the Company or any of its Subsidiaries
or Joint Ventures or (B) license, franchise, permit or other similar
authorization held by the Company or any such Subsidiary or Joint Venture with
respect to which a default, termination, cancellation, acceleration or loss of
any material benefit would result in a material adverse effect on the Company's
rights in or ability to use the patents included in the Company Registered
Intellectual Property or on the prospects for Final FDA Approval; or (iii)
result in the creation or imposition of any material Lien on any material asset
of the Company or any of its Subsidiaries or Joint Ventures (any of (i), (ii) or
(iii), a "Conflict"). For purposes of this Agreement, the term "Lien" means,
with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
2.6 Consents and Approvals. No consent, waiver, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, country, local or
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party (so as not to trigger any Conflict)
is required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Merger Agreement with the Delaware Secretary of State; (ii) compliance
with any applicable requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; (iii) compliance with any applicable requirements of the 1933 Act
and the rules and regulations promulgated thereunder; (iv) compliance with any
applicable foreign or state securities or "blue sky" laws; (v) compliance with
any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"); (vi) such other filings or
registrations with, or authorizations, consents or approvals of, governmental
bodies, agencies, officials or authorities, the failure of which to make or
obtain would not materially and adversely affect the ability of the Company,
Parent or Merger Sub to consummate the Merger; or (vii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 2.6.
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2.7 Company Financial Statements; SEC Documents.
(a) The Company has delivered to Parent the unaudited
condensed balance sheet of the Company as of March 31, 1998, and the related
unaudited condensed statements of income, stockholders' equity and cash flows
for the quarter ended March 31, 1998 (the "1998 Financial Statements"). The
1998 Financial Statements and the audited financial statements and unaudited
interim condensed financial statements of the Company included in its annual
reports on Form 10-K, quarterly reports on Form 10-Q, and amendments thereto,
referred to in Section 2.7(b) (collectively, the "Company Financial
Statements") present fairly, in all material respects and in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of the Company as of the dates thereof and its consolidated results of
operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any interim financial statements and except
for the absence of footnotes with respect to the 1998 Financial Statements).
For purposes of this Agreement, "Company Balance Sheet" means the condensed
balance sheet of the Company as of March 31, 1998, contained in the 1998
Financial Statements and "Company Balance Sheet Date" means March 31, 1998.
(b) The Company has furnished or made available to Parent
true and complete copies of all reports or registration statements filed by it
with the U.S. Securities and Exchange Commission (the "SEC") under the 1933 Act
and the Exchange Act for all periods since December 31, 1996, all in the form
so filed (all the foregoing being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents of the
Company complied in all material respects with the requirements of the 1933
Act, or the Exchange Act, as the case may be, and none of such SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent corrected by a document subsequently filed
with the SEC.
2.8 Ownership of Parent Stock. As of the date hereof, and during
the three (3) year period immediately preceding the date hereof, neither the
Company nor, to the Company's knowledge, any affiliate or associate (as defined
in Section 203 of Delaware Law) thereof is an "interested stockholder" of the
Parent within the meaning of Section 203 of the Delaware Law.
2.9 No Undisclosed Liabilities. There are no liabilities of the
Company or any of its Subsidiaries or Joint Ventures of any kind whatsoever
that are, individually or in the aggregate, material to the Company and its
Subsidiaries and Joint Ventures taken as a whole, other than (i) liabilities
disclosed or provided for in the Company Balance Sheet or liabilities of a
nature not required to be disclosed in a balance sheet under generally accepted
accounting principles; (ii) liabilities incurred in the ordinary course of
business since the Company Balance Sheet Date; and (iii) liabilities under this
Agreement or incurred in connection with the transactions contemplated hereby.
The Surviving Corporation will not have any liability for any Third Party
Expenses (as defined in Section 5.5 below) of the Company after the Closing.
2.10 No Changes. Since the Company Balance Sheet Date, except as
set forth on Schedule 2.10 or as otherwise contemplated by this Agreement or
the Accord Agreement, there has not been, occurred or arisen:
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(a) any transaction by the Company or any of its
Subsidiaries that creates an obligation that will continue to bind the Company
or any of its Subsidiaries after the Effective Time except for transactions in
the ordinary course of business as conducted on the Company Balance Sheet Date
and consistent with past practices;
(b) any amendments or changes to the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries;
(c) any capital expenditure by the Company or any of its
Subsidiaries, either individually exceeding $10,000 or in the aggregate
exceeding $25,000;
(d) any destruction of, damage to or loss of any assets,
business or customer of the Company or any of its Subsidiaries (whether or not
by covered by insurance) that would result in a Material Adverse Effect to the
Company;
(e) any material labor trouble or any claim of wrongful
discharge or other unlawful labor practice or action;
(f) any revaluation by the Company or any of its
Subsidiaries of any of its assets that results in a Material Adverse Effect to
the Company;
(g) any declaration, setting aside or payment of a
dividend or other distribution with respect to the capital stock of the Company
or any of its Subsidiaries, or any direct or indirect redemption, purchase or
other acquisition by the Company or any of Subsidiaries of any Company Capital
Stock or the capital stock of any Subsidiary;
(h) any issuance of Company Securities (except upon
exercise after the date hereof of any options), any grant of any Company
Options or Company Warrants or any amendment of any material term of any
outstanding Company Securities or any of its Subsidiaries Securities;
(i) any sale, lease, license or other disposition of any
of the assets or properties of the Company or any of its Subsidiaries, except
in the ordinary course of business as conducted on the Company Balance Sheet
Date and consistent with past practices;
(j) any amendment or termination of any material
contract, agreement or license to which the Company or any of its Subsidiaries
is a party or by which it is bound;
(k) any loan by the Company or any of its Subsidiaries to
any natural person, corporation, general partnership, limited partnership,
limited liability company, proprietorship, other business organization, trust,
union, association or governmental or regulatory authority ("Person"),
incurring by the Company or any Subsidiary of any indebtedness for borrowed
money, guaranteeing by the Company or any of its Subsidiaries of any
indebtedness, issuance or sale of any debt securities of the Company or any of
its Subsidiaries or guaranteeing of any debt securities of others, except for
advances to employees for travel and business expenses in the ordinary course
of business, consistent with past practices;
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(l) any material waiver or release of any right or claim
of the Company or any of its Subsidiaries, including any write- off or other
compromise of any material account receivable of the Company or any of its
Subsidiaries;
(m) any commencement or notice or threat of commencement
of any lawsuit or proceeding against or investigation of the Company or any of
its Subsidiaries or their respective affairs that would have a Material Adverse
Effect on the Company;
(n) any notice of any claim of ownership by a third party
of Company Intellectual Property (as defined in Section 2.14 below), or of
revocation or change in material terms of any license to any item of any
Company Intellectual Property by a licensor, or of infringement by the Company
or any of its Subsidiaries of any third party's intellectual property rights;
(o) any material change in any method of accounting or
accounting practice by the Company or any of its Subsidiaries or Joint
Ventures, except for any such change required by reason of a concurrent change
in generally accepted accounting principles or disclosed in the 1998 Financial
Statements;
(p) other than in the ordinary course of business or as
contemplated by this Agreement, any (i) grant of any severance or termination
pay to any director, officer or employee of the Company or any of its
Subsidiaries who earns more than $50,000 per year, (ii) entering into of any
written employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company or any such Subsidiary who earns more than $50,000 per
year, (iii) any material increase in benefits payable under any existing
severance or termination pay policies or employment agreements, or (iv) any
material increase in compensation, bonus or other benefits payable to any
director, officer or employee of the Company or any such Subsidiary who earns
more than $50,000 per year;
(q) any change in pricing or royalties set or charged by
the Company or any of its Subsidiaries to its customers or licensees or in
pricing or royalties set or charged by Persons who have licensed Company
Intellectual Property to the Company or any of its Subsidiaries other than any
changes effected pursuant to the terms of a written agreement existing prior to
the date hereof;
(r) any event or condition of any character that has had
or could be reasonably expected to have a Material Adverse Effect on the
Company; or
(s) negotiation or agreement by the Company or any of its
Subsidiaries or any officer or employee thereof to do any of the things
described in the preceding clauses (a) through (r) (other than negotiations
with Parent and its representatives regarding the transactions contemplated by
this Agreement).
2.11 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this
Agreement, "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes
based
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upon or measured by gross receipts, income, profits, sales, use and occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other Person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits. Except as set forth in
Schedule 2.11 as of the Effective Time:
(i) The Company and each Subsidiary will have
timely prepared and filed all required material federal, state, local and
foreign returns, estimates, statements and reports ("Returns") relating to any
and all Taxes of, concerning or attributable to the Company and its operations
and each Subsidiary and its operations with respect to any Taxable period
ending on or before the Effective Time. To the knowledge of the Company, such
Returns are true, correct and complete in all material respects. No material
Taxes, whether or not shown on the Returns, will be owing after the Closing for
any period covered by any of the Returns. Neither the Company nor any of its
Subsidiaries has applied for or received an extension of time within which to
file any Return. No tax authority has asserted in writing to the Company that
the Company or any of its Subsidiaries is required to file a Return in any
jurisdiction in which the Company has not previously filed Returns. For
purposes of this Agreement, the "Company's knowledge," "knowledge of the
Company" or "known to the Company" means the knowledge of the Chairman and
Chief Executive Officer, the President and Chief Technology Officer, the Chief
Financial Officer, any Vice President or any director of the Company, in each
case after due inquiry and reasonable investigation.
(ii) The Company and each of its Subsidiaries as
of the Effective Time: (A) will have paid or accrued all material Taxes shown
as due and payable on the Returns and (B) will have withheld and deposited, or
will have made arrangements for withholding with respect to amounts which have
not yet been paid but are due on or before the Closing Date in connection with
this Agreement or otherwise, all material federal, state, local or foreign
income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Neither the Company nor any of its
Subsidiaries has been a member of an affiliated group other than one of which
the Company was the common parent, or filed or been included in a combined,
consolidated or unitary Return other than one filed by the Company (or a return
for a group consisting solely of its Subsidiaries or predecessors), or
participated in any other similar arrangement whereby any income, revenues,
receipts, gains, losses, deductions, credits or other Tax items of the Company
or any such Subsidiary was determined or taken into account for Tax purposes
with reference to or in conjunction with any such items of another Person other
than the Company or any such Subsidiary or predecessor;
(iv) Neither the Company nor any of its
Subsidiaries has any unaccrued material liability for the payment of any
material Tax. Except as disclosed on Schedule 2.10(b)(iv), there is no Tax
deficiency outstanding, proposed or assessed against the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
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(v) No audit or other examination of any Return
of the Company or any of its Subsidiaries is currently in progress, nor has the
Company, any of its Subsidiaries or the officers, directors or other Tax
advisors been notified in writing of any request for such an audit or other
examination.
(vi) Neither the Company nor any of its
Subsidiaries has any material liabilities for unpaid federal, state, local and
foreign Taxes which have not been accrued or reserved against in accordance
with GAAP on the balance sheet, whether asserted or unasserted, contingent or
otherwise, and, to the knowledge of the Company, there is no basis of the
assertion of any such unaccrued and unreserved liabilities attributable to the
Company, its assets or operations or any Subsidiary, its assets or operations.
No material liability for Tax shall be incurred prior to the Effective Time
other than in the Company's ordinary course of business consistent with its
past practices.
(vii) The Company has provided to Parent copies of
all federal, state, local and foreign Tax Returns for the last five (5) fiscal
years of the Company and each of its Subsidiaries.
(viii) To the knowledge of Company, there are (and
as of immediately following the Effective Time there will be) no Liens on the
assets of the Company or any of its Subsidiaries relating to or attributable to
Taxes except Liens for current Taxes not yet due.
(ix) Immediately prior to the Merger, there will
be no material limitations on the Company's right to utilize its net operating
loss carryforwards for federal income tax purposes.
(x) To the Company's knowledge, neither it nor
any of its Subsidiaries will be required to include any adjustment in Taxable
income for any Tax period (or portion thereof) ending after the Effective Time
pursuant to Section 481(c) of the Code (or any similar provision of the Tax
laws of any jurisdiction) as a result of a change in method of accounting for
any Tax period (or portion thereof) ending on or before the Effective Time or
pursuant to the provisions of any agreement entered into with any governmental
authority (a "Taxing Authority") responsible for the imposition of any such tax
with regard to the Tax liability of the Company or any such Subsidiary for any
Tax period (or portion thereof) ending on or before the Effective Time.
(xi) There are no requests for rulings in respect
of any Tax pending between the Company or any of its Subsidiaries and any
Taxing Authority;
(xii) None of the Company's nor any of its
Subsidiaries' assets are treated as "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(xiii) Neither the Company nor any of its
Subsidiaries has filed any consent agreement under Section 341(f) of the Code.
(xiv) The Company does not have any liability for
the Taxes of any Person other than the Company, any of its Subsidiaries or
Joint Ventures (A) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local, or foreign law), (B) as a transferee or successor,
(C) by contract, or (D) otherwise.
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(xv) Except as disclosed on Schedule 2.10(b)(xv),
neither the Company nor any of its Subsidiaries is a party to a tax sharing or
allocation agreement nor does the Company or any of its Subsidiaries owe any
amount under any such agreement.
(xvi) Neither the Company nor any of its
Subsidiaries is, nor has been at any time, a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code.
(xvii) The Company's and each of its Subsidiaries'
tax basis in its assets for purposes of determining its future amortization,
depreciation and other federal income tax deductions is accurately reflected on
the Company's tax books and records.
(c) Notwithstanding any of the foregoing, no
representation or warranty is made by the Company with respect to the Tax
consequences that may result from the transactions contemplated by this
Agreement.
2.12 Restrictions on Business Activities. Except as set forth on
Schedule 2.12, there is no agreement (non-compete or otherwise), commitment,
judgment, injunction, order or decree to which the Company, any of its
Subsidiaries or any Joint Venture is a party or otherwise binding upon the
Company, any of its Subsidiaries or any Joint Venture which has or reasonably
could be expected to have the effect of prohibiting or materially impairing the
ability of the Company, any of its Subsidiaries or any Joint Venture to conduct
the Company's business, such Subsidiary's business or such Joint Venture's
business, as such business is currently conducted, or any acquisition of
property (tangible or intangible) by the Company, any of its Subsidiaries or
any Joint Venture. Without limiting the foregoing, except as set forth in
Schedule 2.14(i), none of the Company or any of its Subsidiaries or Joint
Ventures has entered into any agreement under which the Company, any Subsidiary
or any Joint Venture is restricted from selling, licensing or otherwise
distributing any of its products or drug candidates to any class of customers,
in any geographic area, during any period of time or in any segment of the
market.
2.13 Title to Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor any of its Subsidiaries owns
any real property, nor have they ever owned any real property. Schedule
2.13(a) sets forth a list of all real property currently, or at any time in the
past, leased by the Company or any of its Subsidiaries, and, with respect to
all real property currently leased by the Company or any of its Subsidiaries,
the name of the lessor, the date of the lease and each amendment thereto and
the aggregate annual rental and/or other fees payable under any such lease.
All such current leases are, to the knowledge of the Company, in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default by the Company or any of its Subsidiaries (or event which with
notice or lapse of time, or both, would constitute such a material default).
(b) To the knowledge of the Company, the Company and each
of its Subsidiaries, if any, has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Company
Financial Statements or in Schedule 2.13(b) and except for Liens for taxes not
yet due and payable and such imperfections of title and
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encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.14 Intellectual Property.
(a) For the purposes of this Agreement, the following
terms have the following definitions:
(i) "Intellectual Property" shall mean any or all
of the following and all rights in, arising out of, or associated therewith:
(a) all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements, drug candidates, trade
secrets, proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing; (c) all
copyrights, copyrights registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (d) all industrial designs
and any registrations and applications therefor throughout the world; (e) all
trade names, logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor throughout the world; (f)
all databases and data collections and all rights therein throughout the world;
and (g) any similar or equivalent rights to any of the foregoing anywhere in
the world.
(ii) "Company Intellectual Property" shall mean
that Intellectual Property owned by, or exclusively licensed to, the Company or
any of its Subsidiaries that is set forth on Schedule 2.14(a).
(iii) "Company Registered Intellectual Property"
means those United States, international and foreign: (a) patents and patent
applications (including provisional applications); (b) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks; and (c) registered
copyrights and applications for copyright registration that are listed on
Schedule 2.14(b).
(c) Schedule 2.14(c) lists all non-routine proceedings or
actions known to the Company before any court, tribunal (including the United
States Patent and Trademark Office ("PTO") or equivalent authority anywhere in
the world) related to any Company Intellectual Property. To the knowledge of
the Company, no Company Intellectual Property is the subject of any non-routine
proceeding or outstanding decree, order, judgment, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by the
Company or any of its Subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(d) With respect to (i) each item of Company Registered
Intellectual Property, necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been made
and all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent
authorities in the United States for the purposes of maintaining such Company
Registered Intellectual Property and (ii) those patents set forth on Schedule
2.14(d)(ii) ("Company Core Intellectual Property"), no information
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material to patentability under applicable law has been withheld from the
examining office that would constitute fraud or inequitable conduct. Claims 2
and 3 in United States Patent No. 4,675,382, claims 17 through 21, 32 and, as
each claim depends from claim 32, claims 34 through 39 in United States Patent
No. 5,703,039, claims 17 through 21, 32, 39 and, as each claim depends from
claim 39, claims 41 and 42 in United States Patent No. 5,677,148 and claims 17
through 21 and 32 in United States Patent No. 5,616,482 (I) are valid over the
prior art made of record in and/or considered by the examining office in
connection therewith and (II) the supporting specifications comply in all
material respects with applicable law, in each case to the extent that such
claims read upon making, using or selling DAB(389)IL-2.
(e) The Company and each of its Subsidiaries owns and has
good and exclusive title free and clear of any Lien to all Company Registered
Intellectual Property listed on Schedule 2.14(b), that is owned by the Company
(for purposes of this Section 2.14(e), joint ownership with third parties of
such Company Registered Intellectual Property constitutes "good and exclusive
title").
(f) [reserved]
(g) To the extent that any work, invention, or material
has been developed or created by a third party for the Company or any of its
Subsidiaries, the Company and each of its Subsidiaries has a written agreement
with such third party with respect thereto and the Company and each of its
Subsidiaries thereby has obtained ownership of, and is the exclusive owner of,
or has a valid license to use, all Company Intellectual Property in such work,
material or invention by operation of law or by valid assignment or by
agreement, as the case may be.
(h) Except as set forth on Schedule 2.14(i), neither the
Company nor any of its Subsidiaries has transferred ownership of, or granted
any exclusive license with respect to, any Company Intellectual Property, to
any third party.
(i) Schedule 2.14(i) lists all contracts, licenses and
agreements to which the Company or any of its Subsidiaries is a party that are
currently in effect (i) with respect to Company Intellectual Property licensed
or offered to any third party; or (ii) pursuant to which a third party has
licensed or transferred any Company Intellectual Property to the Company or any
of its Subsidiaries.
(j) To the knowledge of the Company, the contracts,
licenses and agreements listed on Schedule 2.14(i) are in full force and
effect. The consummation of the transactions contemplated by this Agreement
will neither violate nor result in the breach, modification, cancellation,
termination, or suspension of such contracts, licenses and agreements listed on
Schedule 2.14(i). The Company and each of its Subsidiaries is in material
compliance with, and has not materially breached any term any of such
contracts, licenses and agreements listed on Schedule 2.14(i) and, to the
knowledge of the Company, all other parties to such contracts, licenses and
agreements listed on Schedule 2.14(i) are in compliance with, and have not
breached any term of, such contracts, licenses and agreements. To the
knowledge of the Company, following the Closing Date the Surviving Corporation
will be permitted to exercise all of the Company's and each of its
Subsidiaries', if any, rights under the contracts, licenses and agreements
listed on Schedule 2.14(i) to the same extent the Company and such Subsidiary
would have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional
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funds other than ongoing fees, royalties or payments which the Company or such
Subsidiary would otherwise be required to pay.
(k) To the knowledge of the Company, Schedule 2.14(k)
lists all contracts, licenses and agreements between the Company or any of its
Subsidiaries and any third party wherein or whereby the Company or any of its
Subsidiaries has agreed to, or assumed, any obligation or duty to warrant,
indemnify, hold harmless or otherwise assume or incur any obligation or
liability with respect to the infringement or misappropriation by the Company
or any of its Subsidiaries or such third party of the Intellectual Property of
any third party.
(l) The operation of the business of the Company with
respect to DAB(389)IL-2, as such business currently is conducted, including the
Company's design, development, manufacture, marketing and sale of DAB(389)IL-2,
does not infringe or misappropriate the Intellectual Property of any third
party. To the knowledge of the Company, the operation of the remainder of the
business of the Company and each of its Subsidiaries, if any, as such
businesses currently are conducted, including the Company's and such
Subsidiary's design, development, manufacture, marketing and sale of the
products, drug candidates or services (including products and drug candidates
currently under development) other than DAB(389)IL-2, does not infringe or
misappropriate the Intellectual Property of any third party or constitute
unfair competition or trade practices under the laws of any jurisdiction.
(m) The Company and each of its Subsidiaries, if any,
(including each of their executive officers, directors and, to the knowledge of
the Company, employees) has not received notice from any third party that the
operation of its business or any act, product, drug candidate or service of the
Company or any of its Subsidiaries, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition or
trade practices under the laws of any jurisdiction.
(n) To the knowledge of the Company, (i) no Person has or
is infringing or misappropriating any Company Core Intellectual Property and
(ii) there have been, and are, no claims asserted against the Company or any of
its Subsidiaries or against any customer of the Company or any of its
Subsidiaries, related to DAB(389)IL-2.
(o) The Company and each of its Subsidiaries, if any, has
taken measures they each deem reasonable to protect their respective rights in
their respective confidential information and trade secrets or any trade
secrets or confidential information of third parties provided to the Company or
any of its Subsidiaries. To the knowledge of the Company, neither the Company
or any of its Subsidiaries, nor any employees or consultants of the Company or
any of its Subsidiaries, have permitted any such confidential information or
trade secrets to be used, divulged or appropriated for the benefit of Persons
to the material detriment of the Company or any of its Subsidiaries.
2.15 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.15(a), neither the Company nor any of its Subsidiaries has, or is a
party to or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain
any severance pay or post-employment liabilities or obligations;
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(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements;
(iv) any employment or consulting agreement,
contract or commitment with an employee or individual consultant or salesperson
or any consulting or sales agreement, contract or commitment under which any
firm or other organization provides services to the Company or any of its
Subsidiaries;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) any fidelity or surety bond or completion
bond;
(vii) any agreement of indemnification or guaranty;
(viii) any agreement, contract, commitment,
transaction or series of transactions for any purpose other than in the
ordinary course of the Company's or any of its Subsidiaries' business relating
to capital expenditures or commitments or long-term obligations in excess of
$10,000;
(ix) any material agreement, contract or
commitment relating to the disposition or acquisition of assets or any interest
in any business enterprise outside the ordinary course of the Company's or any
of its Subsidiaries' business;
(x) any material mortgages, indentures, loans or
credit agreements, security agreements or other arrangements or instruments
relating to the borrowing of money or extension of credit, including guaranties
referred to in clause (vii) hereof;
(xi) any purchase order or contract for the
purchase of raw materials involving $10,000 or more;
(xii) any distribution, joint marketing or
development agreement, that has a Material Adverse Effect on the Company or any
of its Subsidiaries;
(xiii) any assignment, license or other agreement
with respect to any form of intangible property that would have a Material
Adverse Effect on the Company; or,
(xiv) any other agreement, contract or commitment
that involves $10,000 or more or is not cancelable without penalty in excess of
$10,000 within thirty (30) days (collectively, any of (i) through (xiv) above
shall be known as "Contracts").
Except for such alleged material breaches, violations and defaults, and events
that would constitute a material breach, violation or default with the lapse of
time, giving of notice, or both, all of which are noted in Schedule 2.15(b),
neither the Company nor any of its Subsidiaries has materially breached,
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violated or defaulted under, or received notice that it has materially
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.15(a)
or Schedule 2.14(i) (any such agreement, contract or commitment, a "Contract").
The Company is in material compliance with each such Contract and, to the
Company's knowledge, each such contract is in full force and effect and, except
as otherwise disclosed in Schedule 2.15(b), is not subject to any default
thereunder of which the Company or any of its Subsidiaries has knowledge by any
party obligated to the Company or any of its Subsidiaries pursuant thereto.
2.16 Interested Party Transactions. Except as set forth on
Schedule 2.16, no officer, director or, to the knowledge of the Company,
stockholder of the Company or any of its Subsidiary (nor, to the Company's
knowledge, any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has an
interest), has directly or indirectly, (i) a material economic interest in any
entity which furnishes or sells, services, drug candidates or products that the
Company or any of its Subsidiaries furnishes or sells or proposes to furnish or
sell, (ii) a material economic interest in any entity that purchases from or
sells or furnishes to, the Company or any of its Subsidiaries, any goods or
services, or (iii) a beneficial interest in any contract or agreement set forth
in Schedule 2.14(i) or filed as an exhibit to a SEC Document; provided, that
ownership of no more than five percent (5%) of the outstanding voting stock of
a publicly traded corporation shall not be deemed an "economic interest in any
entity" for purposes of this Section 2.16.
2.17 Compliance with Laws. The Company and each of its
Subsidiaries has complied in all respects with, is not in violation of, and has
not received any notices of violation with respect to, any foreign, federal,
state or local statute, law or regulation, the failure to comply with which
would have a Material Adverse Effect.
2.18 Litigation. Except as set forth in Schedule 2.18, there is no
action, suit or proceeding of any nature pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries or Joint
Ventures, their respective properties or any of their respective officers or
directors, in their respective capacities as such. There is no investigation
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or Joint Ventures, their respective properties or any
of their respective officers or directors by or before any governmental entity.
To the knowledge of the Company, no governmental entity has at any time
challenged or questioned the legal right of the Company or any of its
Subsidiaries or Joint Ventures to conduct the Company's, such Subsidiary's or
such Joint Venture's respective businesses in the present manner or style
thereof. No order of any governmental entity exists that would restrict the
ability of the Company, any of its Subsidiaries or Joint Ventures to conduct
the Company's, such Subsidiary's or such Joint Venture's respective research,
development and manufacturing activities in the present manner or style
thereof. For purposes of this Section 2.18, "investigation" shall not include
ordinary and routine compliance inspections or audits or inspections in
connection with receipt of regulatory approval.
2.19 Insurance. The Company has provided Parent with true and
correct copies of the insurance policies covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company and any of its Subsidiaries, if any (collectively, the "Company
Insurance Policies"). As of the date of this Agreement, there is no material
claim by the Company or any of its Subsidiaries pending under any of the
material Company Insurance Policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such
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material Company Insurance Policies have been paid and, to the knowledge of the
Company, the Company and its Subsidiaries, if any, are otherwise in material
compliance with the terms of such policies (or other policies and providing
substantially similar insurance coverage). As of the date of this Agreement,
the Company does not know of any threatened termination of, or material premium
increase with respect to, any of its material Company Insurance Policies.
2.20 Minute Books. The minute books of the Company and each of its
Subsidiaries, if any, made available to counsel for Parent are the only minute
books of the Company and such Subsidiary and contain a reasonably accurate
summary of all meetings of directors (or committees thereof) and stockholders
or actions by written consent since the time of incorporation of the Company
and such Subsidiary.
2.21 Relationships With Suppliers and Licensors. No current
supplier to the Company or any of its Subsidiaries has notified the Company or
such Subsidiary of an intention to terminate or substantially alter its
existing business relationship with the Company or such Subsidiary, nor has any
licensor under a license agreement with the Company or any of its Subsidiaries
notified the Company or such Subsidiary of an intention to terminate or
substantially alter the Company's or such Subsidiary's rights under such
license, which termination or alteration would have a Material Adverse Effect
on the Company.
2.22 Environmental Matters.
(a) Except as set forth on Schedule 2.22(a), neither the
Company nor any of its Subsidiaries is to the knowledge of the Company in
violation of any Federal, state or local Environmental Law (as defined below),
which violation could reasonably be expected to result in a Material Adverse
Effect on the Company. Except as set forth on Schedule 2.22(a), neither the
Company, any of its Subsidiaries nor any third party has, to the knowledge of
the Company, used, released, discharged, generated, manufactured, produced,
stored, or disposed of in, on, under or about its owned or leased property or
other assets, or transported thereto or therefrom, any Hazardous Materials (as
defined below) in a manner that could reasonably be expected to subject the
Company or any Subsidiary to a material liability under any Environmental Law;
to the knowledge of the Company, there are no, nor has there ever been,
underground tanks, whether operative or temporarily or permanently closed,
located on its owned or leased property or other assets; to the knowledge of
the Company, there are no, nor has there ever been, polychlorinated biphenyls
("PCBs") or items containing PCBs used, stored or present at, on or, to the
knowledge of the Company, near its owned or leased property or assets; and, to
the knowledge of the Company, there is or has been no condition, circumstance,
action, activity or event that could reasonably be expected to form the basis
of any violation of, or material liability to the Company or any of its
Subsidiaries under, any local, state or Federal Environmental Law.
(b) The Company has not within five (5) years preceding
the date hereof received any written notice, demand, citation, summons,
complaint or order and, to the Company's knowledge, no proceeding,
investigation or review is pending or overtly threatened by any local, state or
Federal governmental entity or non-governmental third-party with respect to the
presence or release of any Hazardous Material in, on, from or to the Company or
any Subsidiary's owned or leased property.
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(c) For purposes of this Agreement, (i) "Environmental
Law" means the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.) ("CERCLA"); the
Federal Clean Water Act (33 U.S.C. Section 1251, et seq.); the Federal Clean Air
Act (42 U.S.C. Section 7401); Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. Section 136 et seq.); Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.); Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.) ("RCRA"); and Emergency Planning and Community Right to Know Act
(42 U.S.C. Section 11001 et seq.), together with applicable state and local laws
of similar substance, and (ii) "Hazardous Materials" shall mean substances
defined as "hazardous substances," "hazardous materials," or "toxic substances"
in CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801,
et seq.) and RCRA; those substances defined as "hazardous waste," "hazardous
materials" or "regulated substances" by RCRA; those substances designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317); those substances regulated as a hazardous
chemical substance or mixture or as an imminently hazardous chemical substance
or mixture pursuant to Section 6 or 7 of the Toxic Substances Control Act (15
U.S.C. Sections 2605, 2606); those substances defined as a pesticide pursuant to
Section 136(u) of the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136(u)); those substances defined as hazardous waste constituents
in 40 CFR 260.10, specifically including Appendix VII and VIII of Subpart D of
40 CFR 261; and those substances defined by the Atomic Energy Act of 1954, as
amended (42 U.S.C. Sections 3011, et seq., as amended) as a source, special
nuclear or by-product material; and in the regulations adopted and publications
promulgated pursuant to said laws.
2.23 Brokers' and Finders' Fees; Third Party Expenses. Except
pursuant to the engagement of Lehman Brothers Incorporated and Shoreline
Pacific (the "Company Financial Advisors") pursuant to engagement letters dated
April 30, 1998, and October 1, 1997, respectively, neither the Company nor any
of its Subsidiaries has incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.23 sets forth the Company's current reasonable
estimate of all Third Party Expenses expected to be incurred by the Company and
any Subsidiary in connection with the negotiation and effectuation of the terms
and conditions of this Agreement and the transactions contemplated hereby.
2.24 Permits and Licenses; No Debarment.
(a) Schedule 2.24 contains a complete and correct copy of
(i) each pending application or registration for governmental approval and each
governmental approval held by the Company or any of its Subsidiaries to develop,
manufacture, test (including, without limitation, preclinical tests and clinical
trials), import, export, store, market and sell the Company's or any
Subsidiary's products or drug candidates, and (ii) the most recent report by or
on behalf of the FDA or any other governmental body involving or relating to any
facility inspection of the Company's or any Subsidiary's facilities. Except as
set forth in Schedule 2.24, (i) the Company and each of its Subsidiaries
possesses such governmental approvals from all governmental bodies including,
without limitation, all FDA approvals, necessary to permit the operation of its
business in the manner as the same is currently conducted, and to operate, own
or occupy its properties, (ii) there have been no product recalls, field
corrective activity, medical device reports, warning letters or administrative
actions by the FDA or any other governmental body, and (iii) to the knowledge of
the Company, (aa) there is no administrative action pending or threatened for
the revocation of any such governmental approval and (bb) assuming the obtaining
of the authorizations,
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consents, approvals and other actions listed in Schedule 2.24, no governmental
approval by any governmental body having jurisdiction over the operation of the
Company's or any Subsidiary's business, whether in whole or in part, will be
revoked, or become ineffective or subject to revocation, as a consequence of
the transactions contemplated by this Agreement.
(b) Neither the Company nor any of its Subsidiaries (i)
has been debarred or received notice of action or threat of action with respect
to its debarment under the provisions of the Generic Drug Enforcement Act of
1992, 21 U.S.C. Section 335(a) and (b), or (ii) to the Company's knowledge, has
used in any capacity the services of any individual, corporation, partnership
or association which has been debarred under the provisions of the Generic Drug
Enforcement Act of 1992, 21 U.S.C. Section 335(a) and (b).
2.25 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.25(a)(i) below (which definition shall apply
only to this Section 2.25), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person under
common control with or otherwise required to be aggregated with the Company or
any Subsidiary as set forth in Section 414(b), (c), (m) or (o) of the Code and
the regulations thereunder;
(ii) "Company Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan" within the meaning of Section 3(3) of ERISA, which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any of its Subsidiaries or any Affiliate for the benefit of any "Employee" (as
defined below), and pursuant to which the Company or any Subsidiary or any
Affiliate has or may have any material liability contingent or otherwise;
(iii) "Employee" shall mean any current, former or
retired employee, officer, or director of the Company or any Subsidiary or any
Affiliate;
(iv) "Employee Agreement" shall refer to any
material management, employment, severance, consulting, relocation,
repatriation, expiration, visas, work permit or similar agreement or contract
between the Company or any Subsidiary or any Affiliate and any Employee or
consultant that is not a Company Employee Plan;
(v) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue
Service;
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in
Sections 3(37) and 4001(a)(3) of ERISA; and
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(viii) "Pension Plan" shall refer to each Company
and Subsidiary Employee Plan which is an "employee pension benefit plan,"
within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.25(b) contains an accurate and
complete list of each Company Employee Plan and each Employee Agreement.
Except as set forth on Schedule 2.25(b), neither the Company nor any of its
Subsidiaries has any announced plan or commitment, whether legally binding or
not, to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent
correct and complete copies of all material documents embodying or relating to
each Company Employee Plan and each Employee Agreement including: (i) all
amendments thereto and written interpretations thereof; (ii) the most recent
annual actuarial valuations, if any, prepared for each Company Employee Plan;
(iii) the three most recent annual reports (Series 5500 and all schedules
thereto), if any, required under ERISA or the Code in connection with each
Company Employee Plan or related trust; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan description together with the most
recent summary of material modifications, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination letters and
rulings relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Company Employee Plan; (vii) all communications material to any
Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company or any Subsidiary; and (viii) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company and each
of its Subsidiaries, if any, has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA and the Code; (ii) to the knowledge of the Company, no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) to the knowledge of the Company, there are no material actions, suits or
claims pending, or threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; (iv) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without material liability to the Company or any of its
Subsidiaries, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) to the
knowledge of the Company, there are no inquiries or proceedings pending or
threatened by the IRS or DOL with respect to any Company Employee Plan; (vi) to
the knowledge of the Company, neither the Company nor any of its Subsidiaries
is subject to any penalty or tax with respect to any Company Employee Plan
under Section 402(i) of ERISA or Section 4975
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through 4980 of the Code; and (vii) all contributions, including any top heavy
contributions, required to be made by the Company or any ERISA affiliate to any
Company Employee Plan have been made or shall be made on or before the Closing
Date.
(e) Pension Plans. Neither the Company nor any of its
Subsidiaries currently maintains, sponsors, participates in or contributes to,
nor has it ever maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or
any of its Subsidiaries contributed to or been requested to contribute to any
Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth
on Schedule 2.25(g) or as required by local, state or federal law, no Company
Employee Plan provides, or has any liability to provide, life insurance,
medical or other employee benefits to any Employee upon his or her retirement
or termination of employment for any reason, including continuation health care
coverage under Section 4980B of the Code, and the Company and each of its
Subsidiaries, if any, has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as a
group) that such Employee(s) would be provided with life insurance, medical or
other employee welfare benefits upon their retirement or termination of
employment.
(h) Effect of Transaction. The execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(i) Employment Matters. The Company and each of its
Subsidiaries, if any, (i) is in compliance in all material respects with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries, and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the
Company or any Subsidiary is pending or, to the knowledge of the Company,
threatened. Neither the Company nor any of its Subsidiaries is involved in or,
to the knowledge of the Company, threatened with, any labor dispute, grievance,
administrative proceeding or litigation relating to labor, safety, employment
practices or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on the Company. Neither the Company nor any of its
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Subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly have a Material Adverse Effect on the Company. Neither
the Company nor any of its Subsidiaries is presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company or any Subsidiary.
2.26 Employees. To the knowledge of the Company, (i) no employees
of the Company or any Subsidiary are in material violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by the Company or such
Subsidiary or to the use of trade secrets or proprietary information of others,
(ii) as of the date hereof, no employees have given notice to the Company or
any Subsidiary, nor is the Company or any Subsidiary otherwise aware, that any
such employee intends to terminate his or her employment with the Company or
any Subsidiary and (iii) as of the Closing Date, there have been no
terminations of employment with the Company or any of its Subsidiaries that
would have a Material Adverse Effect.
2.27 Distribution of Merger Consideration. The Merger
Consideration, when distributed in accordance with Sections 1.7 and 1.8, will
have been distributed to the holders of Company Capital Stock in accordance
with the provisions of the Company's Certificate of Incorporation in effect
immediately prior to the Effective Time and any other document or agreement
among the Company and such holders related to the distribution of the Merger
Consideration. No holder of Company Capital Stock shall have any claims
against Parent in connection with the distribution of the Merger Consideration
by the Exchange Agent to the extent that the Exchange Agent receives and
distributes the Merger Consideration in accordance with the terms hereof,
except as provided herein.
2.28 Disclosure Documents. None of the information supplied or to
be supplied by the Company for inclusion in (i) the proxy statement relating to
the meeting of the Company's stockholders to be held in connection with the
Merger (the "Proxy Statement"), and (ii) any registration statement on Form S-4
or other appropriate registration form to be filed with the SEC by Parent in
connection with the offer and issuance of the Parent Common Stock in or as a
result of the Merger (each, a "Registration Statement"), including the Proxy
Statement included therein, will, in the case of the Proxy Statement, at the
time of mailing of the Proxy Statement to stockholders of the Company, contain
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading or will, in the case of each Registration Statement, at the time
each such Registration Statement becomes effective under the 1933 Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder
applicable to the Company, except that no representation is made by the Company
with respect to information supplied by Parent or Merger Sub for inclusion
therein and no representation is made by the Company with respect to any
forward-looking information, budgets or projections which may have been
supplied by the Company.
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2.29 Opinion of Lehman Brothers. The Company has received the
opinion of Lehman Brothers to the effect that, as of May 1, 1998, the Merger
Consideration is fair, from a financial point of view, to the common
shareholders of the Company.
2.30 Representation Complete. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor any
statement made in any schedule or certificate furnished by the Company pursuant
to this Agreement contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. The Company has disclosed to Parent all facts that are known to
the Company to be material (individually or in the aggregate) to the business,
assets, liabilities, financial condition, prospects or operations of the
Company and each Subsidiary taken together.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company, as
of the date of this Agreement and as of the Closing Date, except as otherwise
expressly provided herein, subject to such exceptions as are specifically
disclosed in the disclosure letter (referencing the appropriate schedule or
section number) supplied by Parent to Company (the "Parent Schedules") and
dated as of the date hereof and updated as of the Closing Date by mutual
agreement of the Parent and Company, as follows:
3.1 Organization, Standing and Power. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Merger Sub has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted and is duly
qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have, or would reasonably be expected to have, a Material
Adverse Effect on Parent or Merger Sub. Parent has delivered a true and
correct copy of its Certificate of Incorporation and Bylaws, each as amended to
date, to the Company. Merger Sub has delivered a true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to the
Company.
3.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. The execution and delivery of
this Agreement by the Parent and Merger Sub does not, and, as of the Effective
Time, the consummation of
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the transactions contemplated hereby will not, (i) conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both) any provision of the Certificate of Incorporation or Bylaws of Parent or
Merger Sub or (ii) assuming compliance with the matters referred to in the next
succeeding sentence, (a) contravene or conflict with or constitute a violation
of any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Parent or Merger Sub or any of their respective
Subsidiaries or Joint Ventures except for any such contravention, conflict or
violation that does not have a Material Adverse Effect on Parent or Merger Sub,
as applicable; or (b) constitute a default under or give rise to a termination,
cancellation, acceleration or loss of any material benefit under any material
agreement, contract or other instrument binding upon Parent, Merger Sub or any
of their respective Subsidiaries or Joint Ventures or any material license,
franchise, permit or other similar authorization held by Parent, Merger Sub or
any of their respective Subsidiaries or Joint Ventures; or (iii) result in the
creation or imposition of any material Lien on any material asset of Parent or
Merger Sub or any of their respective Subsidiaries or Joint Ventures. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, country, local or foreign governmental authority,
instrumentality, agency or commission or any shareholder of Parent or Merger
Sub or any third party (so as not to trigger any Conflict) is required by or
with respect to the Parent in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Merger Agreement with the Delaware Secretary
of State, (ii) compliance with any applicable requirements of the Exchange Act,
and the rules and regulations promulgated thereunder; (iii) compliance with any
applicable requirements of the 1933 Act, and the rules and regulations
promulgated thereunder, (iv) compliance with any applicable foreign or state
securities or "blue sky" laws; (v) compliance with any applicable requirements
of the HSR Act; (vi) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially and adversely affect the ability of the Company, Parent or Merger
Sub to consummate the Merger; or (vii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 3.2.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 80,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. As of December
31, 1997 there were issued and outstanding:
(i) 38,504,459 shares of Parent Common Stock;
(ii) No shares of Preferred Stock;
(iii) Options to purchase an aggregate of 4,068,506
shares of Parent Common Stock (of which such options to purchase an aggregate
of 2,442,187 shares of Parent Common Stock were exercisable);
(iv) Warrants to purchase an aggregate of
6,606,094 shares of Parent Common Stock (of which all such Warrants were
exercisable) and an aggregate principal amount of $6,250,000 of convertible
promissory notes convertible into 558,991 shares of Parent Common Stock; and
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(v) an aggregate principal amount of $50 million
of 7-1/2% Convertible Subordinated Debentures of Glycomed, Inc., a wholly owned
subsidiary of Parent, convertible into 1,885,370 shares of Parent Common Stock.
All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. Except as set
forth in this Section 3.3 and except for changes since December 31, 1997
resulting from the issuance or exercise of stock options and stock purchase
rights to or by employees, directors and consultants in the ordinary course of
business consistent with past practice, as of the date hereof there are
outstanding (i) no shares of capital stock or other voting securities of
Parent, (ii) no securities of Parent convertible into or exchangeable for
shares of capital stock or voting securities of Parent and (iii) no options or
other rights to acquire from Parent, and no obligation of Parent to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or other voting securities of Parent (the items in clauses
(i), (ii) and (iii) being referred to collectively as the "Parent Securities").
Except as disclosed above and in SEC Documents filed by Parent, as of the date
hereof there are no outstanding obligations of Parent or any of its
Subsidiaries or Joint Ventures to issue or to repurchase, redeem or otherwise
acquire any Parent Securities.
(b) The shares of Parent Common Stock to be issued
pursuant to the Merger, when issued, will be duly authorized, validly issued,
fully paid and nonassessable. Parent has reserved and will keep reserved
sufficient shares of Parent Common Stock for issuance in connecting with
payment of the Closing Consideration and Milestone Consideration.
(c) The authorized capital stock of Merger Sub consists
of 100 shares of Common Stock, all of which are issued and outstanding and are
held by Parent.
3.4 SEC Documents; Parent Financial Statements. As of the date
hereof, Parent has furnished or made available to the Company true and complete
copies of all SEC Documents previously filed by it with the SEC under the 1933
Act and the Exchange Act. As of their respective filing dates, all such SEC
Documents of Parent complied in all material respects with the requirements of
the 1933 Act or the Exchange Act, as the case may be, and none of such SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC. The financial statements of Parent, including the notes thereto,
included in the aforesaid SEC Documents (the "Parent Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP consistently
applied (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and present fairly
the consolidated financial position of Parent at the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal audit
adjustments). As of the date hereof, there has been no change in Parent
accounting policies except as described in the notes to the Parent Financial
Statements.
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3.5 No Material Adverse Change. Since the date of the balance
sheet included in the Parent's most recently filed report on Form 10-K (the
"Parent Balance Sheet") and continuing through the date hereof, Parent has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets
(including intellectual property assets) or business of Parent or any of its
Subsidiaries or Joint Ventures; (b) any amendment or change in the Certificate
of Incorporation or Bylaws of Parent or any of its Subsidiaries or Joint
Ventures, or Merger Sub (with respect to Merger Sub, since the date of its
incorporation); or (c) any damage to, destruction or loss of any assets of
Parent or any of its Subsidiaries or Joint Ventures (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of Parent or any of its Subsidiaries or Joint Ventures. Since
December 31, 1997 and continuing through the Effective Time, there has not
occurred delisting or suspension of the trading of Parent's Common Stock on the
Nasdaq National Market.
3.6 Litigation. As of the date hereof, there is no material
action, suit or proceeding of any nature pending or to the knowledge of Parent
threatened against Parent or Merger Sub, any of their respective Subsidiaries
or Joint Ventures, their respective properties or any of their respective
officers or directors, in their respective capacities as such. As of the date
hereof, there is no material investigation pending or to the knowledge of
Parent threatened against Parent or Merger Sub, any of their respective
Subsidiaries or any Joint Ventures, any of their respective properties or any
of their respective officers or directors by or before any Governmental Entity.
To the knowledge of Parent, as of the date hereof no Governmental Entity has at
any time challenged or questioned the legal right of Parent or Merger Sub, or
any of their respective Subsidiaries or Joint Ventures to conduct research,
development and manufacturing activities in the present manner or style
thereof.
3.7 Disclosure Documents. None of the information supplied or to
be supplied by Parent for inclusion in (i) the Proxy Statement, and (ii) any
Registration Statement, including the Proxy Statement included therein, will,
in the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement to stockholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or will, in the case of
each Registration Statement, at the time each such becomes effective under the
1933 Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each Registration Statement will comply as to form in all material
respects with the provisions of the 1933 Act and the rules and regulations
thereunder, except that no representation is made by Parent with respect to
information supplied by the Company for inclusion therein and no representation
is made by Parent with respect to any forward-looking information, budgets or
projections which may have been supplied by Parent.
3.8 Ownership of Company Stock. As of the date hereof, and during
the three (3) year period immediately preceding the date hereof, neither Parent
or Merger Sub nor, to the Company's knowledge, any affiliate or associate (as
defined in Section 203 of Delaware Law) thereof is an "interested stockholder"
of the Company within the meaning of Section 203 of the Delaware Law.
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3.9 Subsidiaries and Joint Ventures.
(a) Schedule 3.9 sets forth, as of the date
hereof, the name and respective jurisdiction of incorporation or organization
of all Subsidiaries and Joint Ventures of Parent. Each of the Subsidiaries of
Parent as of the date hereof is a corporation or other entity duly incorporated
or otherwise organized, validly existing in good standing (or local law
equivalent) under the laws of its jurisdiction of organization. Each of the
Subsidiaries of Parent as of the date hereof has the corporate power and
authority to own and lease the properties and assets it now owns and leases and
to carry on its business as and where such properties and assets are now owned
or leased and such business is now conducted. Parent has heretofore delivered
to the Company true, correct and complete copies of the Articles of
Incorporation, Bylaws, or equivalent governing instruments, each as amended to
the date hereof, for each such Subsidiary. Each of the Subsidiaries of Parent
as of the date hereof is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the failure
to be so licensed or qualified and in good standing would have a Material
Adverse Effect.
(b) All of the outstanding capital stock of, or
other ownership interests in, each Subsidiary of Parent that is owned by
Parent, directly or indirectly, is as of the date hereof free and clear of any
material Lien and free of any other material limitation or restriction on
Parent's rights as owner thereof (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests), other than those imposed by applicable law. As of the date hereof,
there are no existing options, calls or commitments of any character relating
to the issued or unissued capital stock or other securities or equity interests
of any Subsidiary of Parent. As of the date hereof, the ownership interests of
Parent in any Joint Ventures are owned by Parent free and clear of any Liens,
limitations, restrictions, options, calls or commitments, other than those that
are immaterial.
3.10 Compliance with Laws. As of the date hereof, Parent, Merger
Sub and each of their respective Subsidiaries has complied in all respects
with, is not in violation of, and has not received any notices of violation
with respect to, any foreign, federal, state or local statute, law or
regulation, the failure to comply with which would have a Material Adverse
Effect.
3.11 Minute Books. The minute books of Parent and each of its
Subsidiaries (other than Ligand Pharmaceuticals (Canada) Inc. ("Ligand
Canada")) made available to counsel for the Company prior to the date hereof
are, as of the date hereof, the only minute books of Parent and such
Subsidiaries and contain, as of the date hereof, a reasonably accurate summary
of all meetings of directors (or committees thereof) and stockholders or
actions by written consent since the time of incorporation of Parent and such
Subsidiaries. Parent represents and warrants that the Board of Directors and
shareholders of Ligand Canada have authorized and approved any action of Ligand
Canada that would require such authorization or approval, and that there is
nothing set forth in such minutes, or that should have been recorded in such
minutes, that would have a Material Adverse Effect on Ligand Canada or would
adversely affect the consummation of the Merger or other transactions
contemplated hereby.
3.12 No Undisclosed Liabilities. Except as disclosed in the Parent
Balance Sheet, as of the date hereof, there are no liabilities of Parent or any
of its Subsidiaries or Joint Ventures of any kind whatsoever that are,
individually or in the aggregate, material to Parent and its Subsidiaries and
Joint Ventures taken as a whole, other than (a) liabilities disclosed or
provided for in the Parent Balance Sheet or liabilities of a nature not
required to be disclosed in a balance sheet under generally accepted
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accounting principles; (b) liabilities incurred in the ordinary course of
business since the date of the Company Balance Sheet; and (c) liabilities under
this Agreement, the Marathon Agreement and as previously described by Parent to
the Company arising in connection with the agreement between Ligand and Lilly
dated the date hereof or incurred in connection with the transactions
contemplated hereby or thereby.
3.13 Restrictions on Business Activities. Except as disclosed in
the Parent's Annual Report on Form 10-K for the year ended December 31, 1997 or
as set forth on Schedule 3.13, as of the date hereof, there is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree
to which Parent or Merger Sub, or any of their respective Subsidiaries or Joint
Ventures is a party or otherwise binding upon Parent or Merger Sub, or any of
their respective Subsidiaries or Joint Ventures which has or reasonably could
be expected to have the effect of prohibiting or materially impairing the
ability of Parent, any of its Subsidiaries or Joint Ventures to conduct its
business as currently conducted or any acquisition of property (tangible or
intangible) by Parent or any of its Subsidiaries or Joint Ventures.
3.14 Representations Complete. None of the representations and
warranties made by Parent or Merger Sub (as modified by the Parent Schedules),
nor any statement made in any schedule or certificate furnished by Parent or
Merger Sub pursuant to this Agreement, or included in any Registration
Statement, contains, or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which made, not
misleading. Parent has, as of the date hereof, disclosed to the Company all
facts that are known to Parent to be material (individually or in the
aggregate) to the business, assets, liabilities, financial condition, prospects
or operations of Parent, Merger Sub and each of their respective Subsidiaries
taken together.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement and the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing) to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. The Company shall promptly notify
Parent of any event or occurrence or emergency not in the ordinary course of
its business, and any material event involving or adversely affecting the
Company or its business. Except as expressly contemplated by this Agreement or
the Accord and Satisfaction Agreement, the Company shall not, without the prior
written consent of Parent:
(a) Enter into any commitment, activity or transaction
that creates an obligation that will continue to bind the Company or any of its
Subsidiaries after the Closing Date, which commitment,
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activity or transaction is not in the ordinary course of business as conducted
on the Company Balance Sheet Date and consistent with the Company's past
practices;
(b) Transfer to any Person or entity any rights to any
Company Intellectual Property;
(c) Enter into, amend, willfully violate the terms of,
fail to perform under or terminate any material agreement, including, without
limitation, any agreement pursuant to which (i) any other party is granted
manufacturing, marketing, distribution or similar rights of any type or scope
with respect to any products or drug candidates of the Company or (ii) the
Company is granted exclusive rights in a geographical area or field of use;
(d) Amend or otherwise modify (or agree to do so), except
in the ordinary course of business consistent with the Company's past
practices, or willfully violate the terms of, any of the material agreements
set forth or described in the Company Schedules;
(e) Amend or otherwise modify (or agree to do so), or
willfully violate the terms of, any of the agreements set forth or described in
Schedule 2.13(i);
(f) Settle or compromise, or agree to settle or
compromise, any suit or other litigation matter or matter in an arbitration
proceeding for any material amount (after taking into account any insurance
proceeds to which the Company is entitled) or otherwise on terms which would
have a Material Adverse Effect on the Company;
(g) Except as contemplated by the Accord Agreement,
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any Company Capital Stock,
or split, combine or reclassify any Company Capital Stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Company Capital Stock, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of Company Capital Stock
(or options, warrants or other rights exercisable therefor);
(h) Grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of Company Securities, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it
to issue any such shares or other convertible securities; except for (i) the
issuance of shares of Company Capital Stock upon exercise or conversion of
Company Options or Company Warrants outstanding at the date of execution of
this Agreement, (ii) options required to be issued by the Company pursuant to
employment or consultant agreements with certain key executive officers and
consultants in effect as of the date hereof, or (iii) additional options
exercisable into not more than 200,000 shares of Company Common Stock, in the
aggregate;
(i) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of the Company;
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(k) Knowingly fail in any material respect to comply with
any laws, ordinances, regulations or other governmental restrictions applicable
to the Company;
(l) Sell, lease, license or otherwise dispose of any of
its properties or assets except in the ordinary course of business and
consistent with past practice;
(m) Make loans or advances or incur any indebtedness for
borrowed money or guarantee or otherwise become responsible for any such
indebtedness or guarantee such indebtedness or issue or sell any of its debt
securities or guarantee, endorse or otherwise become responsible for the
obligations of others;
(n) Grant any severance or termination pay to any
director, officer, employee or consultant, except (i) payments made pursuant to
written agreements outstanding on the date hereof (which agreements are
disclosed on Schedule 4.1(n)) or (ii) other payments disclosed on Schedule
4.1(n)) ("Severance Payments");
(o) Adopt or amend any employee benefit plan, program,
policy or arrangement, or enter into any employment contract, extend any
employment offer, pay or agree to pay any special bonus or special remuneration
to any director, employee or consultant in excess of an aggregate of $75,000,
or increase the salaries or wage rates of its employees, except pursuant to
payments under the Accord and Satisfaction Agreement;
(p) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business and consistent with
past practice, so as to result in a Material Adverse Effect to the Company;
(q) Pay, discharge or satisfy, in an amount in excess of
$10,000 in any one case, or $25,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Company
Financial Statements, other than Third Party Expenses which shall be paid
pursuant to Section 5.5 of this Agreement;
(r) Fail to pay Taxes when due, make or change any
material election in respect of Taxes, adopt or change any accounting method in
respect of Taxes, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes to
the extent that any of the foregoing would have a Material Adverse Effect on
the Company; provided, however, that the consent of Parent shall not be
unreasonably withheld;
(s) Enter into any strategic alliance, joint development
or joint marketing arrangement or agreement;
(t) Fail to pay or otherwise satisfy its monetary
obligations as they become due, except such as are being contested in good
faith and except such obligations as are due under the Service Agreement;
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(u) Waive or commit to waive any rights with a value in
excess of $10,000 in any one case, or $25,000 in the aggregate;
(v) Cancel, modify, reduce or renew at rates not
substantially similar to those rates in recent prior years any of its existing
liability insurance, including without limitation existing directors' and
officers' liability insurance, except an extension of the existing directors'
and officers' liability insurance for two years following the Closing Date at a
cost to the Company not to exceed $350,000, which extension the Company shall
be free to obtain without the consent of Parent or Merger Sub;
(w) Alter, or enter into any commitment to alter, its
interest in any corporation, association, joint venture, partnership or
business entity in which the Company directly or indirectly holds an interest
on the date hereof;
(x) Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) through (w) above, or any other
action that would prevent the Company from performing or cause the Company not
to perform its covenants hereunder.
4.2 Conduct of Business of Parent. Except as expressly
contemplated by this Agreement, the Parent shall not, without the prior written
consent of the Company:
(a) Adopt any changes in its Amended and Restated
Certificate of Incorporation or Bylaws that in any respect adversely affects
the rights of the holders of Parent Common Stock or adversely affects the
ability of Parent to consummate the transactions contemplated hereby; or
(b) Take any action that would result in a failure to
maintain the trading of Parent Common Stock on the Nasdaq National Market
without causing such stock to be listed for trading on a national securities
exchange at or prior to the termination of its trading on the Nasdaq National
Market.
4.3 Other Offers. From the date hereof until the termination of
this Agreement, the Company and the officers, directors, employees or other
agents of the Company will not, directly or indirectly, take any action to
solicit, initiate or encourage the making of any Acquisition Proposal (as
hereinafter defined); provided, however, that the Board of Directors of the
Company may engage in negotiations with, or disclose any nonpublic information
relating to the Company or afford access to the properties, books or records of
the Company to, any person or entity that informs the Board of Directors that
it is considering making, or has made, an Acquisition Proposal. Until this
Agreement shall be terminated, the Company will not enter into any agreement to
merge or consolidate with, or sell a substantial portion of its assets to, any
person or entity. The Company will promptly notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company in connection with an Acquisition Proposal or for access to the
properties, books or records of the Company by any person or entity that
informs the Board of Directors that it is considering making, or has made, an
Acquisition Proposal. The term "Acquisition Proposal" as used herein means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving the Company or the acquisition of a majority by
voting power of the outstanding shares of Company Capital Stock or a majority
of the assets of the Company, other than the transactions contemplated by this
Agreement.
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4.4 Employee Releases. Prior to the Effective Time, the Company
shall not grant severance rights or make Excess Severance Payments to any
person employed by the Company without such person executing a general release
and waiver, effective upon receipt of such payment, in a form reasonably
acceptable to Parent of all claims arising out of the relationship of
employment, the termination of employment or any matter arising out of the
employee's relationship with the Company or the transactions contemplated by
this Agreement, other than any rights the employee may have to receive a
portion of the Merger Consideration as a holder of any Company Capital Stock.
For purposes of this Agreement, "Excess Severance Payments" shall mean
severance payments to a person in excess of amounts typically paid by the
Company to an employee of similar rank and seniority as such person.
4.5 Option and Asset Purchase Agreement. Parent shall not
exercise its Option (as defined under the Purchase Agreement (as defined
herein)) or otherwise acquire any right, title or interest in or to Marathon or
its assets or businesses prior to the Closing Date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholders' Meeting; Proxy Material; Registration Statement.
(a) If the Merger Consideration is to consist of Parent
Common Stock, Parent shall reserve sufficient shares of Parent Common Stock for
issuance in or as a result of the Merger and, prior to the Closing Date, Parent
(i) shall prepare and file with the SEC all Registration Statements necessary
to provide that all Parent Common Stock issued as part of the Merger
Consideration is freely tradable, except as contemplated by Section 5.1(c) of
this Agreement or Rule 145 under the 1933 Act, and subject to the prospectus
delivery requirements of the 1933 Act, and shall use its best efforts to cause
such Registration Statements to be declared effective, (ii) shall take such
actions as are necessary to qualify such shares of Parent Common Stock for sale
under applicable foreign or state securities or "blue sky" laws, and, in the
case of both clause (i) and (ii), to maintain in effect such registrations and
qualifications until the later of (A) six (6) months following the date of
payment of the Milestone Consideration pursuant to Section 1.6, and (B) the
second anniversary of the Closing Date, and (iii) shall take such actions as
are necessary to authorize such shares for listing on the Nasdaq National
Market upon official notice of issuance.
(b) The Company shall cause a meeting of its stockholders
to be duly called and held as soon as practicable following the effectiveness
of all the Registration Statements for the purpose of voting on the approval
and adoption of this Agreement and the Merger. The Board of Directors of the
Company shall, subject to its fiduciary duties, recommend approval and adoption
of such matters by the Company's stockholders. In connection with such
meeting, Parent and the Company:
(i) will together promptly prepare and file with
the SEC the Proxy Statement and will use their best efforts to have cleared by
the SEC the Proxy Statement; and
(ii) will otherwise comply with all legal
requirements applicable to such meeting.
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In connection with such meeting, the Company (i) will mail to
its stockholders as promptly as practicable the Proxy Statement and all other
proxy materials for such meeting; and (ii) will use its best efforts, subject
to Section 4.3, to obtain the necessary approvals by its stockholders of this
Agreement and the transactions contemplated hereby.
(c) Lock-Up of Parent Common Stock.
(i) If any Stock Consideration is paid pursuant
to Section 1.6 above, shares of Parent Common Stock issued in the Merger to the
holders of Company Capital Stock described in Section 5.1(c)(ii) below shall be
subject to lock-up for periods specified in Section 5.1(c)(ii) below, and such
holder of any Company Capital Stock that receives any shares of Parent Common
Stock in the Merger shall not, to the extent requested by Parent, directly or
indirectly, sell, transfer or otherwise dispose of, or offer or contract to
sell, transfer or otherwise dispose of, any Parent Common Stock received by
such holder in the Merger at any time during such period ("Lock-Up"). In order
to enforce the foregoing restriction on transfer, the Company may impose
stop-transfer instructions with respect to the Parent Common Stock issued to
such stockholders issued in the Merger until the end of such period.
(ii) That portion of the shares of Parent Common
Stock issued in the Merger to Boston University as Stakeholder Closing
Consideration, if any, shall be subject to Lock-Up until the later of (A) the
second anniversary of the Closing Date and (B) the first anniversary of the
date of issuance of such Parent Common Stock. All shares of Parent Common
Stock issued in the Merger to Eli Lilly and Company ("Lilly") shall be subject
to the restrictions on transfer set forth in Section 4.1 of that certain Stock
Purchase Agreement dated November 25, 1997 between Parent and Lilly as if such
shares of Parent Common Stock were shares pursuant to such agreement. Finally,
all shares of Parent Common Stock issued in the Merger to Company Financial
Advisors and fifty percent (50%) of the shares of Parent Common Stock issued in
the Merger to management of the Company, including, without limitation, any
shares of Parent Common Stock delivered to the Escrow Agent pursuant to Section
1.13(b)(ii), shall be subject to Lock-Up for a period of ninety (90) days from
the date of issuance of such shares.
(d) Additional Assurances. Each party, at the request of
the other, shall use its reasonable efforts to cause the its stockholders to
execute and deliver such instruments and do and perform such acts and things as
may be necessary or desirable for complying with all applicable securities laws
and state corporate law.
5.2 Access to Information. Each party shall afford the others and
their accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request;
provided however, neither party shall be required to permit any inspection, or
to disclose any information, which in the reasonable judgment of such party
would result in the disclosure of any trade secrets of third parties or violate
any obligation of such party with respect to confidentiality, or constitute a
waiver of attorney-client or other privilege of such party. Consistent with
such obligations, such party must provide a summary description of items
subject to non-disclosure. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall
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affect or be deemed to modify any representation or warranty contained herein
or the conditions of the parties to consummate the Merger.
5.3 Confidentiality. (a) Except as and to the extent required by
law, the parties hereto will not disclose or use, and will direct their
respective representatives not to disclose or use to the detriment of the other
parties, any Confidential Information (as defined below) with respect to such
other party furnished, or to be furnished, by such other party or its
representatives to the disclosing party or its representatives at any time or
in any manner other than in connection with the transaction contemplated in
this Agreement. For purposes of this Agreement, "Confidential Information"
means any information about Parent, Merger Sub, the Company or any Subsidiary
or Joint Venture stamped "confidential" or identified in writing as such
promptly following its disclosure, unless (a) such information is already known
to the party receiving such information or its representatives or to others not
bound by a duty of confidentiality as demonstrated by its written records or
such information becomes publicly available through no fault of the party
receiving such information or its representatives, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated herein, or (c) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings;
provided that in cases described above in (b) or (c), the non-disclosing party
shall be informed of such required disclosure prior to its disclosure and shall
have the opportunity to comment on any required disclosure so as to minimize
the disclosure of Confidential Information.
(b) Upon termination of this Agreement, the party
receiving any such Confidential Information shall (a) return to the party
disclosing the same, or shall destroy in a manner satisfactory to such
disclosing party, all tangible forms of such Confidential Information,
including any and all copies thereof, and those portions of any documents,
memoranda, notes, studies and analyses prepared by or on behalf of the
receiving party or any of its directors, officers, employees, advisors or
representatives that incorporate or are derived from such Confidential
Information, and (b) immediately cease, and shall cause its directors,
officers, employees, advisors and representatives to cease, use of such
Confidential Information as well as any information or materials that
incorporate or are derived from such Confidential Information.
5.4 Intellectual Property. Parent and Company each agree that
prior to the Merger, any and all Intellectual Property, including trade
secrets, created or developed by either party shall remain the exclusive
property of the party who created or developed such property, notwithstanding
the sharing of information prior to the Merger.
5.5 Expenses. Whether or not the Merger is consummated, all fees
and expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting, investment
banking, broker and finder fees and expenses and all other fees and expenses of
third parties (collectively, "Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby shall be the obligation
of the respective party incurring such fees and expenses.
5.6 Public Disclosure. Each of Parent and the Company shall use
all reasonable efforts to consult with the other before issuing any press
release or making any public statement with respect to this Agreement and the
transactions contemplated hereby and, except as may be required by applicable
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law upon the advice of counsel, the rules of any market or stock exchange on
which the securities of the Company or Parent, as the case may be, are listed
or, if applicable, the rules of the Nasdaq National Market, shall use all
reasonable efforts not to issue any such press release or make any such public
statement prior to such consultation.
5.7 Consents. The Company shall use its best efforts to obtain
the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in Company Schedules), including without limitation,
the release of security interests effected in connection with the Seragen
Canada Settlement Agreement, so as to preserve all rights of and benefits to
the Company thereunder.
5.8 FIRPTA Compliance. On or prior to the Closing Date, the
Company shall deliver to Parent a properly executed statement in a form
reasonably acceptable to Parent for purposes of satisfying Parent's obligations
under Treasury Regulation Section 1.1445-2(c)(3).
5.9 Best Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its best efforts to ensure
that its representations and warranties remain true and correct in all material
respects at and prior to the Effective Time, except as set forth in such
representation or warranty, and to take promptly, or cause to be taken, all
actions, and to do promptly, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings, and to remove any injunctions or other impediments or delays, legal or
otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement; provided, however, that
Parent shall not be required to agree to any divestiture by Parent or the
Company or any of Parent's subsidiaries or affiliates of shares of capital
stock or any business, assets or property of Parent or its subsidiaries or
affiliates or the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.10 Notification of Certain Matters. (a) Each of Parent and the
Company shall, upon obtaining knowledge of any of the following, promptly
notify the other of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the Merger;
(ii) any notice or other communication from any
governmental or regulatory agency or authority in connection with the Merger;
(iii) any actions, suits, claims, investigations or other
judicial proceedings known to its executive officers commenced or threatened
against the such party or any of its Subsidiaries which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 2.18 or 3.6 as applicable or which relate to the consummation of the
Merger;
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(v) occurrence or non-occurrence of any other event known
to its executive officers which is likely to cause any representation or
warranty of the such party contained in this Agreement to be materially untrue
or inaccurate at or prior to the Effective Time; and
(vi) any failure of such party known to its executive
officers to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
(b) In addition to its obligations set forth in Section 5.10(a),
the Company shall promptly notify Parent of any adverse determination or
recommendation in connection with any governmental proceeding to license any of
the Company's products, and any report filed with the FDA regarding an
unexpected fatal or life-threatening experience with respect to any such
product.
(c) The delivery of any notice pursuant to this Section 5.10 shall
not limit or otherwise affect any remedies available to a party.
5.11 Additional Documents and Further Assurances. Each party
hereto, at the request of the other party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions and contemplated hereby.
5.12 Company Auditors. The Company will use its commercially
reasonable efforts to cause its management and its independent auditors to
facilitate on a timely basis (i) the preparation of financial statements of the
Company (including pro forma financial statements if required) as required by
Parent to comply with applicable SEC regulations and (ii) the review of the
Company's audit work papers for up to the past three years, including the
examination of selected interim financial statements and data.
5.13 Preclosing Company Payables; Preclosing Company Revenues.
(a) For purposes of this Section 5.13: (i) "Preclosing
Company Revenues" shall mean all revenues of the Company, including without
limitation, (A) returns of prepaid deposits, insurance premiums, the remaining
balance in any bank accounts or other amounts and (B) any payments received
from Lilly on or after the Closing Date whether in respect of amounts
reimbursed to the Company by Lilly in the normal course of business or one-time
milestone payments, of any kind or nature that would be required or permitted
by generally accepted accounting principles applied in a consistent manner with
the past practice of the Company to be reflected as assets on a consolidated
balance sheet for the Company and its Subsidiaries as of the Closing Date;
provided revenues of the Company derived from the Company's contracts with
Lilly will only be included in Preclosing Company Revenues to the extent they
relate to amounts actually paid by the Company prior to the Effective Time or
the extent the $1.0 million milestone due upon regulatory approval of
DAB(389)IL-2 in the United States becomes due on or before the Closing Date and
is not paid on or before the Closing Date; and (ii) "Preclosing Company
Payables" shall mean all payables of the Company from the date of this
Agreement through the time of the Closing, including, without limitation, (A)
the Company's severance obligations to its employees terminated at or prior to
the Closing (subject to Section 4.4), including, without limitation, its
executive officers; (B) premiums payable in connection with an extension of the
existing directors' and officers' liability insurance of the Company for two
years following the Closing Date at a cost to the Company not to exceed
$350,000; (C) fees payable to legal counsel and accountants, but only upon
delivery of a
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bill marked final from each such counsel and accountant; and (D) other expenses
incurred in connection with the Merger, other than fees (but not the expenses
of Shoreline and Lehman); provided Preclosing Company Payables shall not
include distributions to be made to BU and Marathon pursuant to Section 1.7
(which are made in full and complete satisfaction of BU and Marathon payables
under the Service Agreement pursuant to the Accord Agreement).
(b) Parent shall deposit all Preclosing Company Revenues
with the Escrow Agent to become part of the Escrowed Amount (as defined in the
Escrow Agreement) and to be held in escrow pursuant to the Escrow Agreement.
The Escrowed Amount (as defined in the Escrow Agreement) shall be applied to
satisfy any Preclosing Company Payables that become payable following the
Closing Date.
(c) On the 120th day following the Closing Date, any
portion of the Escrowed Amount that has not been applied to the payment of
Preclosing Company Payables shall be distributed as additional Distributable
Closing Consideration pursuant to the provisions of Sections 1.7(a)(i)(C)(5)
through (14) without regard to the provisos set forth in Sections
1.7(a)(i)(C)(7) through (10). The distribution of the Escrowed Amount in
accordance with this provision of this Section 5.13(c) shall be without
prejudice to any other rights or remedies Parent may have pursuant to the terms
of this Agreement.
(d) In the event of any dispute regarding the provisions
of this Section 5.13, such dispute may be submitted by the Surviving
Corporation or any person entitled to receive Distributable Closing
Consideration to the Boston, Massachusetts office of a nationally recognized
accounting firm other than Ernst & Young LLP or Arthur Andersen LLP for
resolution in accordance with the provisions of this Section 5.13 by notice
given to, in the case of a dispute resolution proceeding initiated by the
Surviving Corporation, all persons entitled to receive Distributable Closing
Consideration or, in the case of a dispute resolution proceeding initiated by a
person entitled to receive Distributable Closing Consideration, to the
Surviving Corporation and all other persons entitled to receive Distributable
Closing Consideration. Such accounting firm shall specify such procedures for
the resolution of such dispute as may think appropriate for the fair and prompt
resolution of the dispute.
5.14 Marathon Service Agreement.
(a) The Company shall maintain its Service Agreement with
Marathon through January 31, 1999. The parties acknowledge and agree that the
obligations of the Company pursuant to this Section 5.14 do not require the
Company to pay its monetary obligations under the Service Agreement on a timely
basis. The Company further agrees that if Marathon considers the Company in
default or in breach other than for the failure to pay its monetary obligations
under the Service Agreement and gives notice to such effect, the Company shall
use its best efforts to cure any such breach or default.
(b) The Company shall not exercise its option to purchase
the assets of Marathon, as provided under the Service Agreement. The Company
hereby acknowledges (i) the grant to Parent of the Option under the Purchase
Agreement and (ii) the grant to Parent and the Company of the Option under the
Extension Option Agreement among Marathon, the members of Marathon, the Company
and Parent.
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5.15 Obligations of Merger Sub. Parent shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement. Merger Sub shall not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any person or
entity other than Parent or a wholly owned subsidiary of Parent. Merger Sub
shall not incur any indebtedness or liabilities of any kind except pursuant to
this Agreement.
5.16 Development Activities.
(a) After the Effective Time through the second
anniversary of the Closing Date, Parent shall undertake such tests, studies and
other activities as may be required pursuant to Section 1.6(c) hereof and shall
make commercially reasonable efforts (i) to perform, or cause to be performed,
all such other tests, studies and other activities and (ii) to take, or cause
to be taken, all such other actions, that are necessary or appropriate to
obtain Final FDA Approval by the second anniversary of the Closing Date (the
"Development Activities"). Parent shall perform all Development Activities in
good scientific manner, and in compliance in all material respects with all
requirements of applicable laws, rules and regulations, and shall proceed
diligently to obtain Final FDA Approval by allocating sufficient time, effort,
equipment, and skilled personnel to complete such activities successfully and
promptly. Parent shall be responsible for all costs and expenses incurred in
connection with the Development Activities without any reduction in the Merger
Consideration. For purposes of this Section 5.16, "commercially reasonable
efforts" shall mean that level of commitment, financial and otherwise, that
Parent currently dedicates to the development of and obtaining regulatory
approval for its own products of comparable commercial potential and risk
profile.
(b) Parent shall maintain, or cause to be maintained,
records of all of the Development Activities in sufficient detail and in good
scientific manner appropriate for patent and regulatory purposes, which shall
be complete and accurate and shall fully and properly reflect all work done and
results achieved in the performance of the Development Activities, and which
shall be retained by Parent until the fifth anniversary of the Closing Date.
(c) In the event the Milestone Consideration is not paid,
Parent will deliver a report to all persons entitled to receive such Milestone
Consideration, certified by Parent's Chief Financial Officer, providing in
reasonable detail sufficient information to establish that the obligations set
forth in this Section and Section 1.6(c) have been fulfilled.
5.17 FDA Contacts. Prior to the Effective Time, neither Parent nor
Merger Sub shall, directly or indirectly, engage in any independent contact
with the FDA regarding the Company's pending BLA. Parent shall, however, be
entitled to designate, by notice given to the Company, one person to represent
the Parent in connection with communications, meetings and correspondence
between the Company and the FDA. Such designated representative shall be
entitled to participate in all of the Company's scheduled internal planning
meetings and post-FDA meeting reviews that cover substantive issues relating to
the BLA and shall be entitled to participate as a passive listener on all
regularly scheduled telephone conferences between the Company and the FDA that
cover substantive issues relating to the BLA. The Company shall provide such
designated representative with a copy of all correspondence between the Company
and the FDA relating to the BLA and all substantive internal reports and
memoranda generated by the Company to the extent the same relate to the BLA.
Following mailing by the Company of the
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Proxy Statement, the aforesaid designated representative of the Parent shall be
entitled to attend all meetings between Company representatives and the FDA in
person and to actively participate in all regularly scheduled telephone
conferences between Company representatives and the FDA.
5.18 Payables. From the date hereof through the Closing Date, the
Company shall provide to Parent, within ten (10) days of the end of a calendar
month, a summary of the outstanding Preclosing Company Payables as of the end
of such calendar month, including a summary of any potential or actual disputes
regarding such payables. Parent shall have the right to pay any Preclosing
Company Payable, in its sole discretion; provided any such payment by Parent
shall be deducted from the aggregate value of Stock Consideration included in
the Distributable Closing Consideration.
5.19 Certain Escrow Amounts. Promptly following the execution of
this Agreement, Mr. Prior, on behalf of himself and Dr. Nichols and Mr. Crane,
and Parent shall establish separate escrow accounts pursuant to which the Prior
Escrow Amount, the Nichols Escrow Amount and the Crane Escrow Amount,
respectively, will be deposited pursuant to Section 1.13 of this Agreement and
held in escrow. For purposes of this Agreement, the "Prior Escrow Amount"
shall mean $319,600, the "Nichols Escrow Amount" shall mean $66,900 and the
"Crane Escrow Amount" shall mean $20,000.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the stockholders of the Company by the
requisite vote under applicable law and the Company's Certificate of
Incorporation.
(b) Government Approvals. There shall have been obtained
any and all material governmental licenses, authorizations, consents and
approvals of all Government Entities, and permits, approvals and consents of
securities or "blue sky" commissions of any jurisdiction and of any other
governmental body or agency, that may reasonably be deemed necessary so that
the consummation of the Merger will be in compliance with applicable laws, the
failure to comply with which would be reasonably likely to have a Material
Adverse Effect on Parent, the Company or the Surviving Corporation or would be
reasonably likely to subject any of Parent, Merger Sub, the Company or any of
their respective directors or officers to substantial penalties or criminal
liability.
(c) Registration Statement. Any shares of Parent Common
Stock to be issued in the Merger shall have been registered as required herein
on a Registration Statement that has been declared effective under the 1933 Act
by the SEC and the Registration Statement shall not be the subject of any stop
order or proceedings seeking a stop order, and the Proxy Statement shall at the
Effective Time not be subject to any proceedings commenced or threatened by the
SEC.
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(d) No Injunctions or Restraints; Illegality. No
statute, rule, regulation executive order, decree, temporary restraining order,
preliminary or permanent injunction or other order shall have been enacted,
promulgated or enforced (and not repealed, superseded or otherwise made
inapplicable) by any court or governmental authority, which prohibits the
consummation of the merger (each party agreeing to use its best efforts to have
such order decree or injunction lifted).
(e) Nasdaq Listing. The shares of Parent Common Stock
issuable to stockholders of the Company pursuant to this Agreement, if any, and
such other shares required to be reserved for issuance in connection with the
Merger shall have been authorized for listing on the Nasdaq National Market,
subject to official notice of issuance.
(f) HSR Act. The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated.
(g) Approval of Office of the Attorney General of the
Commonwealth of Massachusetts, Public Charities Division. The approval of the
Office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, which approval is acceptable in form and substance to
Parent, shall be in full force and effect as of the Effective Time.
6.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company.
(a) Representations and Warranties. The representations
and warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, except
for changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on Parent; and the Company shall have received a certificate to
such effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub
shall have performed or compiled in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) Third Party Consents. The Company shall have been
furnished with evidence satisfactory to it that Parent has obtained the
consents, approvals and waivers set forth in Schedule 6.2(c), other than those
consents, approvals and waivers the failure of which to obtain would not have a
Material Adverse Effect on Parent.
(d) Legal Opinion. The Company shall have received a
legal opinion from Brobeck, Phleger & Harrison, LLP, counsel to Parent, in
substantially the form attached hereto as Exhibit 6.2(d).
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6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on the Company or Parent; and Parent and Merger Sub shall have
received a certificate to such effect signed on behalf of the Company by the
chief executive officer and chief financial officer of the Company.
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be preformed or complied with by it on
or prior to the Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect signed by the chief executive officer of the
Company.
(c) Third Party Consents. Parent shall have been
furnished with evidence satisfactory to it that the Company has obtained the
consents, approvals and waivers set forth in Schedule 6.3(c), other than those
consents, approvals and waivers the failure of which to obtain would not have a
Material Adverse Effect on the Company.
(d) Legal Opinion. Parent shall have received a legal
opinion from Covington & Burling, counsel to the Company, in substantially the
form attached hereto as Exhibit 6.3(d).
(e) Satisfaction of Preclosing Company Payables. The
Company shall have received bills marked as final from each of its legal
counsel and accountants.
(f) General Adverse Development. There shall not have
occurred any material adverse change in the business, assets (including
intangible assets), liabilities, financial condition or results of operations
of the Company since the date of the Company Balance Sheet which could
reasonably be expected to result in a diminution of the value of the Company by
Five Million Dollars ($5,000,000) or more; provided, however, that any
developments, or the absence of any developments, with respect to the FDA's
review of the Company's BLA for DAB(389)IL-2 for CTCL shall not be a condition
to the obligations of Parent and Merger Sub under this Agreement whether
pursuant to this clause (f), Section 6.3(a) or otherwise, and shall not be
included in the determination of any adverse change with respect to the
Company.
(g) Marathon Purchase Agreement. The representations and
warranties of Marathon contained in that certain Option and Asset Purchase
Agreement of even date herewith (the "Purchase Agreement") by and between
Marathon, its members and Parent shall be true and correct in all material
respects on and as of the Closing Date, except for changes contemplated by the
Purchase Agreement and except for those representations and warranties which
address matters only as of a particular date (which
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shall remain true and correct as of such date), with the same force and effect
as if made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on Marathon. In addition, Marathon shall have performed or
complied in all material respects with all agreements and covenants required by
the Purchase Agreement to be performed or complied with by it on or prior to
the Effective Time. Parent and Merger Sub shall have received a certificate to
such effect signed by the chief executive officer of Marathon.
(h) Company Options and Company Warrants. Except as
provided in Section 1.8(c), all of the Company Options and Company Warrants
shall have been exercised or terminated immediately prior to the Closing.
(i) Resignation of Directors and Officers. The directors
and officers of the Company in office immediately prior to the Effective Time
shall have resigned as directors and officers of the Surviving Corporation
effective immediately following the Effective Time.
(j) Dissenters' Rights. Holders of not more than ten
percent (10%) of the outstanding shares of the Company Capital Stock shall have
exercised, and no other shareholder or the Company shall have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable
law with respect to their shares of the Company Capital Stock by virtue of the
Merger.
(k) License Agreements. All license agreements, royalty
agreements, service agreements, marketing and other agreements and assignments
set forth on Schedule 6.3(k) shall have been amended or terminated, as
applicable, in a manner satisfactory to Parent to ensure that (i) the
consummation of the transactions contemplated in this Agreement will not
constitute a breach by the Company of such agreements or assignment as of the
Effective Time and (ii) the existence of such agreements or assignments as of
the Effective Time will not constitute a breach by the Company of any of its
representations, warranties, covenants or obligations under this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Boards of Directors
of the Company, Parent and Merger Sub;
(b) by Parent or the Company if: (i) the Effective Time
has not occurred before 5:00 p.m. (Eastern Daylight Savings Time) on January
31, 1999 (provided that the right to terminate this Agreement under this clause
7.1(b)(i) shall not be available to any party whose willful failure to fulfill
any obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date); provided in the event that
Parent or the Company has exercised the Option under the Extension Option
Agreement such date shall be extended upon each exercise of such Option to the
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then-effective termination of such Option; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any governmental entity, which would: (i) prohibit
Parent's or the Surviving Corporation's ownership or operation of all or any
portion of the business of the Company or (ii) compel Parent or the Surviving
Corporation to dispose of or hold separate all or a portion of the business or
assets of the Company or Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and (i) such breach has not been cured within five (5)
business days after written notice to the Company (provided that, no cure
period shall be required for a breach which by its nature cannot be cured), and
(ii) as a result of such breach the conditions set forth in Section 6.3(a) or
6.3(b), as the case may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Parent or Merger Sub and (i) such breach has not been cured
within five (5) business days after written notice to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be
cured), and (ii) as a result of such breach the conditions set forth in Section
6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
(f) by Parent, if the Company suffers a Material Adverse
Effect which could reasonably be expected to result in a diminution of the
value of the Company by Five Million Dollars ($5,000,000) or more, provided,
however, any Material Adverse Effect shall not include effects arising from the
FDA's review of DAB(389)IL-2 for CTCL;
(g) by Parent or the Company, if, at the meeting of
Company stockholders (including any adjournment or postponement thereof) called
pursuant to Section 5 hereof, the requisite vote of the stockholders of the
Company shall not have been obtained (following a recommendation by the
Company's Board of Directors to vote in favor of the Merger);
(h) by Parent or the Company, if, at the meeting of
Company stockholders (including any adjournment or postponement thereof) called
pursuant to Section 5.1 hereof, the Company's stockholders approve an
acquisition proposal (other than an acquisition proposal with Parent or an
affiliate of Parent);
(i) (Reserved)
(j) by Parent, if it is not in material breach of its
obligations under this Agreement and if any Person other than Parent or any of
Parent's affiliates shall purchase a majority of the outstanding shares of
Company Common Stock;
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(k) by either party, if the other becomes insolvent or
seeks protection under any bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or if any such proceeding is
instituted against such other party (and not dismissed within sixty (60) days);
provided, however, that the Company shall not be deemed to be insolvent as a
result of its failure to pay Marathon under the Service Agreement for so long
as Marathon and BU forebear from the receipt of such payments or for any period
that Marathon and BU are contractually obligated to so forebear.
(l) by Parent, if it is not in material breach of its
obligations under this Agreement and if the Board of Directors of Company shall
have:
(i) withdrawn its recommendation of the Merger, or
(ii) adversely changed its recommendation of the
Merger, or
(iii) recommended or approved any acceptance by
Company's stockholders of any acquisition proposal
(other than an acquisition proposal made by Parent or
an affiliate of Parent); or
(m) by the Company, if the Company shall have received an
Acquisition Proposal (other than with respect to Parent or an affiliate of
Parent), which the Board of Directors of the Company determines, after
consultation with counsel, to recommend to the security holders of the Company
in order to comply with the fiduciary duty of the Board of Directors of the
Company.
When action is taken to terminate this Agreement pursuant to
this Section 7.1, it shall be sufficient for such action to be authorized by
the Board of Directors (as applicable) of the party taking such action. Either
party shall provide notice to the other party no less than five (5) days prior
to any termination under this Section 7.1. Each party acknowledges that
failure to provide such notice in a timely manner will have material, adverse
consequences on the other.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or the Company, or their respective officers, directors or
stockholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further, that the
provisions of Sections 5.3 and 5.4 of this Agreement shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Amendment. Except as is otherwise required by applicable law
after the stockholders of the Company approve this Agreement, this Agreement
may be amended by the parties hereto at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time,
Parent and Merger Sub, on the one hand, and the Company, on the other, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party
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contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties and Agreements; Right
of Set-off.
(a) All representations, warranties, covenants and
agreements in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the consummation of the Merger and shall (except to the
extent that survival is necessary to effectuate the intent of such provisions)
terminate on the third (3rd) anniversary of the Closing Date; provided,
however, that (i) the representations and warranties in Sections 2.1-2.2, 2.4
and 3.1-3.3 shall continue to survive indefinitely after the Closing Date and
(ii) the representations and warranties in Section 2.11 shall continue to
survive after the Closing Date until the expiration of all applicable Tax
statutes of limitations, plus one year. Notwithstanding the foregoing, in no
event shall the Company or any holder of Company Capital Stock other than the
Identified Company Stakeholders be liable for any Parent Damages (as defined
below) under this Section 8.1 or otherwise. In no event shall the Identified
Company Stakeholders be liable for any Parent Damages unless the aggregate
amount of such Parent Damages exceeds Two Hundred Fifty Thousand Dollars
($250,000), in which case each Identified Company Stakeholder shall be liable
for its Pro Rata Portion of all Parent Damages over an aggregate amount for all
Identified Company Stakeholders of Two Hundred Fifty Thousand Dollars
($250,000) (the "Deductible Amount") up to, but not exceeding, an aggregate
amount for all Identified Company Stakeholders of Eight Million Seven Hundred
Thousand Dollars ($8,700,000) above the Deductible Amount. No claim may be
made by Parent, Merger Sub or the Surviving Corporation with respect to any
Parent Damages in accordance with this Section 8.1(a) or otherwise unless
notice thereof is delivered to each of the Identified Company Stakeholders on
or prior to the termination of the representation, warranty, covenant or
agreement under which such claim is made.
(b) In furtherance of the rights set forth in Section
8.1(a) above, Parent shall have the right to reduce each Identified Company
Stakeholder's Milestone Consideration due under this Agreement by such
Identified Company Stakeholder's Pro Rata Portion of any amounts constituting
Parent Damages up to an aggregate amount for all Identified Company
Stakeholders of Two Million Nine Hundred Thousand Dollars ($2,900,000) above
the Deductible Amount. Nothing in this Section 8.1(b) shall be construed to
limit the amount of Parent Damages for which the Identified Company
Stakeholders are liable under this Section 8.1 to less than $8,950,000 (which
includes the Deductible Amount). Except as provided in this Section 8.1(b),
neither Parent nor Merger Sub shall have any right of reduce or otherwise set
off with respect to the Merger Consideration.
(c) Parent shall notify each Identified Company
Stakeholder as promptly as practicable upon its discovery of facts giving rise
to a claim for Parent Damages hereunder, including receipt by Parent, Merger
Sub or the Surviving Corporation of notice of any demand, assertion, claim,
action or
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proceeding, judicial or otherwise, with respect to any Parent Damages, together
with a summary statement of such information respecting any of the foregoing as
such party shall have, and Parent shall provide the Identified Company
Stakeholders with copies of all papers and official documents with respect
thereto. With respect to any Parent Damages arising in connection with or as a
result of the claims of third parties, the Identified Company Stakeholders
shall have the sole right to control the defense of such matter, provided that
the Identified Company Stakeholders shall obtain the written consent of the
Parent, which shall not be unreasonably withheld, prior to ceasing to defend,
settling or otherwise disposing of any Parent Damages if as a result thereof
Parent party would become subject to injunctive or other equitable relief or
any remedy other than the payment of money by the Identified Company
Stakeholders.
(d) For purposes of this Section 8.1, "Parent Damages"
shall mean any and all losses, damages, liabilities, obligations, claims,
demands, judgments, settlements, governmental investigations, Taxes, costs and
expenses of any nature whatsoever, including the reasonable fees and expenses
of attorneys, accountants and consultants resulting from, arising out of or
attributable to a breach of the Company's representations, warranties,
covenants and agreements under this Agreement. For purposes of this Section
8.1, (i) "Pro Rata Portion" for an Identified Company Stakeholder shall be
calculated by taking such Identified Company Stakeholder's percentage of
Stakeholder Closing Consideration and dividing it by the sum of all Identified
Company Stakeholders' percentages of Stakeholder Closing Consideration; the
amount resulting from that calculation shall be multiplied by the amount of
Parent Damages hereunder to determine the Pro Rata Portion; and (ii)
"Identified Company Stakeholder(s)" shall mean the Variable Company
Stakeholders identified in Sections 1.7(a)(i)(C)(7) through (14).
8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgement of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: William L. Respess, Esq.
General Counsel
Telephone No: (619) 550-7500
Facsimile No: (619) 550-7506
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with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: Faye H. Russell, Esq.
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
(b) if to the Company, to:
Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Attention: Reed R. Prior
Chairman, Chief Executive Officer
and Treasurer
Telephone No: (508) 435-2331
Facsimile No: (508) 435-9024
with a copy to:
Covington and Burling
P.O. Box 7566
1201 Pennsylvania Avenue, N.W.
Washington, DC 20044-7566
Attention: Edward Britton, Esq.
Telephone No: (202) 662-5248
Facsimile No: (202) 778-5248
(c) if to a Variable Company Stakeholder, to the address
set forth in the Accord Agreement.
8.3 Interpretation. Unless the context of this Agreement
otherwise requires: (a) words of any gender include each other gender; (b)
words using the singular or plural number also include the plural or singular
number, respectively; (c) the terms "hereof," "herein," "hereby" and derivative
or similar words refer to this entire Agreement; (d) the terms "Article" or
"Section" refer to the specified Article or Section of this Agreement; (e) the
term "or" has, except where indicated, the inclusive meaning represented by the
phrase "and/or"; and (f) the term "including" means "including without
limitation." Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless business days are specified. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.
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8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. Executed counterparts delivered by
facsimile transmission shall have the same force and effect as originally
executed counterparts delivered personally.
8.5 Entire Agreement: Assignment. This Agreement, the Schedules
and Exhibits hereto, that certain Confidentiality Agreement between Parent and
the Company dated March 17, 1998 and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Merger Sub may assign their
respective rights and delegate their respective obligations hereunder to their
respective affiliates.
8.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other Persons or circumstances will be interpreted so as
reasonable to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by any party of any one remedy will
not preclude the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof. Each of the parties hereto agrees that process may be served
upon them in any manner authorized by the laws of the State of Delaware for
such Persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
8.9 Consent to Jurisdiction and Forum Selection. The parties
hereto agree that all actions or proceedings arising in connection with this
Agreement shall be initiated and tried exclusively in the State and Federal
courts located in the State of Delaware. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this Section 8.9. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the State of
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Delaware shall have in personam jurisdiction and venue over each of them for
the purposes of litigating any dispute, controversy or proceeding arising out
of or related to this Agreement. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in any action against
it as contemplated by this Section 8.9 by registered or certified mail, return
receipt requested, postage prepaid, to its address for the giving of notices as
set forth in this Agreement, or in the manner set forth in Section 8.2 of this
Agreement for the giving of notice. Any final judgment rendered against a
party in any action or proceeding shall be conclusive as to the subject of such
final judgment and may be enforced in other jurisdictions in any manner
provided by law.
8.10 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
8.11 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.12 Corporate Transaction involving Parent. If after the
Effective Time Parent is acquired by merger (including by reverse triangular
merger), or is a party to a consolidation, or liquidates, all references to
"Parent Common Stock" in this Agreement shall thereafter mean, on a per-share
basis, the amount of cash, securities and/or other property received by Parent
stockholders for their (pre-transaction) Parent Common Stock in such
transaction.
8.13 Insurance.
(a) Parent shall cause to be maintained in effect for the
remainder of its term the current policy of directors' and officers' liability
insurance maintained by the Company. After the expiration of such policy and
for a period of one year thereafter, Parent shall use its Reasonable Efforts to
either extend the current policy or cause the directors and officers of the
Company as of the date hereof to be covered by directors' and officers'
liability insurance comparable to that maintained from time to time for the
benefit of the directors of Parent.
(b) Parent shall cause the Surviving Corporation to
maintain without any reduction in scope or coverage the indemnification
provisions for present and former officers and directors contained in the
Company's Restated Bylaws in effect on the date hereof.
(c) The provisions of this Section 8.13 shall survive the
Effective Time and are intended to be for the benefit of, and shall be
enforceable by, each present or former director or officer of the Company and
his or her heirs and representatives.
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8.14 Third Party Beneficiaries. Each of the Third Parties (as such
term is defined in the Accord Agreement), their successors and assigns are
intended beneficiaries of the terms and provisions of this Agreement, and each
Third Party shall have the right independently to enforce its rights in respect
thereof without the need to join the Company, the Surviving Corporation or any
other person in any action, whether at law or in equity, for such purpose.
8.15 Termination Fee. If the Merger is not consummated because (A)
Parent elects to terminate this Agreement pursuant to Section 7.1(k) or (B) the
Company has terminated this Agreement in accordance with Section 7.1(m), then
the Company shall pay Parent (X) a termination fee of $5,000,000 (the
"Termination Fee") and (Y) an additional fee (the "Enhanced Value Fee") equal
to five percent (5%) of the Enhanced Value Realized (as defined below) by
persons entitled to receive Merger Consideration hereunder with respect to any
Acquisition Proposal which results in an aggregate amount paid to such persons
of greater than Sixty Seven Million Dollars ($67,000,000) (the "Enhanced
Acquisition Proposal") and (Z) in the event that Parent has exercised its
option to extend the Agreement Term (as defined in the Extension Option
Agreement) or any Extension Term (as defined in the Extension Option Agreement)
and has remitted amounts pursuant to the exercise of such option, the
additional amounts remitted thereunder (the "Option Fee"). If this Agreement
shall be terminated in the circumstances specified in this Section 8.15, the
Termination Fee, the Enhanced Value Fee, if any, and the Option Fee, if any,
shall be liquidated damages to Parent for loss of its bargain hereunder. The
Termination Fee and the Option Fee shall each be due and payable to Parent
within thirty (30) days of termination of this Agreement; the Enhanced Value
Fee shall be due and payable to Parent on the closing of a transaction in
connection with the Enhanced Acquisition Proposal. For purposes of this
Section 8.15, "Enhanced Value Realized" shall mean the aggregate value realized
by the persons entitled to receive Merger Consideration hereunder as a result
of an Enhanced Acquisition Proposal (determined as set forth below) minus Sixty
Seven Million Dollars ($67,000,000). A determination of the aggregate value
realized by the persons entitled to receive Merger Consideration hereunder in
connection with an Enhanced Acquisition Proposal shall be the aggregate amount
of cash plus, if applicable, the product of (i) the average closing sales price
of any securities received in the Enhanced Acquisition Proposal for the five
(5) trading days immediately preceding the date of the closing of the Enhanced
Acquisition Proposal, or if there is no such average price, the value of such
securities shall be determined in good faith by the Company's Board of
Directors in consultation with the Company's financial advisors for the
Enhanced Acquisition Proposal, subject to the reasonable approval of Parent's
Board of Directors, and (ii) the total number of shares of such securities
issued, or to be issued, in connection with the Acquisition Proposal.
Notwithstanding the foregoing, nothing contained herein (including Section 7.2)
shall relieve any party from liability for any breach of this Agreement.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be signed by their duly authorized respective officers, all
as of the date first written above.
LIGAND PHARMACEUTICALS SERAGEN, INC.:
INCORPORATED:
By: /s/ David E. Robinson By: /s/ Reed R. Prior
-------------------------------- ------------------------
Name: David E. Robinson Name: Reed R. Prior
Title: President and Chief Title: Chairman and Chief
Executive Officer Executive Officer
KNIGHT ACQUISITION CORPORATION:
By: /s/ David E. Robinson
--------------------------------
Name: David E. Robinson
Title: President
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EXHIBIT 6.2(d)
DRAFT
________________, 1998
Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Ladies and Gentlemen:
We have acted as counsel for Ligand Pharmaceuticals
Incorporated, a Delaware corporation (the "Buyer"), in connection with the
merger of its wholly owned subsidiary, Knight Acquisition Corp., a Delaware
corporation ("Acquisition Corp."), with and into Seragen, Inc., a Delaware
corporation ("Seragen"), pursuant to the Agreement and Plan of Reorganization
dated as of May 11, 1998 among Seragen, the Buyer and Acquisition Corp. (the
"Merger Agreement"). This opinion is being rendered to you pursuant to Section
6.2(d) of the Merger Agreement. Capitalized terms used herein and not
otherwise defined shall have the same meaning given to such terms in the Merger
Agreement.
In connection with the opinions expressed herein, we have
reviewed the Merger Agreement and the Extension Option Agreement dated as of
_________, 1998 among the Buyer, Seragen, Marathon Biopharmaceuticals LLC, 520
Commonwealth Avenue Real Estate Corp. and 660 Corporation (the "Extension
Option Agreement," and together with the Merger Agreement, the "Transaction
Agreements"). We have also made such examination of matters of law and of fact
as we considered appropriate or advisable for purposes hereof. As to matters
of fact material to the opinions expressed herein, we have relied upon the
representations and warranties as to factual matters contained in and made by
the Buyer pursuant to the Transaction Agreements and upon certificates and
statements of government officials and of officers of the Buyer. We have
assumed for the purposes of this opinion letter the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of the
documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as certified, facsimile or
photostatic copies, and the authenticity of the originals of such copies.
In rendering this opinion letter we have also assumed: (A)
that the Transaction Agreements have been duly and validly executed and
delivered by you, that you have the power to enter into and perform your
obligations thereunder and that the Transaction Agreements constitute legal,
valid, binding and enforceable obligations upon you; (B) that the
representations and warranties made in the Transaction Agreements by you are
true and correct; (C) that you have filed any required state franchise, income
or similar tax returns and have paid any required state franchise, income or
similar taxes; and (D) that there are no extrinsic agreements or understandings
among the parties to the Transaction Agreements that would modify or interpret
the terms of the Transaction Agreements or the respective rights or obligations
of the parties thereunder.
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Whenever a statement herein is qualified by the expressions
"known to us," "to our knowledge," "we are not aware" or a similar phrase or
expression with respect to our knowledge of matters of fact, it is intended to
mean that our knowledge is based upon the current actual knowledge of the
attorneys in this Firm who have devoted substantive attention to the
transactions contemplated by the Merger Agreement (but not including any
constructive or imputed notice of any information) and that we have not
otherwise undertaken any independent investigations for the purpose of
rendering this opinion.
This opinion letter relates solely to the laws of the State of
California, the General Corporation Law of the State of Delaware, and
applicable federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions. We
invite your attention to the fact that the Merger Agreement states that it is
governed by the laws of the State of Delaware and the Extension Option
Agreement states that it is governed by the laws of the Commonwealth of
Massachusetts. We have made no investigation of Delaware law, other than its
General Corporation Law, or of the laws of the Commonwealth of Massachusetts,
nor have we consulted with counsel admitted to practice law in the States of
Delaware or Massachusetts. We have not examined the question of, and express
no opinion as to, what law would govern the interpretation or enforcement of
the Merger Agreement or the Extension Option Agreement, and for the purposes of
our opinions with regard to such matters, we have assumed, with your
permission, that the internal law of the State of California would govern the
provisions thereof.
Based upon and subject to the foregoing, and subject to the
further assumptions, limitations, qualifications and exceptions set forth
herein, we are of the opinion that:
1. The Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and the
Buyer has the requisite corporate power and authority to own its properties and
to conduct its business as, to our knowledge, it is presently conducted. The
Buyer is qualified to do business as a foreign corporation in the State of
California.
2. Acquisition Corp. is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and Acquisition Corp. has the requisite corporate power and authority to own
its properties and to conduct its business as, to our knowledge, it is
presently conducted.
3. The Buyer has the requisite corporate power and
authority to execute, deliver and perform the Transaction Agreements. The
Transaction Agreements have been duly and validly authorized by the Buyer, have
been duly executed and delivered by an authorized officer of the Buyer and
constitute legal, valid and binding obligations of the Buyer, enforceable by
Seragen against the Buyer in accordance with their terms.
4. Acquisition Corp. has the requisite corporate power
and authority to execute, deliver and perform the Merger Agreement. The Merger
Agreement has been duly and validly authorized by Acquisition Corp., has been
duly executed and delivered by an authorized officer of Acquisition Corp.
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and constitutes a legal, valid and binding obligation of Acquisition Corp.,
enforceable by Seragen against Acquisition Corp. in accordance with its terms.
5. The shares of Parent Common Stock to be issued in the
Merger will, upon issuance on the terms and conditions specified in the Merger
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
6. Neither (i) the execution or delivery by the Buyer of
the Transaction Agreements or the consummation by the Buyer at the Closing of
the transactions contemplated thereby nor (ii) the execution or delivery by
Acquisition Corp. of the Merger Agreement or the consummation by Acquisition
Corp. at the Closing of the transactions contemplated thereby will (A) violate
any provision of the Restated Certificate of Incorporation or Amended and
Restated Bylaws of the Buyer, (B) violate any provision of the Certificate of
Incorporation or Bylaws of Acquisition Corp., (C) violate or be in conflict
with any federal or California laws which are applicable to the Buyer or
Acquisition Corp., or the Delaware General Corporation Law, (D) to our
knowledge, violate or contravene any judgment, decree, injunction or order of
any court, or any arbitrator or governmental agency or authority, having
jurisdiction over the Buyer or Acquisition Corp. or their respective properties
or by which the Buyer or Acquisition Corp. may be bound, or (E) constitute a
material breach of, or result in a material default under, any term or
provision of material agreements referenced as exhibits to (x) the Form 10-K
for the year ended December 31, 1997, filed by the Buyer with the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (y) the Forms 10-Q for the
quarters ended [complete with all quarters ended from March 31, 1998 through
the Closing Date], filed by the Buyer with the SEC under the Exchange Act.
7. No consents, approvals or authorizations of or
filings with any governmental authority of the State of California or the
United States, or of the State of Delaware to the extent responsible for
administering the Delaware General Corporation Law, are required or necessary
on the part of the Buyer in connection with the execution, delivery and
performance at the Closing by the Buyer of the Transaction Agreements, except
for such consents, approvals, authorizations or filings which have been
obtained, waived or made prior to the date hereof.
8. We are not aware that there is any action, proceeding
or governmental investigation pending, or threatened in writing, against the
Buyer or Acquisition Corp. which questions the validity or enforceability of
the Transaction Agreements, the right of the Buyer to enter into the
Transaction Agreements and to consummate the transactions contemplated thereby
or the right of Acquisition Corp. to enter into the Merger Agreement and to
consummate the transactions contemplated thereby.
9. Except for any information pertaining to Seragen or
any of its affiliates, the Registration Statement on Form [S-__] (No.
___-________) ("Registration Statement") and the Proxy Statement/Prospectus
included therein (except for financial statements, schedules, statistical data
and other financial data, as to which we express no belief), as of the
effective date of the Registration Statement, complies as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended, the Exchange Act and the applicable rules and regulations of the SEC
thereunder.
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The foregoing opinions are subject to the following additional
limitations, qualifications, assumptions and exceptions:
(a) The validity, binding nature and enforceability of
the Buyer's obligations under the Transaction Agreements and Acquisition
Corp.'s obligations under the Merger Agreement may be subject to or limited by
(i) bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
transfer and other similar laws affecting the rights of creditors generally;
(ii) general principles of equity (whether relief is sought in a proceeding at
law or in equity), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the discretion of any court of
competent jurisdiction in awarding specific performance or injunctive relief
and other equitable remedies; and (iii) without limiting the generality of the
foregoing, the effect of California court decisions and statutes which indicate
that provisions of the Transaction Agreements which permit Seragen or any other
person or entity ("Person") to take action or make determinations may be
subject to a requirement that such action be taken or such determinations be
made on a reasonable basis in good faith or that it be shown that such action
is reasonably necessary for the protection of Seragen or such other Person.
(b) Our opinions are subject to the effect of California
law which provides that a court may refuse to enforce, or may limit the
application of, a contract or any clause thereof which the court finds as a
matter of law to have been unconscionable at the time it was made or contrary
to public policy.
(c) We express no opinion as to:
(i) provisions of the Merger Agreement or the
Extension Option Agreement pursuant to which the Buyer agrees to make payments
without set-off, defense or counterclaim;
(ii) provisions purporting to require the award or
payment of attorneys' fees, expenses or costs in any action where Seragen is
not the prevailing party, or the impact of California Civil Code Section 1717
et seq. on any such provisions;
(iii) the enforceability under certain circumstances
of provisions to the effect that rights or remedies are not exclusive, that
every right or remedy is cumulative and may be exercised in addition to or with
any other right or remedy, that the election of some particular remedy or
remedies does not preclude recourse to one or another remedy or that failure to
exercise or delay in exercising rights or remedies will not operate as a waiver
of any such right or remedy;
(iv) provisions prohibiting waivers of any terms or
provisions of the Merger Agreement or the Extension Option Agreement other than
in writing, or prohibiting oral modifications thereof or modification by course
of dealing to the extent such provisions are inconsistent with applicable law;
(v) the enforceability under certain circumstances
of provisions indemnifying a party against, or requiring contributions toward,
that party's liability for its own wrongful or negligent acts or where such
indemnification or contribution is contrary to public policy or prohibited by
law;
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(vi) any provision providing for the exclusive
jurisdiction of a particular court or purporting to waive rights to trial by
jury, service of process or objections to the laying of venue or to forum on
the basis of forum non conveniens, in connection with any litigation arising
out of or pertaining to the Merger Agreement or the Extension Option Agreement;
(vii) provisions purporting to waive statutory or
common law rights, including the right to receive notice or to be allowed to
cure, reinstate or redeem in the event of default, and provisions expressly or
by implication waiving broadly or vaguely stated rights, unknown future rights
and defenses to obligations, in each case to the extent such rights or defenses
are not waivable under applicable law; or
(viii) provisions purporting to waive any applicable
statutes of limitation.
(d) Our opinions are subject to the effect of judicial
decisions which may permit the introduction of extrinsic evidence to interpret
the terms of written contracts.
(e) Our opinions in clause (C) of paragraph 6 above and
in paragraph 7 above are limited to laws and regulations normally applicable to
transactions of the type contemplated in the Transaction Agreements and do not
extend to licenses, permits and approvals necessary for the conduct of the
Buyer's business. In addition and without limiting the previous sentence, we
express no opinion herein with respect to the effect of any land use,
environmental or similar law, any state or federal antitrust law or any local
law. Further, we express no opinion as to the effect of or compliance with any
state or federal laws or regulations applicable to the transactions
contemplated by the Merger Agreement because of the nature of the business of
any party thereto other than the Buyer.
(f) We also express no opinion as to Section 8.8 of the
Merger Agreement and similar provisions of the other documents executed in
connection therewith to the extent that they purport to exclude conflict of law
principles under Delaware law.
(g) We also express no opinion as to Section 16 of the
Extension Option Agreement and similar provisions of the other documents
executed in connection therewith to the extent that they purport to exclude
conflict of law principles under laws of the Commonwealth of Massachusetts.
(h) We express no opinion as to the past, present or
future fair market value of the Parent Common Stock or Seragen capital stock.
(i) We are not called upon to express, and do not
express, any view, opinion or belief as to (i) compliance as to form of the
Registration Statement and the Proxy Statement/Prospectus with respect to
Seragen or its affiliates, (ii) the financial statements, schedules,
statistical data and other financial data contained in the Registration
Statement or the Proxy Statement/Prospectus, or (iii) the substantive content
of the Registration Statement or the Proxy Statement/Prospectus.
This opinion is rendered as of the date first written above
solely for your benefit in connection with the Merger Agreement and may not be
delivered to, quoted or relied upon by any person
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other than you, or for any other purpose, without our prior written consent.
Our opinion is expressly limited to the matters set forth above and we render
no opinion, whether by implication or otherwise, as to any other matters
relating to the Buyer or Acquisition Corp. We assume no obligation to advise
you of facts, circumstances, events or developments which hereafter may be
brought to our attention and which may alter, affect or modify the opinions
expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
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EXHIBIT 6.3(d)
(202)662-5248
__________, 1998
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Knight Acquisition Corporation
c/o Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Ladies and Gentlemen:
We have acted as counsel to Seragen, Inc., a Delaware
corporation ("Seragen"), and Seragen Technology, Inc., a Delaware corporation
("STI"), in connection with the execution and delivery of (a) the Agreement and
Plan of Reorganization among Seragen, Knight Acquisition Corporation ("Merger
Sub") and Ligand Pharmaceuticals Incorporated ("Ligand"), dated as of _____
___, 1998 (the "Merger Agreement"); (b) the Extension Option Agreement among
Seragen, Ligand, Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation, dated as of _____ ___, 1998 (the "Extension
Option Agreement"); and (c) the Accord and Satisfaction Agreement among
Seragen, STI, the Third Parties (as defined in such agreement), 520
Commonwealth Avenue Real Estate Corp., and 660 Corporation, dated as of ______
___, 1998 (the "Accord Agreement"). This opinion is being delivered to you
pursuant to Section 6.3(d) of the Merger Agreement. Terms used herein and not
otherwise defined have the meanings given to them in the Merger Agreement.
In connection with our opinions herein set forth, we have
reviewed (a) the Merger Agreement; (b) the Extension Option Agreement; (c) the
Accord Agreement; (d) the certificate of incorporation and bylaws of each of
Seragen and STI; (e) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing of each of Seragen and
STI; (f) certified resolutions of the board of directors of Seragen authorizing
the execution and delivery of the Merger Agreement and the Extension Option
Agreement and the consummation of the transactions contemplated thereby; and
(g) originals or copies, certified or otherwise identified to our satisfaction,
of such other documents as we have deemed necessary or appropriate as the basis
for the opinions set forth below.
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As to matters of fact relevant to such opinions, we have
relied, without independent investigation or verification, upon the aforesaid
documents, including, without limitation, the representations and warranties as
to factual matters of the parties set forth in the Merger Agreement and the
Accord Agreement, certificates of and communications from public officials, and
certificates and declarations of officers of Seragen. In our examination, we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
copies.
We express no opinion as to the laws of jurisdictions other
than the District of Columbia and, to the extent of its General Corporation
Law, the State of Delaware and the federal laws of the United States of
America. To the extent that the laws of the Commonwealth of Massachusetts or
the laws of the State of Delaware, other than its General Corporation Law,
govern matters covered by our opinions set forth herein, we have assumed, with
your permission, that the laws of the Commonwealth of Massachusetts and the
laws of the State of Delaware, other than its General Corporation Law, conform
in all respects with the laws of the District of Columbia. In this regard we
note that the Extension Option Agreement provides by its terms that it is to be
governed by the laws of the Commonwealth of Massachusetts and that the Merger
Agreement and the Accord Agreement provide by their terms that they are to be
governed by the laws of the State of Delaware.
Based upon the foregoing, and subject to the reservations and
exceptions set forth herein, it is our opinion that:
1. Seragen is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Seragen
has full corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted. Seragen has
full corporate power and authority to execute and deliver the Merger Agreement
and the Extension Option Agreement and to perform the transactions contemplated
by each of those agreements.
2. Each of the Merger Agreement and the Extension Option
Agreement has been duly authorized, executed and delivered by Seragen and
constitutes the legal, valid and binding obligation of Seragen, enforceable
against Seragen in accordance with its terms except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the enforcement of creditors' rights and remedies
generally and by the exercise of judicial discretion in accordance with general
principles of equity.
3. Neither the execution, delivery and performance of
the Merger Agreement and the Extension Option Agreement nor the performance by
Seragen of the transactions contemplated by each of those agreements will (a)
violate, conflict with, constitute a default under, or result in a breach of,
any terms or provisions of (i) Seragen's certificate of incorporation or bylaws
or (ii) any judgment, decree, or order to which Seragen is subject or by which
Seragen is bound which has been specifically identified to us in the
certificate of the Chairman of the Board of Seragen attached hereto; (b)
constitute a material breach of, or result in a material default under, any
term or provision of the material agreements referenced as exhibits to
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(i) the Form 10-K for the year ended December 31, 1997,
filed by Seragen with the U.S. Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended, and
(ii) the Forms 10-Q for the quarters ended [complete with
all quarters ended from March 31, 1998 through the Closing Date] filed by
Seragen with the SEC under the Securities Act of 1934, as amended, [insert if
Closing Date is after Seragen files its Form 10-K for the year ended December
31, 1998 - and
(iii) the Form 10-K for the year ended December 31, 1998,
filed by Seragen with the U.S. Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended]
except as otherwise disclosed by Seragen in its Disclosure Letter delivered
pursuant to Article II of the Merger Agreement; or (c) violate or be in
conflict with any federal or District of Columbia laws that are applicable to
Seragen or the General Corporation Law of the State of Delaware.
4. No consents, approvals or authorizations of or
filings with any federal governmental authority of the United States of
America, any governmental authority of the District of Columbia, or any
governmental authority of the State of Delaware, to the extent such authority
is charged with the administration of that state's General Corporation Law, are
required or necessary on the part of Seragen in connection with the execution,
delivery and performance at the Closing by Seragen of the Merger Agreement,
except for such consents, approvals, authorizations or filings which have been
obtained, waived or made prior to the date hereof.
5. We are not aware that there is any action, proceeding
or governmental investigation pending, or threatened in writing, against
Seragen that questions the validity or enforceability of the Merger Agreement
or the Extension Option Agreement or the right of Seragen to enter into the
Merger Agreement or the Extension Option Agreement and consummate the
transactions contemplated thereby.
6. As a result of the operation of the Merger Agreement
and the Accord Agreement, immediately after the Effective Time, (a) Ligand will
own all of the issued and outstanding capital stock of the Surviving
Corporation, (b) the Surviving Corporation will own all of the issued and
outstanding stock of STI, and, (c) except for the warrant held by GATX for the
purchase of 10,757 shares of Company Common Stock, there will be no options,
warrants, convertible securities or any other right of any person to acquire
any capital stock of either the Surviving Corporation or STI.
7. The Proxy Statement, as of the time of mailing of the
Proxy Statement to stockholders of Seragen, complied as to form in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the SEC thereunder.
The opinions expressed in paragraphs 2 and 6, above, are
further subject to the qualification that we have assumed the due
authorization, execution and delivery of the Merger
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Agreement and the Extension Option Agreement by the parties thereto other than
Seragen, as well as each such party's legal right and power at all times from,
and including the date of, each of the aforesaid agreements under all
applicable laws and regulations to execute, deliver and perform its obligations
under, and the validity, binding effect and enforceability against such party
of, in accordance with its terms, the Merger Agreement and the Extension Option
Agreement.
Our opinions in clause (c) of paragraph 3, above, and in
paragraph 4, above, are limited to laws and regulations normally applicable to
transactions of the type contemplated in the Merger Agreement and the Extension
Option Agreement and do not extend to licenses, permits and approvals necessary
for the conduct of Seragen's business. In addition and without limiting the
previous sentence, we express no opinion herein with respect to the effect of
any land use, environmental or similar law, any state or federal antitrust law,
or any local law. Further, we express no opinion as to the effect of, or
compliance with, any state or federal laws or regulations applicable to the
transactions contemplated by the Merger Agreement or Extension Option Agreement
because of the nature of the business of any party thereto other than Seragen.
For purposes of our opinions expressed in paragraph 6, above,
we have assumed the following matters:
(a) the due authorization, execution and delivery of the
Accord Agreement by each of the parties thereto, as well as each such party's
legal right and power at all times from, and including the date of, the Accord
Agreement under all applicable laws and regulations to execute, deliver and
perform its obligations under, and the validity, binding effect and
enforceability against such party of, in accordance with its terms, the Accord
Agreement;
(b) the due authorization, execution and delivery of that
certain Settlement Agreement among Seragen, Seragen Biopharmaceuticals
Ltd./Seragen Biopharmaceutique Ltee, and the Investor Shareholders named
therein, dated as of May 1, 1998 (the "Seragen Canada Settlement Agreement"),
by each of the parties thereto, as well as each such party's legal right and
power at all times from, and including the date of, the Seragen Canada
Settlement Agreement under all applicable laws and regulations to execute,
deliver and perform its obligations under, and the validity, binding effect and
enforceability against such party of, in accordance with its terms, the Seragen
Canada Settlement Agreement;
(c) that each of the Third Parties is the sole and
exclusive owner, free of any lien or encumbrance whatsoever, of each share of
the capital stock of Seragen or STI and each option, warrant and other right to
acquire any capital stock of Seragen or STI that such person is stated in the
Accord Agreement to own and that no Third Party has transferred or purported or
attempted to transfer any of its right, title or interest in or to any such
share of the capital stock of Seragen or STI or any such option, warrant, or
other right to acquire any capital stock of Seragen and STI;
(d) that each of the Investor Shareholders (as defined in
the Seragen Canada Settlement Agreement) is the sole and exclusive owner, free
of any lien or encumbrance whatsoever, of each claim or right that such person
is stated in the Seragen Canada Settlement Agreement to own and that no
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Investor Shareholder has transferred or purported or attempted to transfer any
of its right, title or interest in or to any such claim or right;
(e) that as of the date hereof there are outstanding no
options, warrants or other rights to acquire any capital stock of Seragen and
STI (except for any such rights which may arise from the terms of issued and
outstanding shares of the capital stock of Seragen and STI) other than those
identified to us in the certificates of, respectively, the Chairman of the
Board of Seragen and the President to STI attached hereto;
(f) that each of Ligand and Merger Sub has fully complied
and will fully comply with each and every provision of the Merger Agreement and
the Extension Option Agreement; and
(g) that Seragen has fully complied and will fully comply
with each and every provision of the Seragen Canada Settlement Agreement.
Our opinions expressed in paragraph 6 are further qualified to the extent of,
and are subject to, any equitable or similar remedies that may be available to
shareholders of Seragen with respect to the enforcement of the Merger Agreement
and the Extension Option Agreement or the consummation of the transactions
contemplated thereby.
We are not called upon to express, and do not express, any
view, opinion or belief, including, without limitation, pursuant to our
opinions set forth in paragraph 7, above, as to (a) compliance as to form of
the Registration Statement and the Proxy Statement/Prospectus with respect to
any person other than Seragen, (b) the financial statements, schedules,
statistical data and other financial data contained in the Registration
Statement or the Proxy Statement/Prospectus, or (c) the substantive content of
the Registration Statement or the Proxy Statement/Prospectus.
We express no opinion as to the enforceability under certain
circumstances of provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or negligent
acts or where such indemnification or contribution is contrary to public policy
or prohibited by law.
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The opinions expressed herein are solely for your benefit and
may be relied upon only by you. The opinions expressed in this letter are
limited to the matters set forth herein, and no other opinions should be
inferred beyond those opinions expressly stated.
Very truly yours,
COVINGTON & BURLING
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APPENDIX D
OPTION AND ASSET PURCHASE AGREEMENT
BY AND AMONG
LIGAND PHARMACEUTICALS INCORPORATED,
MARATHON BIOPHARMACEUTICALS, LLC,
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
AND
660 CORPORATION
DATED AS OF MAY 11, 1998
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________________________________________________________________________________
OPTION AND ASSET PURCHASE AGREEMENT
by and among
LIGAND PHARMACEUTICALS INCORPORATED,
MARATHON BIOPHARMACEUTICALS, LLC,
520 COMMONWEALTH AVENUE REAL ESTATE CORP.,
and
660 CORPORATION
dated as of May 11, 1998
________________________________________________________________________________
D-2
<PAGE> 282
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.2 Construction of Certain Terms and Phrases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2 OPTION TO PURCHASE ASSETS PRIOR TO CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Grant of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Exercise of Option, Due Diligence and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3 PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Purchase and Sale of the Company Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Option Consideration and Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5 Allocation of Aggregate Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Sales, Use and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Closing by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Representations and Warranties of Sellers as of the Date of this Agreement and as of the Effective Time . 15
4.2 Representations and Warranties of Sellers as of the Closing . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Organization of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 Authority of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 SEC Documents; Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 6 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Covenants of the Company (and the Members) from the Date of this Agreement to the Closing Date . . . . . . 28
6.2 Covenants of the Company (and the Members) from the Merger Closing to the Closing Date . . . . . . . . . . 30
6.3 Additional Covenants of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<TABLE>
<S> <C>
7.2 No Actions or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.2 No Actions or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 9 ACTIONS BY THE PARTIES AFTER THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.1 Survival of Representations, Warranties, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.6 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.7 Assignment; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.11 Consent to Jurisdiction and Forum Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.13 Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Certificate of Officer of Buyer
Exhibit B Bill of Sale
Exhibit C General Assignment
Exhibit D Intellectual Property Assignment
Exhibit E Certificate of Officer of the Company
Exhibit F Certificate of each of the Members
Exhibit G Certificate of the Secretary of the Company
SCHEDULES
Schedule 3.1 (a) Equipment, etc...
Schedule 3.1(b) Customer Lists and Accounts
Schedule 3.1(c) Assumed Contracts
Schedule 3.1(d) Permits
Schedule 3.3 Assumed Liabilities
Disclosure Schedules
Schedule 6.3(k)(i) Assumption of Obligations to Certain Employees
Schedule 6.3(k)(ii) Selected Employees
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OPTION AND ASSET PURCHASE AGREEMENT
This Option and Asset Purchase Agreement (this "AGREEMENT") is made
and entered into as of May 11, 1998, by and among LIGAND PHARMACEUTICALS
INCORPORATED, a Delaware corporation ("Buyer"), MARATHON BIOPHARMACEUTICALS,
LLC, a Massachusetts limited liability company (the "Company"), 520
COMMONWEALTH AVENUE REAL ESTATE CORP., a Massachusetts corporation ("520
Commonwealth"), and 660 CORPORATION, a Massachusetts corporation ("660
Corporation," and together with 520 Commonwealth and the Company, "Sellers").
RECITALS
WHEREAS, the Company is in the business of biotechnical research,
development and manufacture of pharmaceutical and healthcare related products
(the "Business");
WHEREAS, 660 Corporation and 520 Commonwealth are the sole members of
the Company (collectively, the "Members");
WHEREAS, the Company conducts the Business in leased premises located
in Hopkinton, Massachusetts (the "Facility");
WHEREAS, the Company is a party to that certain Service Agreement,
dated as of February 14, 1997 (the "Service Agreement"), by and between
Seragen, Inc., a Delaware corporation ("Seragen"), and Trustees of Boston
University ("BU"), of which the Company is an assignee, whereby the Company
provides certain services at the Facility to Seragen as described in the
Service Agreement;
WHEREAS, concurrently with the execution of this Agreement, Buyer,
Seragen and Knight Acquisition Corporation, a Delaware corporation ("Knight"),
are entering into an Agreement and Plan of Reorganization (the "Merger
Agreement") and other transactions contemplated therein, whereby, among other
things, Seragen will become a wholly owned subsidiary of Buyer;
WHEREAS, concurrently with the execution of this Agreement, Buyer,
Seragen, the Company and the Members are entering into an Extension Option
Agreement (the "Option Agreement") whereby the Company and the Members will
grant to Buyer and Seragen an option to extend the closing under this
Agreement, subject to certain terms and conditions;
WHEREAS, Buyer desires to purchase, and Sellers desire to sell,
substantially all the assets of the Company used in the Business; and
WHEREAS, as a condition to Buyer's execution of the Merger Agreement
and consummation of the transaction contemplated therein, Sellers have agreed
to sell to Buyer substantially all of the assets of the Business pursuant to
the terms and conditions of this Agreement.
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following
defined terms have the meanings indicated below:
"ACTIONS OR PROCEEDINGS" means any action, suit, proceeding,
arbitration, Order, inquiry, hearing, assessment with respect to fines or
penalties or litigation (whether civil, criminal, administrative, investigative
or informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority.
"ADVERSE CONSEQUENCE" means all Actions or Proceedings,
hearings, investigations, charges, complaints, claims, demands, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlements,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses that would have an
Adverse Affect on the Company.
"ADVERSE EFFECT" means, for any Person, a material adverse
effect whether individually or in the aggregate (i) on the business,
operations, financial condition, Assets and Properties, Liabilities or
prospects of such Person, or (ii) on the ability of such Person to consummate
the transactions contemplated hereby.
"AFFILIATE" means, with respect to any Person (as defined
below), another Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
Person.
"ASSETS AND PROPERTIES" and "Assets or Properties" of any
Person each means all assets and properties of every kind, nature, character
and description (whether real, personal or mixed, whether tangible or
intangible, whether absolute, accrued, contingent, fixed or otherwise and
wherever situated), including the goodwill related thereto, operated, owned or
leased by such Person, including, without limitation, cash, cash equivalents,
accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual
Property.
"BENEFIT PLAN" means any Plan (as defined below) established,
arranged or maintained by the Company or any group of which the Company is or
was a member, existing at the Closing Date or prior thereto, to which the
Company contributes or has contributed, or under which any employee, manager,
officer, director or former employee, officer or director of the Company or any
beneficiary thereof is covered, is eligible for coverage or has benefit rights.
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"BOOKS AND RECORDS" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations or
condition of such Person.
"BUSINESS DAY" means a day other than Saturday, Sunday or any
day on which banks located in the State of California or the Commonwealth of
Massachusetts are authorized or obligated to close.
"CLOSING" has the meaning described in Section 3.8 of this
Agreement.
"CLOSING DATE" means the date described in Section 3.8 of this
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property (as hereinafter defined) that is owned by, or licensed to, the
Company.
"DEFINED BENEFIT PLAN" means each Benefit Plan which is
subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of
ERISA.
"DISCLOSURE SCHEDULE" means the disclosure schedule attached
hereto which sets forth the exceptions to the representations and warranties
contained in Article 3 hereof and certain other information called for by this
Agreement.
"ENCUMBRANCE" means any mortgage, pledge, assessment, security
interest, deed of trust, lease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale or title retention agreement
or other agreement to give any of the foregoing in the future.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any entity which is a member of a
"controlled group of corporations" or which is or was under "common control"
with the Company as defined in Section 414 of the Code.
"FINANCIAL STATEMENTS" means the unaudited balance sheet of
the Company as of March 31, 1998, and the related unaudited statement of income
and retained earnings for the Company for the three-month period ended March
31, 1998.
"GAAP" means generally accepted accounting principles, applied
in a manner consistent with the past practices of the Company.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States or other country, any state, county, city
or other political subdivision.
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"INTELLECTUAL PROPERTY" means any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and any registrations
and applications therefor throughout the world; (v) all trade names, logos,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all
databases and data collections and all rights therein throughout the world; and
(vii) any similar or equivalent rights to any of the foregoing anywhere in the
world.
"KNOWLEDGE OF SELLERS" or "KNOWN TO SELLERS" means (i) the
knowledge of Ms. Elizabeth Chen, after due inquiry and comprehensive
investigation, and (ii) the actual knowledge of each of the Members or any
other executive officer or manager of the Company.
"LIABILITIES" means any liability (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 but not limited to any liability for Taxes.
"ORDER" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"ORDINARY COURSE OF BUSINESS" means such action that is
consistent with the past practices of the Company and is taken in the ordinary
course of the normal day-to-day operations of the Company.
"PERMITS" means all licenses, permits, certificates of
authority, authorizations, approvals, registrations and similar consents
granted or issued by any Governmental or Regulatory Authority.
"PERMITTED ENCUMBRANCE" means (i) any Encumbrance for taxes
not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established and (ii) any
minor imperfection of title or similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not impair the value of the
property subject to such Encumbrance or the use of such property in the conduct
of the Business.
"PERSON" means any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee
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benefit plan, practice, policy or arrangement of any kind, whether written or
oral, including, but not limited to, any "employee benefit plan" within the
meaning of Section 3(3) of ERISA.
"QUALIFIED PLAN" means each Benefit Plan which is intended to
qualify under Section 401 of the Code.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; and (iii) registered copyrights and applications for
copyright registration.
"RETURNS" means all returns, declarations, reports, statements
and other documents required to be filed in respect of Taxes, and the term
"Return" means any one of the foregoing Returns.
"TAX" (and, with correlative meaning, "Taxes," "Taxable" and
"Taxing") means (A) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental, regulatory or administrative
entity or agency responsible for the imposition of any such tax (domestic or
foreign), (B) any Liability for the payment of any amounts of the type
described in (A) as a result of being a member of an affiliated, consolidated,
combined, unitary or other group for any Taxable period and (C) any Liability
for the payment of any amounts of the type described in (A) or (B) as a result
of any express or implied obligation to indemnify any other person.
Notwithstanding the foregoing, solely for purposes of Section 4.25 below, Tax
(and the correlative meanings, "Taxes," "Taxable" and "Taxing") shall not
include any amount to the extent that (A) an Encumbrance cannot be placed upon
any of the Purchased Assets with respect to such amount and the Purchased
Assets cannot otherwise be used to satisfy such amount without the consent of
Buyer and (ii) neither Buyer nor any of its affiliates can be made directly or
indirectly liable with respect to such amount.
1.2 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context
of this Agreement otherwise requires, (a) words of any gender include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; (d)
the terms "Article" or "Section" refer to the specified Article or Section of
this Agreement; (e) the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or"; and (f) the term
"including" means "including without limitation." Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
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ARTICLE 2
OPTION TO PURCHASE ASSETS PRIOR TO CLOSING DATE
2.1 GRANT OF OPTION. The Company and each Member hereby grant
Buyer an irrevocable option to purchase, as a going concern, all of the right,
title and interest in and to the Purchased Assets (as defined below), at a date
prior to the Closing Date (as defined in Section 3.8 below) which such date
shall be determined in Buyer's sole discretion, upon the terms and conditions
set forth in this Agreement (the "Option"). The term of the Option shall
commence on the date of the closing under the Merger Agreement (the "Merger
Closing") shall expire on the earlier of: (i) December 24, 1998 or (ii) the
early termination of this Agreement pursuant to Section 10.1 below (the "Option
Term").
2.2 EXERCISE OF OPTION, DUE DILIGENCE AND CLOSING.
(a) The Option may be exercised by Buyer (or its
permitted assignee), in its sole discretion, by delivering written notice (the
"Option Notice") to the Company at any time prior to the expiration of the
Option Term. Such Option Notice shall specify the proposed time and date of
the Closing (as defined in Section 3.8 below) under this Agreement (which shall
be not less than thirty (30) nor more than forty (40) days from the date of
delivery of the Option Notice and which may be after the expiration of the
Option Term (the "Option Closing Date)). The Closing occurring on the Option
Closing Date shall be conducted as set forth in Section 3.8 of this Agreement.
(b) In the event the Closing occurring on the Option
Closing Date does not occur, for any reason within forty (40) days from the
date of Buyer's delivery of an Option Notice to the Company, this Agreement
shall continue in full force and effect until the earlier of: (i) January 31,
1999 (subject to extension pursuant to the Option Agreement) or such other date
mutually agreed to; (ii) a successful Closing pursuant to Buyer's delivery of
an Option Notice to the Company; or (iii) the early termination of this
Agreement pursuant to Section 10.1 below.
ARTICLE 3
PURCHASE AND SALE OF ASSETS
3.1 PURCHASE AND SALE OF THE COMPANY ASSETS. Subject to the terms
and conditions of this Agreement, at the Closing, the Company and the Members
agree to grant, sell, convey, assign, transfer and deliver to Buyer, and Buyer
agrees to purchase and acquire from the Company and the Members, free and clear
of any Encumbrance or adverse claim of any kind whatsoever other than any
Permitted Encumbrance, all of the Company's right, title, and interest in and
to all assets, properties, rights, leases, fixtures, accessions, claims,
contracts and interests of the Company of every kind, type or description,
real, personal and mixed, tangible and intangible, wherever located and whether
or not specifically referred to in this Agreement, that are used in or pertain
to the Business and operations of the Company (the "Purchased Assets"),
including without limitation:
(a) the equipment, leasehold improvements, furniture and
fixtures, vehicles and other operating assets owned or leased by the Company
and used in the Business as set forth in Schedule 3.1(a) attached hereto;
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(b) all customer lists and customer accounts owned by the
Company as set forth in Schedule 3.1(b) attached hereto (the "Customer Lists
and Accounts");
(c) all of the Company's right, title and interest in and
to the contracts and agreements set forth in Schedule 3.1(c) attached hereto
(the "Assumed Contracts");
(d) all Permits issued to or held by the Company
necessary or incidental to the conduct of the Business set forth in Schedule
3.1(d) attached hereto (the "Permits");
(e) all the operating data, books, files, documents and
records of the Company relating to the Business (the "Company Records");
(f) all prepaid expenses, deposits (other than lease
security deposits, if any) and deferred items in effect as of the Closing Date
and from which Buyer may derive future benefit;
(g) all of the Company's rights to the name "Marathon
Biopharmaceuticals", all variations thereof and all trademarks, trade names,
service marks and goodwill associated therewith (collectively, the
"Trademarks"); and
(h) the goodwill and going concern value of the Business.
The Purchased Assets shall include, without limitation, all of 520
Commonwealth's leasehold interest in the Facility and 520 Commonwealth hereby
agrees to assign to Buyer all of its right title and interest in such leasehold
interest.
3.2 EXCLUDED ASSETS.
Notwithstanding Section 3.1 hereof, the Purchased Assets do
not include:
(a) all accounts, accounts receivable, notes and notes
receivable of the Business (collectively the "Account Receivables") as of the
Closing Date, including without limitation (i) those Accounts Receivables which
are not evidenced by instruments or invoices, whether or not they have been
earned by performance or have been written off or reserved against as a bad
debt or doubtful account, together with all instruments and (ii) all documents
of title representing any of the foregoing and all right, title, security and
guaranties in favor of the Company with respect to any of the foregoing;
(b) all cash and cash equivalents of the Company as of
the Closing Date; and
(c) any minute books, partnership records and other
records of the Company which are not Company Records; provided, however, the
Company shall provide Buyer with access to the Books and Records of the Company
upon request as necessary to conduct the Business after the Closing Date.
3.3 ASSUMED LIABILITIES. As of the Closing Date, Buyer agrees to
assume, satisfy or perform when due only those liabilities and obligations of
the Company listed in Schedule 3.3 attached hereto (the "Assumed Liabilities").
Other than the Assumed Liabilities, Buyer shall not assume, or be deemed to
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have assumed or guaranteed, or otherwise be responsible for any liability,
obligation or claims of any nature of the Company, whether matured or
unmatured, liquidated or unliquidated, fixed or contingent, known or unknown,
or whether arising out of acts or occurrences prior to, at or after the date
hereof. Sellers shall remain liable for the payment of Liabilities and
obligations to personnel of the Company up to an amount of $250,000 with
respect to the notice and continuation coverage requirement of Section 4980B(e)
of the Code and regulations thereunder, payroll, overtime, accrued vacation
time, holiday time, severance arrangements or worker's compensation of any
nature which are accrued but unpaid as of the Closing Date or which accrued as
a result of the consummation of the transactions contemplated herein, except
for employees who are Selected Employees (as defined below).
3.4 OPTION CONSIDERATION AND PURCHASE PRICE.
(a) As consideration for the grant of the Option, Buyer
agrees to pay or cause to be paid to the Company an aggregate of Three Million
Dollars ($3,000,000) (the "Option Consideration"), in cash or voting common
stock, par value $.001 per share, of Buyer ("Buyer Common Stock"), such form of
consideration to be at Buyer's sole option, when the Milestone Consideration is
paid pursuant to the Merger Agreement.
(b) As consideration for the Purchased Assets, Buyer
agrees to (i) assume the Assumed Liabilities and (ii) pay, or cause to be paid,
to the Company an aggregate purchase price of Five Million Dollars ($5,000,000)
(the "Purchase Price"), in cash or Buyer Common Stock, such form of
consideration to be at Buyer's sole option, at the Closing.
(c) For purposes of determining the value of the shares
of Buyer Common Stock, if any, distributed pursuant to this Section 3.4, Buyer
Common Stock, shall be valued as follows:
(i) The value of Buyer Common Stock issued as
part of the Option Consideration shall be valued at the average of the closing
prices of Buyer Common Stock on the Nasdaq National Market for the ten (10)
consecutive trading days immediately preceding the date of issuance of such
Buyer Common Stock.
(ii) The value of Buyer Common Stock issued as
part of the Purchase Price shall be valued at the average of the closing prices
of Buyer Common Stock on the Nasdaq National Market for the five (5)
consecutive trading days immediately preceding the date of issuance of such
Buyer Common Stock.
3.5 ALLOCATION OF AGGREGATE PURCHASE PRICE. The Purchase Price
shall be allocated among the Purchased Assets as mutually agreed upon by Buyer
and Sellers prior to the Closing. Buyer and Sellers agree (i) to report the
sale of the Purchased Assets for federal and state Tax purposes in accordance
with the mutually agreed-upon allocations and (ii) not to take any position
inconsistent with such allocations on any of their respective tax returns.
3.6 SALES, USE AND OTHER TAXES. Sellers shall be responsible for
all sales and use taxes, if any, arising out of the sale of the Purchased
Assets to Buyer pursuant to this Agreement.
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3.7 TITLE. Title to the Purchased Assets shall pass to Buyer at
the Closing and the Purchased Assets shall be at the risk of the Company prior
to the Closing.
3.8 CLOSING BY BUYER.
(a) Time and Place. The closing of the transactions
contemplated by this Agreement and the related agreements referred to herein
(the "Closing") shall occur on the earlier of (i) the Option Closing Date if
Buyer exercises the Option pursuant to Article II of this Agreement or (ii)
January 31, 1999 (or such later date determined pursuant to the Option
Agreement) at 10:00 a.m., at the offices of Mintz Levin Cohn Ferris Glovsky and
Popeo PC ("Mintz Levin"), One Financial Center, Boston, Massachusetts 02111, at
10:00 a.m., or such other time and place as the parties may mutually agree
(collectively with the Option Closing Date, the "Closing Date").
(b) Closing Deliveries. At the Closing, Buyer shall have
delivered or caused to be delivered:
(i) the Purchase Price to the Company by wire
transfer in immediately available funds to the account designated by the
Company or, if in the form of Buyer Common Stock, by transfer of such stock
certificates to be delivered to Seller by Buyer's transfer agent pursuant to
the written instructions of Buyer;
(ii) a certificate of an officer of Buyer
substantially in the form of Exhibit A attached hereto to evidence compliance
with Sections 7.1, 7.2 and 7.3 hereof;
(iii) a certified copy of the resolutions of the
Board of Directors of Buyer approving the transactions contemplated herein;
(iv) the Employment Agreements (including a form
of release reasonably acceptable to the Company and the Buyer), executed by
Buyer (or its designee), as of the Closing Date;
(v) an opinion from Brobeck, Phleger & Harrison
LLP, Buyer's counsel, in form reasonably acceptable to Sellers and Sellers'
counsel; and
(vi) such other documents as Sellers may
reasonably request for the purpose of facilitating the consummation of the
transactions contemplated herein.
(c) Closing Deliveries by Sellers. At the Closing,
Sellers shall have delivered or caused to be delivered to Buyer:
(i) possession of all of the Purchased Assets,
together will all files, Books and Records relating to the Purchased Assets;
(ii) an original Bill of Sale substantially in the form of
Exhibit B attached hereto, conveying good and marketable title in all of the
Purchased Assets duly executed by the Company;
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(iii) an original Assumption and Assignment Agreement
substantially in the form of Exhibit C attached hereto (the "General
Assignment") of all of the Purchased Assets, duly executed by the Company;
(iv) if there is Intellectual Property of the Company, an
original Intellectual Property Assignment of all Intellectual Property of the
Company, including without limitation that set forth in the Disclosure Schedule
of Sellers (the "Intellectual Property Assignment"), substantially in the form
of Exhibit D attached hereto, duly executed by the Company;
(v) a certificate of the Manager of the Company
substantially in the form of Exhibit E attached hereto to evidence compliance
with Sections 8.1 and 8.2 hereof;
(vi) a certificate of each of the Members, respectively,
substantially in the form of Exhibit F attached hereto to evidence compliance
with Sections 8.1 and 8.2 hereof;
(vii) a certificate of the Manager of the Company
substantially in the form of Exhibit G attached hereto;
(viii) the Employment Agreements (including a form of
release acceptable to Buyer), executed by each employee designated by Buyer, as
of the Closing Date;
(ix) all clearance certificates or similar documents which
may be required by a Taxing authority in order to relieve Buyer of any
obligation to withhold any portion of the Purchase Price to satisfy or be
applied to any Tax obligation of Sellers;
(x) an opinion from Dionne & Gass, Sellers' counsel, in
form reasonably acceptable to Buyer and Buyer's counsel; and
(xi) such other documents as Buyer may reasonably request
for the purpose of facilitating the consummation of the transactions
contemplated herein, including without limitation, the Due Diligence
Information.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLERS AS OF THE DATE OF
THIS AGREEMENT AND AS OF THE EFFECTIVE TIME.
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Sellers jointly
and severally represents and warrants to the Buyer as of the date of this
Agreement and as of the Closing Date under the Merger Agreement, except as set
forth in the Disclosure Schedule furnished to Buyer, specifically identifying
the relevant subsection of this Section 4.1, as follows:
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(a) Organization; Qualification and Ownership. The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts. The Company
currently conducts its business exclusively within the Commonwealth of
Massachusetts. The Company has the corporate power and authority to own and
hold its Assets and Properties and to carry on the Business as currently
conducted. Kenneth G. Condon is the Manager of the Company. The Company has
the following named officers, each duly elected and qualified by the Manager of
the Company as of the date hereof: Elizabeth Chen, President, Ted Owens, Vice
President, John Laughlin, Vice President, and Kenneth G. Condon, Treasurer.
The Company has delivered to Buyer correct and complete copies of the Company's
Certificate of Organization and Operating Agreement, each as amended to date.
The Members of the Company are 520 Commonwealth Avenue Real Estate Corp., a
Massachusetts corporation, and 660 Corporation, a Massachusetts corporation
(collectively, the "Members").
(b) Limited Liability Company Power and Authority. The
Company has the limited liability company power and authority to execute,
deliver and perform this Agreement and the other documents and instruments
contemplated hereby. The execution, delivery and performance of this Agreement
and the other agreements, documents and instruments contemplated hereby and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by the Company's Manager and the Company's Members.
This Agreement, and each of the other agreements, documents and instruments to
be executed and delivered by the Sellers have been duly executed and delivered
by, and constitute the valid and binding obligation of the Sellers, enforceable
against the Sellers in accordance with their terms, subject to the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium and other
similar laws now or hereafter in effect, as well as limitations imposed by
general principles of equity upon the specific enforceability of any of the
remedies, covenants or other provisions and the availability of injunctive
relief or other equitable remedies.
(c) Validity, Etc. Neither the execution and delivery of
this Agreement and the other agreements, documents and instruments contemplated
hereby, the consummation of the transactions contemplated hereby or thereby,
nor the performance of this Agreement and such other agreements, documents and
instruments in compliance with the terms and conditions hereof and thereof
will, except as set forth in Section 4.1(c) of the Disclosure Schedule, (i)
conflict with or result in any breach of any trust agreement, certificate of
organization or operating agreement of any of the Company, (ii) except for
approval of the transactions contemplated hereby by the Office of the Attorney
General of the Commonwealth of Massachusetts, Public Charities Division,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental or Regulatory Authority or any third party,
(iii) result in a breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any law, rule or regulation or
any judgment, decree, order, governmental permit (other than permits set forth
in a Schedule hereto which are not transferable), license or order or any of
the terms, conditions or provisions of any mortgage, indenture or note or any
material license, agreement or other instrument or obligation to which the
Company is a party or by which the Company or its Assets and Properties
(including the Purchased Assets) are bound, or (iv) result in the creation of
any Encumbrance upon the Purchased Assets.
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(d) Capital Structure. The Members own, beneficially and
of record, one hundred percent (100%) of the ownership interests of the Company
(the "Membership Interests") in the following percentages: 520
Commonwealth-99%; 660 Corporation-1%. All of the Membership Interests are duly
authorized, validly issued, fully paid and nonassessable. There are no
options, warrants, conversion rights, rights of exchange or other rights,
plans, agreements or commitments of any nature whatsoever (including, without
limitation, conversion or preemptive rights) providing for the purchase,
issuance or sale of any Membership Interests or any securities convertible into
or exchangeable for any Membership Interests. The Members own the Memberships
Interests free and clear of all Encumbrances, and have, and on the Closing Date
will have, good and valid title to such.
(e) Authority of the Members. Each Member has all
necessary power and authority and has taken all action necessary to enter into
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder and no other proceedings on the part of such
Member is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. Each Member is a corporation duly authorized
to conduct business and is in good standing under the laws of the Commonwealth
of Massachusetts. This Agreement has been duly and validly executed and
delivered by each Member and constitutes a legal, valid and binding obligation
of each Member, enforceable against each Member in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws now or hereafter in effect, as well as
limitations imposed by general principles of equity upon the specific
enforceability of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
(f) No Affiliates. Other than its Members and Trustees
of Boston University, the Company does not have any Affiliates; the Company is
not a partner in any partnership or a party to a joint venture.
(g) Consents and Approvals. Except for the approval of
the office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, and as set forth in Section 4.1(c) or Section 4.1(g) of the
Disclosure Schedule, no consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental or Regulatory
Authority or third party is required by or with respect to the Sellers in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(h) Financial Statements; Absence of Undisclosed
Liabilities. The Company has previously delivered to Buyer the Financial
Statements. The Financial Statements fairly present the financial condition
and results of operations of the Company as of the dates thereof and for the
periods covered thereby; provided, however, that the Financial Statements lack
footnotes and certain other presentation items. Except as disclosed in the
Financial Statements, there are no Liabilities or claims, nor to Sellers'
knowledge, any basis for any Liabilities or claims against the Company,
relating to or affecting the Company or the Purchased Assets, other than (i)
Liabilities incurred in the Ordinary Course of Business which have not had, and
could not be expected to result, individually or in the aggregate, in an
Adverse Effect on the Purchased Assets; or (ii) Liabilities incurred under the
Contracts (as set forth in Section 4.1(q) of the Disclosure Schedule) as
specifically set forth on the face thereof.
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(i) Litigation. Except as set forth in Section 4.1(i) of
the Disclosure Schedule, there are no Actions or Proceedings with respect to
which the Company has received notice pending or, to the Sellers' knowledge,
threatened against or materially affecting the Company (whether or not the
Company is a party or a prospective party), at law or in equity, or before or
by any Governmental or Regulatory Authority. There are no outstanding Orders
against, or materially affecting, the Company of which the Company has received
notice, and to the Sellers' knowledge, there are no facts or circumstances
which could reasonably be expected to result in institution of any Actions or
Proceedings against, involving or affecting the Company or the transactions
contemplated hereby. The Company is not in default with respect to any Orders
known to or served upon it from any court or of any Governmental or Regulatory
Authority.
(j) Compliance with Law; Current Legislation. The
Company is not subject to any Order that adversely affects, individually or in
the aggregate, the Purchased Assets or the Business. To Sellers' knowledge,
the Company has complied with all laws, rules, regulations and Orders
applicable to it in relation to its ownership and operation of the Purchased
Assets and the Business. The Sellers are not aware of any existing law, rule,
regulation or Order, or of any proposed law, rule, regulation or Order
currently pending before any governmental body or agency, whether Federal or
state, which would prohibit or restrict the Buyer from, or otherwise adversely
affect the Buyer in, owning and operating the Purchased Assets or the Business
as presently owned and operated by the Company. The Company has not received
any written notice to the effect that, or otherwise have been advised that it
is not in compliance with any of such laws, rules, regulations and Orders,
where the failure to comply could be expected to result in an Adverse Effect on
the Company, its Business or the Purchased Assets.
(k) Licenses and Permits. Section 4.1(k) of the
Disclosure Schedule lists all licenses, permits, pending applications,
consents, approvals and authorizations held by the Company of or from any
public or governmental agency, used or useable in or otherwise necessary to the
operation of the Business or the Purchased Assets (collectively, the
"Permits"). Except as noted in Sections 4.1(k) and 4.1(u) of the Disclosure
Schedule and as set forth in Section 4.1(u), the Permits will be duly and
validly transferred to the Buyer as of the Closing Date. The Company has
complied with all conditions and requirements imposed by the Permits and the
Company has not received any notice, and has no reason to believe, that any
appropriate authority intends to cancel or terminate any of the Permits or that
valid grounds for such cancellation or termination exist. Except as set forth
in Sections 4.1(k) and 4.1(u) of the Disclosure Schedule, to the Sellers'
knowledge no other Permits are necessary to operate the Business. The Company
owns or has the right to use the Permits in accordance with the terms thereof
without any conflict or alleged conflict or infringement with the rights of
others and subject to no Claim, and each Permit is in full force and effect.
Except as noted in Sections 4.1(k) and 4.1(u) of the Disclosure Schedule and as
set forth in Section 4.1(u), no Permit will be terminated or adversely affected
by the transactions contemplated hereby.
(l) Labor and Employee Relations. The Company is not a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees, and the
Sellers have no knowledge of any attempt to organize any of the Company's
employees by any person, unit or group seeking to act as their bargaining
agent. Except as set forth in Section 4.1(l) of the Disclosure Schedule, there
are no pending or, to the Sellers' knowledge, threatened
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charges (by employees, their representatives or governmental authorities) of
unfair labor practices or of employment discrimination or of any other wrongful
action with respect to any aspect of employment of any person employed or
formerly employed by the Company. No union representation elections relating
to employees of the Company have been scheduled by any Governmental or
Regulatory Authority, no organizational effort is being made with respect to
any of such employees, and to Sellers' knowledge there is no investigation of
the Company's employment policies or practices by any governmental agency or
authority pending or threatened. The Company is not currently, and since
January 1, 1998, has not been, involved in labor negotiations with any unit or
group seeking to become the bargaining unit for any employees of the Company's
employees. The Company has not experienced any work stoppages since January 1,
1998 and to the Sellers' knowledge, no work stoppage has been threatened or is
planned.
(m) Certain Employees. Set forth in Section 4.1(m) of
the Disclosure Schedule is a list of the names of the Company's employees and
consultants as of the date hereof involved in the management and operation of
the Business, together with the title or job classification of each such person
and the total compensation (with wages and bonuses, if any, separately
detailed) paid in 1997 (if applicable) and the current rate of pay for each
such person on the date of this Agreement. Except as set forth in Section
4.1(m) of the Disclosure Schedule, none of such persons has an employment
agreement or understanding, whether oral or written, with the Company which is
not terminable on notice by the Company without cost or other liability to the
Company.
(n) Employee Benefits. Set forth in Section 4.1(n) of
the Disclosure Schedule is a list of all pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive, vacation,
severance, disability, hospitalization, medical insurance, life insurance,
fringe benefit, welfare and other employee benefit plans, programs or
arrangements provided by the Company to which employees of the Company may be
entitled. Each "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
covering any present or former employee of the Company subject to the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") complies with all requirements for continuation coverage under group
health benefit plans under COBRA and there are no claims against the Company
for a failure or alleged failure to comply with the COBRA continuation
requirements. Each employee plan which is subject to ERISA conforms to, and
its operation and administration are in compliance with, all applicable
requirements of ERISA. There are no actions, suits or claims pending (other
than routine claims for benefits) or threatened against any employee plan or
against the assets of any employee plan. None of the Company employee plans
promises or provides retiree medical or other retiree welfare benefits to any
person. The Company does not currently maintain, sponsor, participate in or
contribute to, nor has it ever maintained, established, sponsored, participated
in or contributed to, any pension plan (within the meaning of Section 3(2) of
ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV
of ERISA or Section 4.12 of the Code.
(o) Purchased Assets.
(i) Section 4.1(o) of the Disclosure Schedule
sets forth a true and complete list of all tangible personal property owned by
the Company with an original purchase price in excess of
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$25,000 and used or useable in the Business. The tangible personal property
included in the Purchased Assets will be, at the Closing, all of the tangible
personal property currently owned by the Company and used or useable in the
Business. The Company is the owner of all of the right, title and interest in
and to, and has good and marketable title, free and clear of all Encumbrances
other than Permitted Encumbrances, to the Purchased Assets listed in Section
4.1(o) of the Disclosure Schedule, except as specifically set forth therein.
With respect to equipment leased by the Company, all leases, conditional sale
contracts, franchises or licenses pursuant to which the Company may hold or use
(or permit others to hold or use) such equipment or property are valid and in
full force and effect, and to Sellers' knowledge there is not, under any of
such instruments, any existing default or event of default or event which with
notice or lapse of time or both would constitute such a default. The Company's
possession and use of such leased property has not been disturbed and no claim
has been asserted against the Company adverse to its rights in such leasehold
interests. All Purchased Assets, equipment and property being sold,
transferred or assigned hereunder is adequate and usable for the purposes for
which it is currently used and is in good operating condition and repair,
ordinary wear and tear excepted.
(ii) Each of the Assumed Contracts is in full
force and effect and constitutes a legal, valid and binding agreement,
enforceable in accordance with its terms, of each party thereto; and the
Company has performed all of its required obligations under, and is not, in any
respect, in violation or breach of or default under, any such contract. To the
Company's knowledge, the other parties to the Assumed Contracts are not in
violation or breach of or default under any such contract.
(p) Real Property. The Company does not own or hold
title to any real property. Section 4.1(p) of the Disclosure Schedule sets
forth a true and complete list and description of each parcel of real property
leased by the Company and/or 520 Commonwealth and used by the Company in the
Business (the "Leased Premises"). Each lease covering a Leased Premises is in
full force and effect (there existing no default under any such lease which,
with the lapse of time or notice or otherwise, would entitle the lessor to
terminate the same), conveys the leased real estate purported to be conveyed
thereunder and is enforceable by the Company. The Company has the right to use
the Leased Premises in accordance with the terms of such leases free and clear
of all Encumbrances, claims or other interests or rights of third parties,
except those which do not or would not have an adverse effect on the Leased
Premises as used in the operation of the Business. The Company has not
received notice of any pending or threatened condemnation or similar
proceedings or assessments affecting any of the Leased Premises, nor to the
Sellers' knowledge is any such condemnation or assessment contemplated by any
governmental authority.
(q) Outstanding Commitments. Section 4.1(q) of the
Disclosure Schedule sets forth a description of all existing material
contracts, agreements, commitments, licenses and franchises (other than those
which can be canceled upon not more than 30 days notice without penalty to the
Company), whether written or oral, relating to the ownership or operation of
the Purchased Assets or the Business (collectively "Contracts"). The Seller
has delivered or made available to the Buyer true, correct and complete copies
of all of the Contracts which are in writing, and Section 4.1(q) of the
Disclosure Schedule contains an accurate and complete description of all
Contracts which are not in writing. Except as otherwise disclosed in Section
4.1(q) of the Disclosure Schedule, the Company has paid in full all amounts due
as of the date hereof under each Contract requiring payment. All of the
Contracts described
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in Schedule 4.1(q) are in full force and effect. To Sellers' knowledge, the
Company and each other party thereto have substantially performed all the
obligations required to be performed by them under such Contracts to date,
performance by the Company of any such Contract has not been waived, and the
Company has received no notice of default and is not in default (with due
notice or lapse of time or both) under any such Contract. The Company has no
present expectation or intention of not fully performing all its obligations
under each Contract, and the Sellers have no knowledge of any breach or
anticipated breach by any party other than the Company to any Contract to which
the Company is a party. None of such Contracts has been terminated, no notice
has been given by any party thereto of any alleged default by any party
thereunder, and the Company is not aware of any intention or right of any party
to default another party to any such Contract.
(r) Intellectual Property Rights. Except for the
trademarks, service marks or copyrights or the applications for same listed in
Section 4.1(r) of the Disclosure Schedule, the Company does not own any
Registered Intellectual Property or has not applied for the due registration of
any Registered Intellectual Property. To Sellers' knowledge, each item of
Company Registered Intellectual Property is valid and subsisting, all necessary
registration, application, maintenance and renewal fees, as applicable, in
connection with such Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States for the purposes of
maintaining such Registered Intellectual Property. The Company has all
Intellectual Property necessary to run the Business as currently conducted.
(s) Proprietary Information of Third Parties. To
Sellers' knowledge, no third party has claimed or has reason to claim that any
person employed by or affiliated with the Company in connection with and during
the Company's ownership and operation of the Business has (i) violated or may
be violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party, or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might
be contemplated. To the Sellers' knowledge, no person employed by or affiliated
with the Company in connection with and during the Company's ownership and
operation of the Business has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer and no
person employed by or affiliated with the Company in connection with and during
the Company's ownership and operation of the Business has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Sellers have no reason to believe there will be any
such employment or violation.
(t) [Reserved]
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(u) Environmental Liability.
(i) Environmental Substance Liability. To the
Sellers' knowledge, no event has occurred or condition exists or operating
practice is being employed that could give rise to material liability on the
part of the Sellers under existing law for any losses, liabilities, damages
(whether consequential or otherwise), settlements, penalties, interest and
expenses, including closure expenses, costs of assessment, containment, or
removal (other than transportation and/or disposal of materials required to be
transported or disposed of in the ordinary course of business, remedial work,
or monitoring) arising under any presently enacted federal, state, or local
statute, or any regulation that has been promulgated pursuant thereto, or
common law, as a result of or in connection with, or alleged to be a result of
or in connection with, the following:
(A) the handling, storage, use,
transportation or disposal of any Substances (as hereinafter
defined) in or near or from the Leased Premises by the Company
or any owner of any property used or owned by the Company;
(B) the handling, storage, use,
transportation or disposal of any Substances by the Company
which Substances were a product, by-product or otherwise
resulted from the operations conducted by or on behalf of the
Company;
(C) any intentional or unintentional
emission, discharge or release of any Substances in, from or
near facilities or plants into or upon the air, surface water,
ground water or land or any disposal, handling, manufacturing,
processing, distribution, use, treatment, or transport of such
Substances in, from or near the Leased Premises; or
(D) the presence of any toxic or hazardous
building materials (including but not limited to asbestos or
similar substances) in the Leased Premises, including but not
limited to the inclusion of such materials in the exterior and
interior walls, floors, ceilings, tile, insulation or any
other portion of building structures.
As used in this Section 4.1(u), the term "Substances" shall
mean any pollutant, hazardous substance, hazardous material, hazardous waste or
toxic waste, as defined in any presently enacted Federal, state or local
statute or any regulation that has been promulgated pursuant thereto.
(ii) Environmental Permits. To the Sellers'
knowledge, the Company has obtained and holds all registrations, permits,
licenses, and approvals issued by or on behalf of any federal, state or local
government body or agency ("Environmental Permits"), that are required in
connection with the discharge or emission of Substances from the Leased
Premises or the generation, treatment, storage, transportation or disposal of
any such Substances. Such Environmental Permits, which are described in
Section 4.1(u) of the Disclosure Schedule, are currently effective and
sufficient for the ownership and operation of the plants and facilities as
currently conducted, used or owned by the Company. Notwithstanding any other
term or provision hereof, the Sellers make no representation or warranty that
the Environmental Permits can be transferred as of the Closing Date, but (A) to
Sellers' knowledge, the Environmental Permits may be transferred with the
approval of the applicable governmental authority, subject to the satisfaction
of the applicable governmental authorities as to the policies and procedures
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implemented by the Buyer with respect to the Buyer's handling, storage and
disposal of Substances in connection with the Buyer's intended use, ownership
and operation of the Business, and (B) the Sellers have no reason to believe
that the applicable governmental authorities will not be satisfied with the
Buyer's policies and procedures in connection with the Buyer's intended use,
ownership and operation of the Business and accordingly the Sellers have no
reason to believe that the applicable governmental authorities will not in due
course consent to the transfer of the Environmental Permits to the Buyer.
(v) Taxes. Except as set forth in Section 4.1(v) of the
Disclosure Schedule, all federal, state, local and foreign tax returns and tax
reports required to be filed by the Company on or before the date hereof have
been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed and
all amounts shown as owing thereon have been paid. All taxes (including,
without limitation, income, accumulated earnings, property, sales, use,
franchise, value added, fuel, employees' income withholding and social security
taxes) which have become due or payable or required to be collected by the
Company or as otherwise attributable to any periods ending on or before the
date hereof and the Closing Date and all interest and penalties thereon,
whether disputed or not and whether or not shown on any Return, have been paid
or will be paid in full on or prior to the Closing Date, except where the
Company has a reasonable basis for determining that the taxes are not then due
and payable. All deposits required by law to be made by the Company with
respect to employees' withholding taxes have been duly made, and, as of the
Closing Date, all such deposits will have been made. No claim or Encumbrance
other than a Permitted Encumbrance will be placed upon the Purchased Assets
with respect to (i) any Taxes attributable to the ownership or use of the
Purchased Assets with respect to periods prior to and including the Closing
Date or (ii) any other Taxes (regardless of whether attributable to periods
prior to and including the Closing Date) imposed upon the Company or
attributable to the actions or activities of the Company. The Company is not
presently under, has not received notice of an, nor to the Sellers' knowledge
is there any contemplated, investigation or audit by the Internal Revenue
Service or any state tax agency. The Company has not taken, or failed to
take, any action which could create any tax lien on any of the Purchased
Assets. There is no contract, agreement, plan or arrangement, including but
not limited to the provisions of this Agreement and any exhibit or annex
hereto, covering any current or former employee of or service provider to the
Company that, individually or collectively, could give rise to the payment of
any amount by Buyer or its Affiliates that would not be deductible pursuant to
Section 280G or Section 162 of the Code. None of the Purchased Assets consists
of stock or securities of another corporation or entity. Neither the Company
nor any Member is other than a United States person within the meaning of the
Code.
(w) Insurance. Section 4.1(w) of the Disclosure Schedule
correctly describes (by type, carrier, policy number, limits, premium, and
expiration date) the material insurance coverages carried by the Company in
connection with its ownership and operation of the Purchased Assets and the
Business. As of the date of this Agreement, there is no material claim by the
Company pending under any of the material Company insurance policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such material Company
insurance policies have been paid and, to the Company's knowledge, the Company
are otherwise in material compliance with the terms of such policies. As of
the date of this Agreement, the Company does not know of any threatened
termination of, or material premium increase with respect to, any of its
material Company insurance policies.
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(x) Brokers. Sellers have not retained any broker in
connection with the transactions contemplated hereunder. Buyer has no and will
have no obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee in connection with this Agreement or the
transactions contemplated hereby by reason of any action taken by or on behalf
of any Seller.
(y) Disclosure. Neither this Agreement, nor the
Disclosure Schedule to this Agreement, contains any untrue statement of a
material fact, taken together with all other statements made in this Agreement
or the Disclosure Schedule, or omits a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF SELLERS AS OF THE CLOSING. As
an inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, each of the Sellers jointly and severally
represents and warrants to the Buyer as of the Closing hereunder, except as set
forth in the Disclosure Schedule furnished to Buyer, specifically identifying
the relevant subsection of this Section 4.2, as follows:
(a) Organization; Qualification and Ownership. The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts. The Company
currently conducts its business exclusively within the Commonwealth of
Massachusetts. The Company has the corporate power and authority to own and
hold its Assets and Properties and to carry on the Business as currently
conducted. Kenneth G. Condon is the Manager of the Company. The Company has
the following named officers, each duly elected and qualified by the Manager of
the Company as of the date hereof: Elizabeth Chen, President, and Kenneth G.
Condon, Treasurer. The Company has delivered to Buyer correct and complete
copies of the Company's Certificate of Organization and Operating Agreement,
each as amended to date. The Members of the Company are 520 Commonwealth
Avenue Real Estate Corp., a Massachusetts corporation, and 660 Corporation, a
Massachusetts corporation.
(b) Corporate Power and Authority. The Company has the
corporate power and authority to execute, deliver and perform this Agreement
and the other documents and instruments contemplated hereby. The execution,
delivery and performance of this Agreement and the documents contemplated
hereby and the consummation of the transactions contemplated hereby and thereby
have been duly authorized and approved by the Company's Manager and the
Company's Members. This Agreement, and each of the other agreements, documents
and instruments to be executed and delivered by the Sellers have been duly
executed and delivered by, and constitute the valid and binding obligation of
the Sellers, enforceable against the Sellers in accordance with their terms,
subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws now or hereafter in effect, as well as
limitations imposed by general principles of equity upon the specific
enforceability of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
(c) Validity, Etc. Neither the execution and delivery of
this Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other agreements in compliance with
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the terms and conditions hereof and thereof will, except as set forth in
Section 4.1(c) of the Disclosure Schedule, (i) conflict with or result in any
breach of any trust agreement, certificate of organization, or operating
agreement of any of the Company, (ii) except for approval of the transactions
contemplated hereby by the Office of the Attorney General of the Commonwealth
of Massachusetts, Public Charities Division, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, (iii) result in a breach of or default (or give rise
to any right of termination, cancellation or acceleration) under any law, rule
or regulation or any judgment, decree, order, governmental permit (other than
permits set forth in a Schedule hereto which are not transferable), license or
order or any of the terms, conditions or provisions of any mortgage, indenture,
note, license, agreement or other instrument or obligation to which the Company
is a party or by which the Company or its property is bound, or (iv) result in
the creation of any Encumbrance other than a Permitted Encumbrance upon the
Purchased Assets.
(d) Capital Structure. The Members own, beneficially
and of record, one hundred percent (100%) of the Membership Interests in the
following percentages: 520 Commonwealth-99%; 660 Corporation-1%. All of the
Membership Interests are duly authorized, validly issued, fully paid and
nonassessable. There are no options, warrants, conversion rights, rights of
exchange or other rights, plans, agreements or commitments of any nature
whatsoever (including, without limitation, conversion or preemptive rights)
providing for the purchase, issuance or sale (except as contemplated by this
Agreement) of any Membership Interests or any securities convertible into or
exchangeable for any Membership Interests. The Members own the Membership
Interests free and clear of all Encumbrances, and have, and on the Closing Date
will have, good and valid title to such.
(e) Authority of the Members. Each Member has all
necessary power and authority and has taken all action necessary to enter into
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder and no other proceedings on the part of such
Member is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. Each Member is a corporation duly authorized
to conduct business and is in good standing under the laws of the Commonwealth
of Massachusetts. This Agreement has been duly and validly executed and
delivered by each Member and constitutes a legal, valid and binding obligation
of each Member, enforceable against each Member in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium and other similar laws now or hereafter in effect, as well as
limitations imposed by general principles of equity upon the specific
enforceability of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
(f) No Affiliates. Other than its Members and Trustees
of Boston University, the Company does not have any Affiliates; the Company is
not a partner in any partnership or a party to a joint venture.
(g) Consents and Approvals. Except for the approval of
the office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, and as set forth in Section 4.1(c) or Section 4.1(g) of the
Disclosure Schedule, no consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental or Regulatory
Authority is required by
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or with respect to the Sellers in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
(h) Financial Statements; Absence of Undisclosed
Liabilities. The Company has previously delivered to Buyer the Financial
Statements. The Financial Statements fairly present the financial condition
and results of operations of the Company as of the dates thereof and for the
periods covered thereby; provided, however, that the Financial Statements lack
footnotes and certain other presentation items.
(i) Purchased Assets. Section 4.1(o) of the Disclosure
Schedule sets forth a true and complete list of all tangible personal property
owned by the Company with an original purchase price in excess of $25,000 and
used or useable in the Business. The tangible personal property included in
the Purchased Assets will be, at the Closing, all of the tangible personal
property currently owned by the Company and used or useable in the Business.
The Company is the owner of all of the right, title and interest in and to, and
has good and marketable title, free and clear of all Encumbrances other than
Permitted Encumbrances, to the Purchased Assets listed in Section 4.1(o) of the
Disclosure Schedule, except as specifically set forth therein. With respect
to equipment leased by the Company, all leases, conditional sale contracts,
franchises or licenses pursuant to which the Company may hold or use (or permit
others to hold or use) such equipment or property are valid and in full force
and effect, and to Sellers' knowledge there is not, under any of such
instruments, any existing default or event of default or event which with
notice or lapse of time or both would constitute such a default. The Company's
possession and use of such leased property has not been disturbed and no claim
has been asserted against the Company adverse to its rights in such leasehold
interests. All Purchased Assets, equipment and property being sold,
transferred or assigned hereunder is adequate and usable for the purposes for
which it is currently used and is in good operating condition and repair,
ordinary wear and tear excepted.
(j) Real Property. The Company does not own or hold
title to any real property. Section 4.1(p) of the Disclosure Schedule sets
forth a true and complete list and description of each Leased Premise. Each
lease covering a Leased Premises is in full force and effect (there existing no
default under any such lease which, with the lapse of time or notice or
otherwise, would entitle the lessor to terminate the same), conveys the leased
real estate purported to be conveyed thereunder and is enforceable by the
Company. The Company has the right to use the Leased Premises in accordance
with the terms of such leases free and clear of all Encumbrances, claims or
other interests or rights of third parties, except those which do not or would
not have an adverse effect on the Leased Premises as used in the operation of
the Business. The Company has not received notice of any pending or threatened
condemnation or similar proceedings or assessments affecting any of the Leased
Premises, nor to the Sellers' knowledge is any such condemnation or assessment
contemplated by any governmental authority.
(k) Brokers. Sellers have not retained any broker in
connection with the transactions contemplated hereunder. Buyer has no and will
have no obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee in connection with this Agreement or the
transactions contemplated hereby by reason of any action taken by or on behalf
of any Seller.
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(l) Disclosure. Neither this Agreement, nor the
Disclosure Schedule to this Agreement, contains any untrue statement of a
material fact, taken together with all other statements made in this Agreement
or the Disclosure Schedule, or omits a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers, as of the date hereof and as
of the Closing, as follows:
5.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Buyer is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required except for any
jurisdiction where failure so to qualify would not have an Adverse Effect upon
Buyer. Buyer has full power and authority, and holds all Permits and
authorizations necessary, to carry on the business in which it is engaged and
to own and use the properties owned and used by it except where the failure to
have such power and authority or to hold such license, permit or authorization
would not have an Adverse Effect on Buyer.
5.2 AUTHORITY OF BUYER. Buyer has all necessary corporate power
and corporate authority and has taken all corporate actions necessary to enter
into this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder and no other proceedings on the part of Buyer
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and constitutes a legal, valid and binding obligation of
such Buyer enforceable against Buyer in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
5.3 CAPITAL STRUCTURE. The authorized stock of Buyer consists of
80,000,000 shares of Common Stock, of which 38,503,345 shares were issued and
outstanding as of December 31, 1997, and 5,000,000 shares of Preferred Stock,
none of which were issued or outstanding as of December 31, 1997. As of
December 31, 1997, there were issued and outstanding:
(a) 38,504,459 shares of Buyer Common Stock;
(b) no shares of Preferred Stock;
(c) options exercisable into 4,068,506 shares of Buyer
Common Stock, warrants exercisable into 6,606,094 shares of Buyer Common Stock
and an aggregate principal amount of $6,250,000 of convertible promissory notes
convertible into shares of Buyer Common Stock; and
(d) an aggregate principal amount of $50 million 7 1/2%
Convertible Subordinated Debentures of Glycomed, Inc., a wholly owned
subsidiary of Buyer.
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(e) All such shares, options, warrants, convertible
promissory notes and Convertible Subordinated Debentures have been duly
authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and are free of any Encumbrances other
than any Encumbrances created by or imposed upon the holders thereof.
(f) The shares of Buyer Common Stock issuable pursuant to
the transactions contemplated in this Agreement, if issued, will be duly
authorized, validly issued, fully paid and non-assessable.
5.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Buyer has
furnished or made available to the Company copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934 (the "Exchange
Act") all in the form so filed (all the foregoing being collectively referred
to as the "SEC Documents"). As of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
as the case may be, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC. The financial
statements of Buyer, including the notes thereto, included in the SEC Documents
(the "Buyer Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and present fairly the financial position of Buyer at the dates thereof and the
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal audit adjustments). There has
been no change in Buyer accounting policies except as described in the notes to
the Buyer Financial Statements.
5.5 LITIGATION. There are no Actions or Proceedings pending, or
as to which Buyer has received any notice of assertion against Buyer, which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement or which, if determined
adversely to Buyer would have an Adverse Effect on Buyer.
ARTICLE 6
COVENANTS OF THE PARTIES
6.1 COVENANTS OF THE COMPANY (AND THE MEMBERS) FROM THE DATE OF
THIS AGREEMENT TO THE CLOSING DATE. The Company and each of the Members
covenant with the Buyer, in the period from the date of this Agreement to the
Closing Date (except as otherwise provided herein), to act, as follows:
(a) Cooperation. The Company and the Members shall use
their commercially reasonable efforts to perform and fulfill all conditions and
obligations to be fulfilled or performed by it hereunder, to the end that the
transactions contemplated hereby will be fully and timely consummated.
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(b) Access. Until the Closing, the Company shall give
Buyer, its attorneys, accountants and other authorized representatives
reasonable access, upon reasonable notice and at reasonable times, to the
Leased Premises and suppliers, employees, products, technology, business and
financial records, contracts, business plans, budgets and projections,
agreements and commitments relating to the operation of the Business. Buyer
agrees that, prior to the Closing, it shall not contact or otherwise
communicate with the Company's customers, suppliers or other third parties with
whom the Company has a relationship in connection with the Company's ownership
and operation of the Purchased Assets and the Business, without in each case
obtaining the prior approval of the Company, which approval shall not be
unreasonably withheld, delayed or conditioned.
(c) Insurance. The Company shall maintain insurance
policies providing coverage in type and amount substantially similar to its
existing policies relating to the ownership and operation of the Purchased
Assets and the Business through the Closing.
(d) Compliance with Laws. The Company shall operate the
Business in compliance with all applicable laws, rules, regulations and orders,
except for minor failures to be in compliance with applicable laws, rules,
regulation and orders that would not, individually or in the aggregate, have a
material adverse effect on the Purchased Assets or the operation or condition
(financial or otherwise) or prospects of the Business.
(e) Keeping of Books and Records. The Company shall
continue to keep adequate records and books of account, in which complete
entries will be made in accordance with its existing accounting principles
consistently applied, reflecting all financial transactions and in which all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its ownership and operation of
the Purchased Assets and the Business.
(f) Actions Prior to Closing. The Company shall operate
the Business, pending the Closing, only in the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Company will not, except
in the Ordinary Course of Business, without the prior written consent of Buyer,
(i) make any disposition of any Purchased Asset, (ii) enter into any contract
or release or relinquish any contract or other right with respect to the
ownership or operation of the Purchased Assets or the Business, or (iii) enter
into or renew any employment agreement with any employees or consultants or
grant any increases in the compensation or benefits to, or agree to pay any
bonus, severance or termination payment or other special compensation to, any
employees or consultants involved in the operation of the Business.
(g) Litigation. The Company will promptly notify Buyer
of any lawsuits, claims, proceedings or investigations which are commenced or,
to the Sellers' knowledge, threatened against the Company, or against any
employee or consultant of the Company, involving in any way the ownership or
operation of the Purchased Assets or the Business or which may threaten the
consummation by the Company of the transactions contemplated hereby.
(h) Continued Effectiveness of Representations and
Warranties. From the date hereof up to and including the Closing Date, the
Company will continue to operate the Business in such manner that the
representations and warranties contained in this Agreement by the Company or
the Sellers, as
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the case may be, shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date, except for changes and the
consequences of events arising in the Ordinary Course of Business after the
date hereof none of which would have an Adverse Effect on the Purchased Assets
or the operation or condition (financial or otherwise) or prospects of the
Business as presently conducted. Without limiting the foregoing, as of the
Closing Date, the Company will have satisfied in full all of its liabilities
and obligations thereunder due in the Ordinary Course of Business prior to the
Closing.
(i) Tax Returns. The Company shall cause to be prepared
and timely filed all of its required tax returns for all periods up to and
including the Closing Date.
6.2 COVENANTS OF THE COMPANY (AND THE MEMBERS) FROM THE MERGER
CLOSING TO THE CLOSING DATE.
(a) Except as otherwise contemplated by this Agreement,
during the period from the Merger Closing to the Closing Date, without the
prior written consent of Buyer, the Company will not, and each of the Members
shall to the extent it is in their respective powers cause the Company not to:
(i) commence or conduct any new business other
than the Business;
(ii) create, incur or assume any long-term or
short-term debt (including obligations with respect to capital leases), other
than in connection with the acquisition of any real property, machinery,
equipment or other capital assets with a purchase price not in excess of
$30,000 in the aggregate or (i) assume, guarantee, endorse or otherwise become
liable or responsible for (whether directly, contingently or otherwise) the
obligations of any other Person, other than endorsing negotiable instruments in
the Ordinary Course of Business in amounts less than $30,000;
(iii) declare, set aside or pay any distribution to
any Member (whether in cash or property or any combination thereof);
(iv) permit any material insurance (or
reinsurance) policies to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination, cancellation
or lapse, replacement policies with similarly rated insurance companies
providing coverage equal to or greater than coverage remaining under those
cancelled, terminated or lapsed are in full force and effect;
(v) create, organize or otherwise establish any
new subsidiary or joint venture;
(vi) make any change to its Certificate of
Organization, Operating Agreement or other organizational documents;
(vii) take any other action which would result in
an Adverse Effect on the Company;
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(viii) agree, whether in writing or orally, whether
formally or informally, to engage in any of the actions described in clauses
(i) through (vii) of this Section 6.2.
(b) The Company shall prepare and deliver to Buyer within
fifteen (15) business days after each month end an unaudited balance sheet, a
statement of income and cash flows and detail of general and administrative
expenses of the Company for the immediately preceding calendar month during the
period from the Merger Closing through the earlier of (i) the Closing Date or
(ii) termination pursuant to Section 10.1 of this Agreement.
6.3 ADDITIONAL COVENANTS OF THE PARTIES. Each of the parties
covenants with the others to act, as follows:
(a) The Company shall allow Buyer or its authorized
representatives, at Buyer's own expense during regular business hours, or
otherwise with the consent of the Company (which consent shall not be
unreasonably withheld), to interview employees of the Company and to make such
inspection of the Company and to inspect (and, if applicable, make copies of)
Books and Records, plants, offices, warehouses and other facilities of the
Company as requested by Buyer or its authorized representatives and reasonably
necessary for or reasonably related to the operation of the Business, including
historical financial information, concerning the Business; provided, however,
that any information obtained from the Members or the Company is subject to the
obligations imposed by Section 10.12 below.
(b) As soon as practicable after execution of this
Agreement, Sellers will commence all reasonable action required hereunder to
obtain all applicable Permits, consents, approvals and agreements of, and to
give all notices and make all filings with, any third parties as may be
necessary to authorize, approve or permit the full and complete consummation of
the transactions contemplated hereby by the Closing Date.
(c) Each of the parties shall give prompt notice to the
other party, of (i) the discovery of a fact or facts of which the notifying
party has actual knowledge which cause it or him to conclude that any of the
representations, warranties or statements made by it or him or in an any
exhibit, schedule or other document delivered pursuant to this Agreement, may
be false or misleading or omission of any facts necessary in order to make such
representations, warranties or statements not false or misleading; (ii) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty made by them in this
Agreement to be untrue or inaccurate any time from the date hereof to the
Closing Date; and (iii) any failure of the notifying party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it or him hereunder. Each party hereto shall use all reasonable efforts to
remedy any failure on its or his part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it or him hereunder.
During the period from the date of this Agreement to the Closing Date, Sellers
will promptly notify Buyer of any material change in, or outside of, the normal
course of business or operations of the Company and of any Governmental or
Regulatory Authority complaints, investigative hearings, or the institution,
threat (to the extent Sellers have knowledge of such threat) or settlement of
litigation, in each case involving an amount in excess of $150,000 and relating
to the Company, and shall keep Buyer fully informed in
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reasonable detail of such events. The Company shall not enter into any
settlements over $150,000 in connection with any such litigation without the
prior written consent of Buyer.
(d) Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its commercially reasonable best
efforts to take, or cause to be taken, all action, or to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, obtaining all consents and
approvals of all Persons and Governmental or Regulatory Authorities and
removing any injunctions or other impairments or delays or otherwise which are
necessary to the consummation of the transactions contemplated by this
Agreement.
(e) Each of the parties hereto will use its best efforts
to make or cause to be made all such filings and submissions as may be required
under applicable laws and regulations for the consummation of the transactions
contemplated by this Agreement. Sellers and Buyer will coordinate and
cooperate with one another in exchanging such information and provide each
other such assistance as any other party may reasonably request in connection
with the foregoing.
(f) On the earlier of the Closing Date or the date of
payment of the Option Consideration, Buyer will have registered, pursuant to
the Securities Act, the offer and sale of shares of Buyer Common Stock to be
included in the Purchase Price, if any, will have qualified such shares of
Buyer Common Stock for sale under applicable foreign or state securities or
"blue sky" laws, and maintained in effect such registrations and
qualifications. Such Buyer Common Stock, when delivered, shall be free of any
restrictions on resale, other than such restrictions required under federal
securities laws.
(g) The shares of Buyer Common Stock, if any, issuable to
the Company pursuant to Section 3.4 shall have been authorized for listing on
the Nasdaq National Market upon official notice of issuance.
(h) On the Closing Date, the Company will amend its
Operating Agreement and all other documents necessary to change its name to any
name other than "Marathon Biopharmaceuticals, LLC" or any name similar thereto,
shall otherwise cease using the name "Marathon Biopharmaceuticals, LLC" and any
similar name thereto in any capacity, and will assign to Buyer all rights in
and to the name "Marathon Biopharmaceuticals, LLC."
(i) Unless and until this Agreement is terminated
pursuant to Section 10.1, neither the Company nor any of the Members nor any of
their respective Affiliates, if any, will directly or indirectly solicit,
initiate or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to or consider the merits of any
unsolicited inquiries or proposals from, any Person (other than Purchaser)
relating to any transaction involving the sale of all or a substantial portion
of the Assets or Properties of the Company, or any membership interests of the
Company, or any merger, consolidation, business combination or similar
transaction involving the Company (each a "Proposed Acquisition Transaction").
Sellers will immediately notify Buyer if any discussions or negotiations are
sought to be initiated, any inquiry or proposal is made, or any information is
requested with respect to
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any Proposed Acquisition Transaction and notify Buyer of the terms of any
proposal which it or its Affiliates, if any, may receive in respect of any such
Proposed Acquisition Transaction, including without limitation the identity of
the prospective purchaser or soliciting party. Sellers shall also provide
Buyer with a copy of any written offer.
(j) Except as required by applicable law, prior to the
Closing, no party shall issue or cause the publication of any press release or
otherwise make any public statement with respect to the transactions
contemplated hereby without the prior written consent of Buyer and the Company,
which consent shall not be unreasonably withheld.
(k) (i) Buyer and Seller acknowledge and affirm their
intention that Buyer shall not assume any liabilities or obligations of the
Company to any current or former employee of the Company, other than those
persons listed in Schedule 6.3(k)(i) and as provided in Schedule 3.3. Buyer
shall not have any liability or obligation to or in respect of any employee or
agent of the Company, including but not limited to any liability or obligation
(A) to employ or engage any such employee or agent, (B) arising from such
employee or agent's dismissal by the Company or any notice and/or payment in
lieu of notice required by applicable law in connection with such dismissal, or
(C) in respect of any compensation, tenure, seniority, benefit, or welfare plan
or arrangement of any kind.
(ii) Schedule 6.3(k)(ii) hereto sets forth a list
of all those employees of the Company at the Facility to whom Buyer intends to
offer employment (the "Selected Employees"). Buyer shall offer employment to
all of the Selected Employees upon such terms and conditions as Buyer shall in
its sole discretion determine. At any time prior to the Closing Buyer may, but
is in no way obligated to, offer employment to such other employees of the
Company whose employment is terminated by Seller, notwithstanding that such
employees are not listed on Schedule 6.3(k)(ii) hereto.
(l) The Company shall take all necessary action to keep
the Service Agreement in full force and effect and binding on the parties
thereto consistent with its terms, and shall not amend or modify any provisions
of the Service Agreement without Buyer's prior written consent. The Company
shall not consider Seragen in breach or default of the Service Agreement for
any failure of Seragen to perform its obligations under the Service Agreement
prior to the Merger Closing and shall forbear from taking any action of
whatever nature inconsistent with this Section 6.3(l). After the Merger
Closing, Buyer will, or will cause Seragen to, faithfully perform all of its
obligations, including payment obligations, to the Company under the terms of
the Service Agreement.
(m) The Company shall not amend, modify or terminate any
material contract, agreement, commitment, license or franchise so as to cause
an Adverse Effect on the Company or the Purchased Assets.
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ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF SELLERS
The obligations of Sellers to effect the transactions contemplated
hereby are subject to the satisfaction, at or before the Closing, of each of
the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations
and warranties of Buyer contained in this Agreement shall be true and correct
on and as of the Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall remain true and
correct as of such date), and Buyer shall have performed all agreements and
covenants in a timely manner required to be performed by it prior to or on the
Closing Date.
7.2 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings shall
have been instituted or threatened which question the validity or legality of
the transactions contemplated hereby.
7.3 CONSENTS. All Permits, authorizations, consents, approvals
and waivers from third parties and Governmental or Regulatory Authorities and
other Persons necessary or appropriate to permit Buyer to perform their
respective obligations hereunder and to consummate the transactions
contemplated hereby shall have been obtained. The office of the Attorney
General of the Commonwealth of Massachusetts, Public Charities Division
("Massachusetts Attorney General"), shall have approved the transactions
contemplated by this Agreement to the reasonable satisfaction of the Company
and Mintz Levin and such approval shall be effective as of the Closing Date.
7.4 CLOSING DELIVERIES. Buyer shall have executed and delivered
the documents required to be executed and delivered by Buyer pursuant to
Section 3.8(b) above.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions
contemplated hereby is subject to the satisfaction, at or before the Closing,
of each of the following conditions:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Sellers contained in this Agreement shall be
true and correct on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Sellers shall
have performed all agreements and covenants in a timely manner required to be
performed by them prior to or on the Closing Date.
8.2 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings shall
have been instituted or threatened which question the validity or legality of
the transactions contemplated hereby.
8.3 CONSENTS. All Permits, authorizations, consents, approvals
and waivers from third parties and Governmental or Regulatory Authorities and
other Persons necessary or appropriate to permit Sellers to perform their
respective obligations hereunder and to consummate the transactions
contemplated hereby
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shall have been obtained, including, without limitation, the continued
effectiveness of approvals required from the Massachusetts Attorney General,
referred to in Section 7.3 above, to the satisfaction of Buyer and Buyer's
counsel.
8.4 CLOSING DELIVERIES. The Company and the Members shall have
executed and delivered the documents required to be executed and delivered by
the Company and the Members, respectively, pursuant to Section 3.8(c) above.
ARTICLE 9
ACTIONS BY THE PARTIES AFTER THE CLOSING
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. The
representations, warranties and covenants of Sellers contained in or made
pursuant to this Agreement or any certificate, document or instrument delivered
pursuant to or in connection with this Agreement or the transactions
contemplated hereby shall survive the execution and delivery of this Agreement
and the Closing hereunder notwithstanding any investigation, analysis or
evaluation by Buyer or its designees of the Purchased Assets, Business,
operations or condition (financial or otherwise) of the Company and, where
applicable, of the Members, and the Purchase Assets and thereafter the
representations and warranties of Sellers shall continue to survive in full
force and effect for a period of one (1) year after the Closing Date; provided,
however, that (i) the representations and warranties contained in Sections
4.(a) through (e) shall continue to survive indefinitely after the Closing
Date; and (ii) the representations and warranties in Section 4.1(u) shall
continue to survive after the Closing Date for a period of three (3) years; and
(iii) the representations and warranties in Section 4.1(v) shall continue to
survive after the Closing Date until the expiration of all applicable statutes
of limitations.
9.2 INDEMNIFICATION.
(a) By Sellers. Sellers, jointly and severally, shall
indemnify, defend and hold harmless Buyer, and its officers, directors,
employees, agents, successors and assigns (collectively the "Buyer Group") from
and against any and all costs, losses (including, without limitation,
diminution in value), Liabilities, damages, lawsuits, deficiencies, claims and
expenses, including without limitation, interest, penalties, costs of
mitigation, clean-up or remedial action, lost profits and other losses
resulting from any shutdown or curtailment of operations, damages to the
Environment, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, the "Damages"), incurred in
connection with, arising out of, resulting from or incident to (i) any breach
of any covenant, representation, warranty or agreement or the inaccuracy of any
representation, made by any of the Sellers in or pursuant to this Agreement,
(ii) any Excluded Assets or (iii) any Liabilities of the Company on the Closing
Date which are not part of the Assumed Liabilities.
(b) By Buyer. Buyer shall indemnify, defend and hold
harmless Sellers and their respective officers, employees, agents, successors
and assigns from and against any and all Damages incurred in connection with,
arising out of, resulting from or incident to (i) any breach of any covenant,
representation, warranty or agreement or the inaccuracy of any representation,
made by Buyer in or
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pursuant to this Agreement or (ii) any liability relating to the Business
arising on or after the Closing Date.
(c) Defense of Claims. If any Action or Proceeding is
filed or initiated against any party entitled to the benefit of indemnity
hereunder, written notice thereof shall be given to the indemnifying party as
promptly as practicable (and in any event within thirty (30) days after the
service of the citation or summons); provided, however, that the failure of any
indemnified party to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such Action or Proceeding, then the indemnifying
party shall be entitled, if it so elects, to take control of the defense and
investigation of such Action or Proceeding and to employ and engage attorneys
of its own choice to handle and defend the same, such attorneys to be
reasonably satisfactory to the indemnified party, at the indemnifying party's
cost, risk and expense (unless (i) the indemnifying party has failed to assume
the defense of such Action or Proceeding or (ii) the named parties to such
Action or Proceeding include both of the indemnifying party and the indemnified
party, and the indemnified party and its counsel determine in good faith that
there may be one or more legal defenses available to such indemnified party
that are different from or additional to those available to the indemnifying
party and that joint representation would be inappropriate), and to compromise
or settle such Action or Proceeding, which compromise or settlement shall be
made only with the written consent of the indemnified party, such consent not
to be unreasonably withheld. The indemnified party may withhold such consent
if such compromise or settlement would adversely affect the conduct of business
or requires less than an unconditional release to be obtained. If (i) the
indemnifying party fails to assume the defense of such Action or Proceeding
within fifteen (15) days after receipt of notice thereof pursuant to this
Section 9, or (ii) the named parties to such Action or Proceeding include both
the indemnifying party and the indemnified party and the indemnified party and
its counsel determine in good faith that there may be one or more legal
defenses available to such indemnified party that are different from or
additional to those available to the indemnifying party and that joint
representation would be inappropriate, the indemnified party against which such
Action or Proceeding has been filed or initiated will (upon delivering notice
to such effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such Action or Proceeding on behalf of and for the account and risk of the
indemnifying party; provided, however, that such Action or Proceeding shall not
be compromised or settled without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. In the event the
indemnified party assumes defense of the Action or Proceeding, the indemnified
party will keep the indemnifying party reasonably informed of the progress of
any such defense, compromise or settlement and will consult with, when
appropriate, and consider any reasonable advice from, the indemnifying party of
any such defense, compromise or settlement. The indemnifying party shall be
liable for any settlement of any action effected pursuant to and in accordance
with this Section 9.2 and for any final judgment (subject to any right of
appeal), and the indemnifying party agrees to indemnify and hold harmless the
indemnified party from and against any Damages by reason of such settlement or
judgment.
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Regardless of whether the indemnifying party or the
indemnified party takes up the defense, the indemnifying party will pay
reasonable costs and expenses in connection with the defense, compromise or
settlement for any Action or Proceeding under this Section 9.2.
The indemnified party shall cooperate in all reasonable
respects with the indemnifying party and such attorneys in the investigation,
trial and defense of such Action or Proceeding and any appeal arising
therefrom; provided, however, that the indemnified party may, at its own cost,
participate in the investigation, trial and defense of such Action or
Proceeding and any appeal arising therefrom. The indemnifying party shall pay
all expenses due under this Section 9.2 as such expenses become due. In the
event such expenses are not so paid, the indemnified party shall be entitled to
settle any Action or Proceeding under this Section 9.2 without the consent of
the indemnifying party and without waiving any rights the indemnified party may
have against the indemnifying party.
(d) Tax Indemnification.
(i) Notwithstanding anything in this Agreement to
the contrary, Sellers, jointly and severally, shall indemnify, defend and hold
harmless all members of the Buyer Group for, from and against all Damages
arising in respect of any Pre-Closing Period (as defined below) asserted
against or incurred by members of the Buyer Group resulting from a breach of
the representations or warranties set forth in Section 4.25 above, including
the Disclosure Schedule referred to therein and relating to such Section ("Tax
Losses").
(ii) "Pre-Closing Period" means any taxable period
ending on or before the Closing Date, and the portion of any taxable period
beginning on or before but ending after the Closing Date which portion begins
on the first day of such a taxable period and ends on the Closing Date.
(iii) Notwithstanding anything in this Agreement to
the contrary, Buyer shall have the right to control any audit or determination
by any taxing authority, initiate any claim for refund or amended return,
contest, defend against, resolve, and settle any assessment, notice of
deficiency or other adjustment or proposed adjustment of Taxes or otherwise
resolve any issue pertaining to any Tax Losses; provided, however, that Buyer
shall consult with Sellers in contesting any proposed adjustment, shall
consider any reasonable advice from Sellers concerning such contest and shall
not settle any such contest without the prior written consent of Buyer, which
shall not be unreasonably withheld. Sellers shall have the right to receive in
a timely manner copies of all non-privileged correspondence, records and
relevant documentation and to be timely informed of and to attend all meetings
with third parties relating to any claimed Tax Losses.
(e) Limitations on Liability. An indemnified party shall
be obligated to provide indemnity under this Article 9 only if and to the
extent that the Damages incurred by an indemnified party exceed $150,000 and in
no case shall an indemnifying party be obligated to provide indemnity for
Damages in excess of $1,000,000. The limitations of this Section 9.2(e) shall
not apply to Damages resulting from fraudulent misrepresentations or Damages
incurred under Sections 9.2(a)(iii) or 9.2(b)(ii).
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ARTICLE 10
MISCELLANEOUS
10.1 TERMINATION. This Agreement may be terminated at any time
prior to Closing:
(a) by mutual written consent of the parties hereto;
(b) by the Company, if the Company or any Seller is not
in material breach of their respective obligations under this Agreement and (i)
any condition precedent to Sellers' obligations hereunder is not satisfied and
such condition is not waived by Sellers at or prior to the Closing Date or (ii)
there has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement and such violation or
breach has not been waived in writing by Sellers; or
(c) by Buyer, if Buyer is not in material breach of its
obligations under this Agreement and (i) any condition precedent to Buyer's
obligations hereunder is not satisfied and such condition is not waived by
Buyer at or prior to the Closing Date or (ii) there has been a material
violation or breach by any of the Sellers of any agreement, representation or
warranty contained in this Agreement and such violation or breach has not been
waived in writing by Buyer;
(d) by Buyer, if there shall be any action taken, or any
statute, rule regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated by this Agreement, by any
governmental entity, which would (i) prohibit Buyer's ownership or operation of
all or any portion of the Purchased Assets of the Company or (ii) compel Buyer
to dispose of or hold separate all or a portion of the Purchased Assets of the
Company as a result of the transactions contemplated by this Agreement;
(e) by Buyer, if the Company seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against the
Company within sixty (60) days;
(f) by the Company, if Buyer seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against Buyer
within sixty (60) days;
(g) by Buyer or the Company, if the Merger Agreement is
terminated; in which case, Buyer or Sellers, as the case may be, may terminate
this Agreement at its or their option by notice to the other party or parties.
In the event of the termination of this Agreement as above provided, no party
shall have any liability hereunder of any nature whatsoever to any other party,
including any liability for Damages; provided, however, that if, at the time of
such termination, any party is in default under its obligations hereunder, the
party in default shall be liable to the other parties for such default. In the
event that a condition precedent to its obligations is not satisfied, nothing
contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Closing. This Agreement shall terminate automatically if the Closing has
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not occurred on or prior to January 31, 1999, subject to extension pursuant to
the Option Agreement, unless otherwise extended in writing by all parties
hereto, provided that such termination will not relieve a party in breach of
any of its obligations.
10.2 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission with
answer back confirmation or mailed (postage prepaid by certified or registered
mail, return receipt requested) or by overnight courier to the parties at the
following addresses or facsimile numbers:
IF TO THE COMPANY, TO:
Marathon Biopharmaceuticals, LLC
97 South Street
Hopkinton, MA 01748
Facsimile No.: (508) 497-0777
Attention: President
WITH COPIES TO:
Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, MA 02111
Facsimile No.: (617) 542-2241
Attention: Thomas J. Kelly, Esq.
Dionne & Gass
73 Tremont Street
Boston, MA 02108
Facsimile No.: (617) 723-4151
Attention: Richard Dionne, Esq.
520 Commonwealth Avenue Real Estate Corp. (see below)
IF TO THE MEMBERS, TO:
520 Commonwealth Avenue Real Estate Corp.
881 Commonwealth Avenue
Boston, MA 02115
Facsimile No.: (617) 353-5492
Attention: Kenneth G. Condon, President
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IF TO BUYER, TO:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Facsimile No.: (619) 550-7506
Attention: William L. Respess, Esq.
WITH COPIES TO:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
Facsimile No.: (619) 234-1966
Attn: Faye H. Russell, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.2, be deemed given
upon delivery, (ii) if delivered by facsimile transmission to the facsimile
number as provided in this Section 10.2, be deemed given upon receipt, and
(iii) if delivered by mail in the manner described above to the address as
provided in this Section 10.2, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received
by any other Person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other parties hereto.
10.3 ENTIRE AGREEMENT. This Agreement (and all Exhibits and
Schedules attached hereto, all other documents delivered in connection
herewith) supersedes all prior discussions and agreements among the parties
with respect to the subject matter hereof and contains the sole and entire
agreement among the parties hereto with respect thereto.
10.4 WAIVER. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No
waiver by any party hereto of any term or condition of this Agreement, in any
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
All remedies, either under this Agreement or by law or otherwise afforded, will
be cumulative and not alternative.
10.5 AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
10.6 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is
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not the intention of the parties to confer third-party beneficiary rights upon
any other Person other than any Person entitled to indemnity under Section 9.2.
10.7 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt
to do so will be void; provided, any party's rights to indemnification under
Article 9 may be freely assigned; provided further, Buyer may assign its
rights, interests and obligations hereunder to an Affiliate or in connection
with the merger of Buyer or the sale of all or substantially all of the assets
of the Buyer. This Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
10.8 HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
10.9 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and mutually
acceptable to the parties herein.
10.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts executed and performed in such State, without giving
effect to conflicts of laws principles.
10.11 CONSENT TO JURISDICTION AND FORUM SELECTION. The parties
hereto agree that all actions or proceedings arising in connection with this
Agreement shall be initiated and tried exclusively in the State and Federal
courts located in the Commonwealth of Massachusetts. The aforementioned choice
of venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement in any jurisdiction other than
that specified in this Section 10.11. Each party hereby waives any right it
may have to assert the doctrine of forum non conveniens or similar doctrine or
to object to venue with respect to any proceeding brought in accordance with
this paragraph, and stipulates that the State and Federal courts located in the
Commonwealth of Massachusetts shall have in personam jurisdiction and venue
over each of them for the purposes of litigating any dispute, controversy or
proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section 10.11 by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement, or in the manner set
forth in Section 10.11 of this Agreement for the giving of notice. Any
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final judgment rendered against a party in any action or proceeding shall be
conclusive as to the subject of such final judgment and may be enforced in other
jurisdictions in any manner provided by law.
10.12 CONFIDENTIALITY. Each of the parties agrees that, until the
Closing, it and its officers, directors, managers, employees, agents,
Affiliates and representatives shall maintain the facts surrounding the
negotiation of this Agreement, this Agreement, disclosures made herein and
hereunder, and the results of investigations and audits conducted hereunder
completely confidential and shall not disclose such information to any other
Person (except as may be required by law or legal process or as necessary to
carry out the terms of this Agreement or to the extent such information becomes
public information or generally available to the public through no fault of
such party or its Affiliates) without the prior written consent of Buyer and
the Company.
10.13 EXPENSE. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses and costs incidental to the preparation
of this Agreement and to the consummation of the transactions contemplated
hereby.
10.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but
all of which together will constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By: /s/ David E. Robinson
------------------------------------------
Name: David E. Robinson
Title: President and Chief Executive Officer
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts limited liability company
By: /s/ Kenneth G. Condon
------------------------------------------
Name: Kenneth G. Condon
Title: Manager
520 COMMONWEALTH AVENUE REAL
ESTATE CORP., a Massachusetts corporation
By: /s/ Kenneth G. Condon
------------------------------------------
Name: Kenneth G. Condon
Its: President
[SIGNATURE PAGE TO THE ASSET PURCHASE AGREEMENT]
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660 CORPORATION, a Massachusetts corporation
By: /s/ Kenneth G. Condon
------------------------------------------
Name: Kenneth G. Condon
Its: Treasurer
[SIGNATURE PAGE TO THE ASSET PURCHASE AGREEMENT]
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Schedule 3.3
ASSUMED LIABILITIES
1. All liabilities associated with the employees of the Company, other
than Liabilities and obligations to personnel of the Company who are
not Selected Employees, up to an amount of $250,000 with respect to
the notice and continuation coverage requirement of Section 4980B(e)
of the Code and regulations thereunder, payroll, overtime, accrued
vacation time, holiday time, severance arrangements or worker's
compensation of any nature which are accrued but unpaid as of the
Closing Date or which accrued as a result of the consummation of the
transactions contemplated herein.
2. All liabilities associated with the Assumed Contracts arising after
the Closing Date.
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EXHIBIT A
CERTIFICATE OF OFFICER
LIGAND PHARMACEUTICALS INCORPORATED
This Certificate is delivered pursuant to Section 3.8(b)(ii) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated
("Buyer"), Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation. Capitalized terms used herein without
definition shall have the same meaning as set forth in the Agreement.
I, ________________________, do hereby certify that I am the duly
elected, qualified and acting ______________________ of Buyer and as such, am
authorized to execute this Certificate on its behalf, and I further certify
that:
1. All representations and warranties of Buyer contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Buyer has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened
which question the validity or legality of the transactions contemplated by the
Agreement.
3. All Permits, authorizations, consents, approvals and waivers
from third parties and Governmental or Regulatory Authorities and other Persons
necessary or appropriate to permit Buyer to perform its respective obligations
hereunder and to consummate the transactions contemplated by the Agreement have
been obtained.
IN WITNESS WHEREOF, I have executed this Certificate as of the Closing
Date, this ____ day of ________________, 199__.
_____________________________________________
Name:_________________
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EXHIBIT B
BILL OF SALE
THIS BILL OF SALE dated as of ___________ is being executed
and delivered by Marathon Biopharmaceuticals LLC, a Massachusetts limited
liability company (the "Company"), 520 Commonwealth Real Estate Corporation, a
Massachusetts corporation ("520 Corporation"), and 660 Corporation, a
Massachusetts corporation ("660 Corporation," and together with the Company and
520 Commonwealth, the "Sellers"), pursuant to that certain Option and Asset
Purchase Agreement dated as of May __, 1998 (the "Purchase Agreement"), by and
among Sellers and Ligand Pharmaceuticals Incorporated, a Delaware corporation
("Buyer"). The execution and delivery of this Bill of Sale is a condition to
Buyer's obligations under the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller hereby agrees
as follows:
(a) Capitalized terms used herein but not defined herein
shall have the meanings assigned such terms in the Purchase Agreement.
(b) Subject to the terms and conditions set forth in the
Purchase Agreement, Sellers hereby grant, sell, convey, assign, transfer and
deliver to Buyer, and Buyer hereby acquires from Sellers, free and clear of any
Encumbrance or adverse claim of any kind whatsoever other than any Permitted
Encumbrance, all of the Company's right, title, and interest in and to all
assets, properties, rights, leases, fixtures, accessories, claims, contracts
and interests of the Company of every kind, type or description, real, personal
and mixed, tangible and intangible, wherever located, that are used in or
pertain to the Business and operations of the Company (the "Purchased Assets"),
including without limitation:
(a) the equipment, leasehold improvements,
furniture and fixtures, vehicles and other operating assets owned or leased by
the Company and used in the Business as set forth in Schedule 3.1(a) to the
Purchase Agreement;
(b) all customer lists and customer accounts
owned by the Company as set forth in Schedule 3.1(b) to the Purchase Agreement;
(c) all of the Company's right, title and
interest in and to the contracts and agreements set forth in Schedule 3.1(c) to
the Purchase Agreement;
(d) all Permits issued to or held by the Company
necessary or incidental to the conduct of the Business set forth in Schedule
3.1(d) to the Purchase Agreement to the extent transferable;
(e) all the operating data, books, files,
documents and records of the Company relating to the Business;
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(f) all prepaid expenses, deposits (other than
lease security deposits, if any) and deferred items in effect as of the date
hereof and from which Buyer may derive future benefit;
(g) all of the Company's rights to the name
"Marathon Biopharmaceuticals", all variations thereof and all trademarks, trade
names, service marks and goodwill associated therewith; and
(h) the goodwill and going concern value of the
business of the Company.
(c) Buyer hereby waives compliance by Sellers with the
provisions of the bulk transfer laws of any state. Sellers warrant and agree
to pay and discharge when due all claims of creditors which could be asserted
against Buyer by reason of such noncompliance. Sellers shall indemnify and
hold Buyer harmless from, against and in respect of (and shall on demand
reimburse Buyer for) any Damages suffered or incurred by Buyer by reason of the
failure of Sellers to pay or discharge such claims.
(d) From time to time after the date hereof, Sellers will
execute and deliver, or cause its affiliates to execute and deliver, to Buyer
such instruments of sale, transfer, conveyance, assignment and delivery, and
such consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Buyer or its counsel in order to vest in the Company
all right, title and interest of Seller in and to the Purchased Assets and
otherwise in order to carry out the purpose and intent of this Bill of Sale.
5. Notwithstanding any other provisions of this Bill of
Sale to the contrary, nothing contained in this Bill of Sale shall in any way
supersede, modify, replace, amend, change, rescind, waive, exceed, expand,
enlarge or in any way affect the provisions, including warranties, covenants,
agreements, conditions, representations or, in general any of rights and
remedies, and any of the obligations and indemnifications of Sellers or Buyers
set forth in the Purchase Agreement nor shall this Bill of Sale expand or
enlarge any remedies under the Purchase Agreement including without limitation
any limits on indemnification specified therein. This Bill of Sale is intended
only to effect the transfer of certain property transferred pursuant to the
Purchase Agreement and shall be governed entirely in accordance with the terms
and conditions of the Purchase Agreement.
6. This Bill of Sale may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but
all of which together will constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, Sellers have caused this Bill of Sale to
be executed and delivered on the date and year first written above.
Marathon Biopharmaceuticals, LLC, a
Massachusetts limited liability company
By:__________________________________________
Name:________________________________________
Title:_______________________________________
520 Commonwealth Real Estate Corporation,
a Massachusetts corporation ______________
By:__________________________________________
Name:________________________________________
Title:_______________________________________
660 Corporation,
a Massachusetts corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
[SIGNATURE PAGE TO THE BILL OF SALE]
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EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement ("Assignment") is
entered into this ____ day of ____, 199__, by and between Ligand
Pharmaceuticals Incorporated, a Delaware corporation ("Assignee"), and Marathon
Biopharmaceuticals LLC, a Massachusetts limited liability company, 520
Commonwealth Real Estate Corporation, a Massachusetts corporation and 660
Corporation, a Massachusetts corporation (collectively, the "Assignors").
RECITALS
WHEREAS, Assignors and Assignee have entered into that certain
Option and Asset Purchase Agreement, dated as of May ___, 1998 (the "Purchase
Agreement") for the sale by Assignors of the Purchased Assets (as defined in
Section 3.1 of the Purchase Agreement) (initially capitalized terms used herein
and not otherwise defined herein shall have the meanings given to such terms in
the Purchase Agreement); and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the consummation of the transactions contemplated under
the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, and for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
(e) ASSIGNMENT AND ASSUMPTION. Assignors hereby agree
that, effective as of the Closing, it shall grant, sell, convey, assign,
transfer and deliver to Assignee, and Assignee hereby agrees to accept and
assume, free and clear of any Encumbrance or adverse claim of any kind
whatsoever other than any Permitted Encumbrance, all of Assignors' right, title
and interest in and to all the Purchased Assets. Assignors hereby assign, and
Assignee hereby assumes, agrees to pay, perform and discharge when due, any
liability or obligation with respect to the Assumed Liabilities.
(f) RETAINED LIABILITIES. The parties acknowledge and
agree that, except for the Assumed Liabilities, Assignors shall retain and be
responsible for all obligations, liabilities, and claims of any nature,
accruing, arising out of, or relating to the Assignors (including without
limitation any liability or obligation arising out of or relating to any of the
Excluded Assets), whether actual or contingent, matured or unmatured,
liquidated or unliquidated, or know or unknown (the "Retained Liabilities").
Assignors shall indemnify and hold Assignee harmless from, against and in
respect to (and shall reimburse Assignee for) any loss, liability, cost or
expenses, including, without limitation, reasonable attorneys' fees, suffered
or incurred by Assignee by reason of or resulting from the Retained
Liabilities.
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(g) ENTIRE AGREEMENT; AMENDMENT. This Assignment,
together with the Purchase Agreement, constitutes the entire agreement and
understanding between and among the parties hereto with respect to the matters
set forth herein, and supersedes and replaces any prior agreements and
understandings, whether oral or written, between and among them with respect to
such matters. Neither this Agreement nor any provisions hereof may be
modified, amended or waived except by the written agreement of the parties
hereto.
4. ASSUMPTION OF LIABILITIES. Assignee hereby assumes and
hereafter shall pay when due and discharge those liabilities, contracts,
commitments and other obligations of Assignor set forth in Schedule 3.3 to the
Purchase Agreement.
5. EFFECT. Notwithstanding any other provisions of this
Assignment and Assumption Agreement to the contrary, nothing contained in this
Assignment and Assumption Agreement shall in any way supersede, modify,
replace, amend, change, rescind, waive, exceed, expand, enlarge or in any way
affect the provisions, including warranties, covenants, agreements, conditions,
representations or, in general any of rights and remedies, and any of the
obligations and indemnifications of Sellers or Assignee set forth in the
Purchase Agreement nor shall this Assignment and Assumption Agreement expand or
enlarge any remedies under the Purchase Agreement including without limitation
any limits on indemnification specified therein. This Assignment and
Assumption Agreement is intended only to effect the transfer of certain
property transferred pursuant to the Purchase Agreement and shall be governed
entirely in accordance with the terms and conditions of the Purchase Agreement.
6. ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. From
time to time after the date hereof, Assignor will execute and deliver, or cause
its affiliates to execute and deliver, to Assignee such instruments of sale,
transfer, conveyance, assignment and delivery, and such consents, assurances,
powers of attorney and other instruments as may be reasonably requested by
Assignee or its counsel in order to vest in Assignee all right, title and
interest of Assignor in and to the Purchased Assets and otherwise in order to
carry out the purpose and intent of this Assignment and Assumption Agreement.
7. GOVERNING LAW. This Assignment shall in all respects
be construed in accordance with and governed by the laws of the State of
Delaware without giving effect to its conflicts-of-laws principles (other than
any provisions thereof validating the choice of the laws of the State of
Massachusetts in the governing law).
8. COUNTERPARTS. This Agreement may be executed in any
number of counter parts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same
agreement.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Assignment
as of the day and year first written above.
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
520 COMMONWEALTH REAL ESTATE CORPORATION,
a Massachusetts corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
660 CORPORATION,
a Massachusetts corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
[SIGNATURE PAGE TO THE ASSIGNMENT AND ASSUMPTION AGREEMENT]
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EXHIBIT D
INTELLECTUAL PROPERTY ASSIGNMENT
INTELLECTUAL PROPERTY ASSIGNMENT dated as of _______, 199__,
by and between Ligand Pharmaceuticals Incorporated, a Delaware corporation
("Assignee"), and Marathon Biopharmaceuticals, LLC, a Massachusetts limited
liability company ("Assignor").
WHEREAS, Assignee, Assignor, 520 Commonwealth Real Estate
Corporation, a Massachusetts corporation and 660 Corporation, a Massachusetts
corporation, are parties to that certain Option and Asset Purchase Agreement
dated as of May __, 1998 (the "Purchase Agreement").
WHEREAS, the execution and delivery of this Intellectual
Property Assignment is a condition precedent to Assignee's obligations under
the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Assignor assigns to Assignee, and Assignee hereby accepts such
assignment of, Assignor's entire right, title and interest in and to all of
Assignor's intellectual property, all patents, patent applications, and patent
licenses (including, without limitation, as set forth on Exhibit "A" hereto),
all trademarks and trademark applications (including, without limitation, as
set forth on Exhibit "A" hereto) and all copyrights and copyright applications
(including, without limitation, as set forth on Exhibit "A" hereto); all
registrations and applications and renewals for any of the foregoing; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
technical and computer data, documentation and software, financial, business
and marketing plans, consumer and supplier lists and related information,
marketing and promotional materials and all other information, know-how and
intellectual property rights and all tangible embodiments thereof of Assignor
or utilized by the Business; all income, royalties, damages and payments due as
of the date hereof or thereafter with respect to any of the foregoing and all
other rights with respect thereto (including, without limitation, rights to
damages and payments for past, present or future infringements or
misappropriations thereof) in all countries (collectively, "Intellectual
Property") and the goodwill of the business and operations of Marathon (the
"Business") associated with the Intellectual Property.
2. The rights, title and interest assigned under Section 1 above
shall be for Assignee's own use and enjoyment, and for the use and enjoyment of
Assignee's successors, assigns or other legal representatives, as fully and
entirely as the same would have been held and enjoyed by the Assignor if this
assignment and sale had not been made.
3. Assignor authorizes and requests the Commissioner of Patents
and Trademarks of the United States, and an official of any country or
countries foreign to the United States, whose duty it is to register patents,
trademarks or copyrights, to record Assignee as the assignee and owner of the
Intellectual Property.
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4. Concurrently with the execution of this Intellectual Property
Assignment, Assignor shall deliver the original papers, applications, and other
official documents relating to all patents and trademarks, and other
Intellectual Property, assigned under Section 1 above.
5. Assignor hereby represents and warrants that all rights,
title, and interest assigned under Section 1 above are free and clear of any
liens and encumbrances and that Assignor has not executed and will not execute
any agreement or other instrument in conflict herewith.
6. Assignor hereby covenants and agrees that it shall cease and
refrain from all use of all rights, title, and interests assigned under Section
1 above in all countries of the world as of the date hereof.
7. Assignor hereby appoints Assignee as Assignor's
attorney-in-fact, irrevocably and coupled with an interest, to executive,
acknowledge, deliver and record any documents or instruments necessary to
effect the assignment contemplated under Section 1.
8. With respect to the Intellectual Property, Assignor will, from
and after the Closing (i) use its best efforts to keep such Intellectual
Property confidential, including continuing to protect the confidential nature
of such Intellectual Property as if the sale provided for in the Purchase
Agreement had not occurred, (ii) not disclose the Intellectual Property to any
third party and (iii) not use the Intellectual Property. Assignor's
obligations of confidentiality and nondisclosure shall not apply to
Intellectual Property which (a) as of the Date hereof, was generally available
to the public; (b) after the date hereof, becomes generally available to the
public through no act or omission on the part of Assignor; or (c) is hereafter
received on a non-confidential basis by Assignors from a third party who has
the lawful right to disclose such Intellectual Property on such basis.
9. From time to time after the date hereof, Assignor will execute
and deliver, or cause its affiliates to execute and deliver, to Assignee such
instruments of sale, transfer, conveyance, assignment and delivery, and such
consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Assignee or its counsel in order to vest in Assignee
all right, title and interest of Assignor in and to the Purchased Assets and
otherwise in order to carry out the purpose and intent of this Intellectual
Property Assignment.
10. Notwithstanding any other provisions of this Intellectual
Property Assignment to the contrary, nothing contained in this Intellectual
Property Assignment shall in any way superseded, modify, replace, amend,
change, rescind, waive, exceed, expand, enlarge or in any way affect the
provisions, including warranties, covenants, agreements, conditions,
representations, or in general any of the rights and remedies, and any of the
obligations and indemnifications of Assignor or Assignee set forth in the
Purchase Agreement nor shall this Intellectual Property Assignment expand or
enlarge any remedies under the Purchase Agreement including without limitation
any limits on indemnification specified therein. This Intellectual Property
Assignment is intended only to effect the transfer of certain property
transferred
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pursuant to the Purchase Agreement and shall be governed entirely in accordance
with the terms and conditions of the Purchase Agreement.
11. This Intellectual Property Assignment shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns.
12. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer
with answer back confirmation or mailed (postage prepaid by certified or
registered mail, return receipt requested) or by overnight courier to the
parties at the following addresses or facsimile numbers.
If to the Company:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attn: William L. Respess, Esq.
Fax: (619) 550-7506
with copies to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
Facsimile No.: (619) 234-1966
If to Marathon:
Marathon Biopharmaceuticals LLC
97 South Street
Hopkinton, MA 07418
Attn: Secretary
with copies to:
------------------------------------------
------------------------------------------
Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, MA 02111
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13. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature. This Agreement may be amended or modified
only by a writing executed by both parties.
14. This Intellectual Property Assignment shall in all respects be
construed in accordance with and governed by the laws of the State of Delaware
without giving effect to its conflicts-of-laws principles (other than any
provisions thereof validating the choice of the laws of the State of Delaware
in the governing law).
15. This Intellectual Property Assignment may be executed by the
parties herein in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together shall
constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
MARATHON BIOPHARMACEUTICALS, LLC, a
Massachusetts limited liability company
By:__________________________________________
Name:________________________________________
Title:_______________________________________
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<PAGE> 337
STATE OF _________________________)
) ss
COUNTY OF ________________________)
On ________________ __, 1998, before me personally appeared
_________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same
in his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
________________________________________
Notary Public
STATE OF _________________________)
) ss
COUNTY OF ________________________)
On ________________ __, 1998, before me personally appeared
_________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same
in his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
________________________________________
Notary Public
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<PAGE> 338
EXHIBIT E
CERTIFICATE OF MANAGER
MARATHON BIOPHARMACEUTICALS, LLC
This Certificate is delivered pursuant to Section 3.8(c)(v) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC (the "Company"), 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation. Capitalized terms used herein without
definition shall have the same meaning as set forth in the Agreement.
I, ______________, do hereby certify that I am the duly elected,
qualified and acting Manager of the Company and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. All representations and warranties of the Company contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and the Company has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this______ day of_________________, 199__.
___________________________________
Name:______________________________
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EXHIBIT F-1
CERTIFICATE OF OFFICER
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
This Certificate is delivered pursuant to Section 3.8(c)(vi) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp.
("Member") and 660 Corporation. Capitalized terms used herein without definition
shall have the same meaning as set forth in the Agreement.
I, _________________, do hereby certify that I am the duly elected,
qualified and acting _________________ of Member and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. All representations and warranties of Member contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Member has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
----------------------------
Name:_______________________
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EXHIBIT F-2
CERTIFICATE OF OFFICER
660 CORPORATION
This Certificate is delivered pursuant to Section 3.8(c)(vi) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp. and
660 Corporation ("Member"). Capitalized terms used herein without definition
shall have the same meaning as set forth in the Agreement.
I, _________________, do hereby certify that I am the duly elected,
qualified and acting _________________ of Member and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. All representations and warranties of Member contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Member has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
----------------------------
Name:_______________________
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EXHIBIT G
CERTIFICATE OF MANAGER
MARATHON BIOPHARMACEUTICALS, LLC
This Certificate is delivered pursuant to Section 3.8(c)(vii) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC (the "Company"), 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation. Capitalized terms used herein without
definition shall have the same meaning as set forth in the Agreement.
I, _____________________, do hereby certify that I am the duly
elected, qualified and acting Manager of the Company and as such, am authorized
to execute this Certificate on its behalf, and I further certify that:
1. I have custody and control of the records of the Company.
2. Attached hereto as Attachment 1 is a true and correct copy of the
Operating Agreement of the Company in full force and effect as of the date
hereof.
3. Attached hereto as Attachment 2 is a true and correct copy of the
Certificate of Organization of the Company as filed with the Secretary of the
Commonwealth of Massachusetts. No filing has been made with such authority since
the date of thereof and no other filing is pending.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
----------------------------
Name:_______________________
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APPENDIX E
EXTENSION OPTION AGREEMENT
BY AND AMONG
LIGAND PHARMACEUTICALS INCORPORATED,
SERAGEN, INC.,
MARATHON BIOPHARMACEUTICALS, LLC,
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
AND
660 CORPORATION
DATED AS OF MAY 11, 1998
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EXTENSION OPTION AGREEMENT
This Extension Option Agreement (this "AGREEMENT") is made and entered
into as of May 11, 1998, by and among SERAGEN, INC., a Delaware Corporation
("Seragen"), LIGAND PHARMACEUTICALS INCORPORATED, a Delaware corporation
("Ligand"), MARATHON BIOPHARMACEUTICALS, LLC, a Massachusetts limited liability
company (the "Company"), 520 COMMONWEALTH AVENUE REAL ESTATE CORP., a
Massachusetts corporation ("520 Commonwealth"), and 660 CORPORATION, a
Massachusetts corporation ("660 Corporation," and together with 520
Commonwealth and the Company, "Sellers").
RECITALS
WHEREAS, concurrently with the execution of this Agreement,
Sellers and Ligand have entered into that certain Option and Asset Purchase
Agreement (the "Asset Agreement"), which agreement expires on January 31, 1999,
whereby, among other things, Ligand will purchase substantially all of the
assets of the Company (the "Asset Purchase");
WHEREAS, the Company is a party to that certain Service
Agreement, dated as of February 14, 1997 (the "Service Agreement"), by and
between Seragen and Boston University, of which the Company is an assignee,
which agreement expires on January 31, 1999;
WHEREAS, concurrently with the execution of this Agreement,
Ligand, Seragen and Knight Acquisition Corporation, a Delaware corporation, are
entering into an Agreement and Plan of Reorganization (the "Merger Agreement")
and other transactions contemplated therein, whereby, among other things,
Seragen will become a wholly owned subsidiary of Ligand (the "Merger");
WHEREAS, the Merger may not close before January 31, 1999;
WHEREAS, the closing of the Merger is a condition to the
closing of the Asset Purchase;
WHEREAS, as a condition to Ligand's execution of the Asset
Agreement and the Merger Agreement and consummation of the transactions
contemplated therein, Sellers have agreed to grant to Ligand an irrevocable
option pursuant to the terms and conditions of this Agreement; and
WHEREAS, as a condition to Seragen's execution of the Merger
Agreement and consummation of the transactions contemplated therein, Sellers
have agreed to grant to Seragen an irrevocable option pursuant to the terms and
conditions of this Agreement.
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] AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged,
the parties agree as follows:
Section 1. Option Grant. The Sellers hereby grant each of Ligand and
Seragen an irrevocable option (the "Option") to extend the terms of both the
Asset Agreement and the Service Agreement (collectively, the "Agreement Term")
for one or more additional sixty-day periods (each, an "Extension Term") upon
the terms and conditions set forth in this Agreement.
Section 2. Option Exercise. Ligand shall have the right upon written
notice to the Company and Seragen to exercise the Option on or before the
thirtieth day prior to the expiration of the Agreement Term or the
then-effective Extension Term, as the case may be (each, a "Ligand Expiration
Date"); provided, however, that in the event Ligand fails at any time to
exercise the Option prior to a Ligand Expiration Date, the Option shall
immediately terminate with respect to Ligand. If, and only if, Ligand fails to
exercise the Option prior to a Ligand Expiration Date, Seragen shall have the
right upon written notice to the Company and Ligand to exercise the Option (a)
with respect to the Agreement Term, during the period from the Ligand
Expiration Date for such term to the end of the Agreement Term, and (b) with
respect to each Extension Term, (i) if Ligand has exercised the Option for such
Extension Term, during the period from the Ligand Expiration Date for such
Extension Term to the end of such Extension Term, or (ii) if Seragen has
exercised the Option for such Extension Term, at any time on or before the
tenth day prior to the expiration of such Extension Term. Seragen may not
exercise the Option without the prior written consent of the Sellers, which
consent may be granted or withheld in the sole discretion of the Sellers. If
neither Ligand nor Seragen has exercised the Option prior to the end of the
Agreement Term or any Extension Term, the Option shall immediately terminate at
the end of such term.
Section 3. Covenants of the Company, Ligand and Seragen.
(a) With respect to any exercise of the Option by Ligand for an
Extension Term, Ligand shall be responsible for any and all
Operating Losses incurred by the Company, and shall benefit
from any Cash Revenue generated by the Company, during such
Extension Term.
(b) With respect to any exercise of the Option by Seragen for an
Extension Term, Seragen shall be responsible for any and all
Operating Losses incurred by the Company, and shall benefit
from any Cash Revenue generated by the Company, during such
Extension Term.
(c) For purposes of Sections 3(a) and (b), Operating Losses shall
mean, with respect to each Extension Term, the difference
between (i) all cash actually expended by the Company during
such period (whether the same would be capitalized or
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expensed in accordance with U.S. GAAP), in such period ("Cash
Expended"), less (ii) all cash revenues actually received by
the Company during such period ("Cash Revenue"); provided,
however, that Cash Expended shall include only such
expenditures (including capital expenditures) as are
reasonably necessary to conduct the business of the Company
and are consistent with past practice; and provided further
that the Company shall not make any capital expenditures in an
Extension Term, in excess of $30,000 in the aggregate, without
the prior written consent of the party responsible for such
expenditures in such Extension Term; and provided further that
Cash Revenue in each Extension Term (i) shall include any cash
revenue that would have been received in such Extension Term
consistent with past practice, but was not received in such
Extension Term, and (ii) shall exclude any cash revenue that
was received in such Extension Term, but would not have been
received in such Extension Term consistent with past practice.
(d) The obligations of Seragen and Ligand in Sections 3(a) through
3(c) accrued through the termination or earlier expiration of
this Agreement shall survive such termination or expiration.
(e) The Company and Seragen each shall perform their respective
obligations under the Service Agreement, consistent with past
practice, during any Extension Term.
Section 4. Representations and Warranties of Sellers. Each of the
Sellers represents and warrants to each of Seragen and Ligand, as of the date
hereof, as follows:
(a) The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company currently conducts
its business exclusively within the Commonwealth of
Massachusetts. The Company has the corporate power and
authority to own and hold its assets and properties and to
carry on its business as currently conducted. Kenneth G.
Condon is the Manager of the Company. The Company has the
following named officers, each duly elected and qualified by
the Manager of the Company as of the date hereof: Elizabeth
Chen, President, and Kenneth G. Condon, Treasurer. The
Company has delivered to each of Seragen and Ligand correct
and complete copies of the Company's Certificate of
Organization and Operating Agreement, each as amended to date.
The Members of the Company are 520 Commonwealth Avenue Real
Estate Corp., a Massachusetts corporation, and 660
Corporation, a Massachusetts corporation (collectively, the
"Members").
(b) The Company has the limited liability company power and
authority to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized and approved by the Company's Manager and the
Company's Members. This Agreement has been duly executed and
delivered by, and constitutes the legal, valid and binding
obligation of each of the Sellers,
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enforceable against each of the Sellers in accordance with its
terms, subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws
now or hereafter in effect, as well as limitations imposed by
general principles of equity upon the specific enforceability
of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
(c) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and the performance of
this Agreement will not, except as set forth in the Disclosure
Schedule to the Asset Agreement, (i) conflict with or result
in any breach of any trust agreement, certificate of
organization or operating agreement of the Company, (ii)
except for approval of the transactions contemplated hereby by
the Office of the Attorney General of the Commonwealth of
Massachusetts, Public Charities Division, require any consent,
approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority or
any third party, or (iii) result in a breach of or default (or
give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any
judgment, decree, order, governmental permit (other than
permits set forth in the Disclosure Schedule to the Asset
Agreement which are not transferable), license or order or any
of the terms, conditions or provisions of any mortgage,
indenture or note or any material license, agreement or other
instrument or obligation to which the Company is a party or by
which the Company or its assets and properties are bound.
(d) Each Member has all necessary corporate power and authority
and has taken all action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby
and to perform its obligations hereunder and no other
proceedings on the part of such Member is necessary to
authorize this Agreement or to consummate the transactions
contemplated hereby. Each Member is a corporation duly
authorized to conduct business and is in good standing under
the laws of the Commonwealth of Massachusetts.
Section 5. Representations and Warranties of Ligand. Ligand
represents and warrants to Sellers, as of the date hereof, as follows:
(a) Ligand is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
Ligand is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such
qualification is required except for any jurisdiction where
failure to so qualify would not have a material adverse effect
upon Ligand. Ligand has full power and authority, and holds
all permits and authorizations necessary, to carry on the
business in which it is engaged and to own and use the
properties owned and used by it except where the failure to
have such power and authority or to hold such
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license, permit or authorization would not have a material
adverse effect on Ligand.
(b) Ligand has all necessary corporate power and authority and has
taken all action necessary to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform
its obligations hereunder and no other proceedings on the part
of Ligand are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Ligand and
constitutes the legal, valid and binding obligation of Ligand
enforceable against Ligand in accordance with its terms,
subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws
now or hereafter in effect, as well as limitations imposed by
general principles of equity upon the specific enforceability
of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
Section 6. Representations and Warranties of Seragen. Seragen
represents and warrants to Sellers, as of the date hereof, as follows:
(a) Seragen is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
Seragen is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such
qualification is required except for any jurisdiction where
failure to so qualify would not have a material adverse effect
on Seragen. Seragen has full power and authority, and holds
all permits and authorizations necessary, to carry on the
business in which it is engaged and to own and use the
properties owned and used by it except where the failure to
have such power and authority or to hold such license, permit
or authorization would not have a material adverse effect on
Seragen.
(b) Seragen has all necessary corporate power and authority and
has taken all action necessary to enter into this Agreement,
to consummate the transactions contemplated hereby and to
perform its obligations hereunder and no other proceedings on
the part of Seragen are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Seragen and
constitutes the legal, valid and binding obligation of Seragen
enforceable against Seragen in accordance with its terms,
subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws
now or hereafter in effect, as well as limitations imposed by
general principles of equity upon the specific enforceability
of any of the remedies, covenants or other provisions and the
availability of injunctive relief or other equitable remedies.
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Section 7. Termination. This Agreement shall remain in effect until
the termination of the Option with respect to both Ligand and Seragen pursuant
to Section 2 hereof, unless (a) the Merger Agreement or the Asset Agreement is
earlier terminated or (b) this Agreement is earlier terminated by written
consent of each of the parties hereto.
Section 8. Construction of Certain Terms and Phrases. Unless the
context of this Agreement otherwise requires, (a) words of any gender include
each other gender; (b) words using the singular or plural number also include
the plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; (d)
the terms "Article" or "Section" refer to the specified Article or Section of
this Agreement; (e) the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or"; and (f) the term
"including" means "including without limitation." Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. All accounting terms used herein and not
expressly defined herein shall have the meanings given to them under GAAP.
Section 9. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission with
answer back confirmation or mailed (postage prepaid by certified or registered
mail, return receipt requested) or by overnight courier to the parties at the
following addresses or facsimile numbers:
IF TO THE COMPANY, TO:
Marathon Biopharmaceuticals, LLC
97 South Street
Hopkinton, MA 01748
Facsimile No.: (508) 497-0777
Attention: President
WITH COPIES TO:
Mintz Levin Cohn Ferris Glovsky
and Popeo PC
One Financial Center
Boston, MA 02111
Facsimile No.: (617) 542-2241
Attention: Thomas J. Kelly, Esq.
Dionne & Gass
73 Tremont Street
Boston, MA 02108
Facsimile No.: (617) 723-4151
Attention: Richard Dionne, Esq.
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520 Commonwealth Avenue Real Estate Corp.
(See below)
IF TO THE MEMBERS, TO:
520 Commonwealth Avenue Real Estate Corp.
881 Commonwealth Avenue
Boston, MA 02215
Facsimile No.: (617) 353-5492
Attention: Kenneth G. Condon, President
IF TO LIGAND, TO:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Facsimile No.: (619) 550-7506
Attention: William L. Respess, Esq.
WITH COPIES TO:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
Facsimile No.: (619) 234-1966
Attn: Faye H. Russell, Esq.
IF TO SERAGEN, TO:
Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Facsimile No.: (508) 435-2331
Attention: Reed R. Prior.
WITH COPIES TO:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Facsimile No.: (202) 662-6291
Attn: Edward Britton, Esq.
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All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a copy of such notice, request or other communication is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto.
Section 10. Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No
waiver by any party hereto of any term or condition of this Agreement, in any
one or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future occasion.
All remedies, either under this Agreement or by law or otherwise afforded, will
be cumulative and not alternative.
Section 11. Amendment. This Agreement may be amended, supplemented
or modified only by a written instrument duly executed by or on behalf of each
party hereto.
Section 12. No Third Party Beneficiary. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention
of the parties to confer third-party beneficiary rights upon any other person
or entity.
Section 13. Assignment. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without
the prior written consent of the other parties hereto and any attempt to do so
will be void.
Section 14. Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
Section 15. Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and mutually
acceptable to the parties herein.
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Section 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts executed and performed in such State, without giving
effect to conflicts of laws principles.
Section 17. Consent to Jurisdiction and Forum Selection. The parties
hereto agree that all actions or proceedings arising in connection with this
Agreement shall be initiated and tried exclusively in the State and Federal
courts located in the Commonwealth of Massachusetts. The aforementioned choice
of venue is intended by the parties to be mandatory and not permissive in
nature, thereby precluding the possibility of litigation between the parties
with respect to or arising out of this Agreement in any jurisdiction other than
that specified in this Section. Each party hereby waives any right it may have
to assert the doctrine of forum non conveniens or similar doctrine or to object
to venue with respect to any proceeding brought in accordance with this
paragraph, and stipulates that the State and Federal courts located in the
Commonwealth of Massachusetts shall have in personam jurisdiction and venue
over each of them for the purposes of litigating any dispute, controversy or
proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement, or in the manner set
forth in Section of this Agreement for the giving of notice. Any final
judgment rendered against a party in any action or proceeding shall be
conclusive as to the subject of such final judgment and may be enforced in
other jurisdictions in any manner provided by law.
Section 18. Counterparts. This Agreement may be executed in any
number of counterparts and by facsimile, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
parties hereto as of the date first above written.
SERAGEN, INC.,
a Delaware corporation
By: /s/ Reed R. Prior
-------------------------------------------------------
Name: Reed R. Prior
-----------------------------------------------------
Title: Chairman and Chief Executive Officer
----------------------------------------------------
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By: /s/ David E. Robinson
-------------------------------------------------------
Name: David E. Robinson
-----------------------------------------------------
Title: Chairman, President, and Chief Executive Officer
----------------------------------------------------
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts limited liability company
By: /s/ Kenneth G. Condon
-------------------------------------------------------
Name: Kenneth G. Condon
-----------------------------------------------------
Title: Manager
----------------------------------------------------
520 COMMONWEALTH AVENUE REAL ESTATE CORP.,
a Massachusetts corporation
By: /s/ Kenneth G. Condon
-------------------------------------------------------
Name: Kenneth G. Condon
-----------------------------------------------------
Its: President
----------------------------------------------------
[SIGNATURE PAGE 1 OF 2 TO EXTENSION OPTION AGREEMENT]
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660 CORPORATION,
a Massachusetts corporation
By: /s/ Kenneth G. Condon
-------------------------------------------------------
Name: Kenneth G. Condon
-----------------------------------------------------
Its: Treasurer
----------------------------------------------------
[SIGNATURE PAGE 2 OF 2 TO EXTENSION OPTION AGREEMENT]
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APPENDIX F
ACCORD AND SATISFACTION AGREEMENT
BY AND AMONG
SERAGEN, INC.
SERAGEN TECHNOLOGY, INC.
AND
TRUSTEES OF BOSTON UNIVERSITY
SERAGEN LLC
MARATHON BIOPHARMACEUTICALS, LLC,
UNITED STATES SURGICAL CORPORATION
LEON HIRSCH
TURI JOSEFSEN
GERALD S.J. AND LORETTA P. CASSIDY
REED R. PRIOR
JEAN C. NICHOLS, PH.D.
ELIZABETH C. CHEN
ROBERT W. CRANE
SHORELINE PACIFIC INSTITUTIONAL FINANCE
LEHMAN BROTHERS INC.
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
660 CORPORATION
DATED AS OF MAY 11, 1998
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ACCORD AND SATISFACTION AGREEMENT
by and among
Seragen, Inc.
Seragen Technology, Inc.
and
Trustees of Boston University
Seragen LLC
Marathon Biopharmaceuticals, LLC
United States Surgical Corporation
Leon C. Hirsch
Turi Josefsen
Gerald S. J. and Loretta P. Cassidy
Reed R. Prior
Jean C. Nichols, Ph.D.
Elizabeth C. Chen
Robert W. Crane
Shoreline Pacific Institutional Finance
Lehman Brothers Inc.
520 Commonwealth Avenue Real Estate Corp.
660 Corporation
Dated as of May 11, 1998
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<PAGE> 356
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Series B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Series C Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
USSC Evaluation License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Shoreline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1 -- SATISFACTION OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.1 Satisfaction of Claims Related to Series B Stock . . . . . . . . . . . . . . . . . . . . . . . . 11
1.2 Satisfaction of Claims Related to Series C Stock . . . . . . . . . . . . . . . . . . . . . . . . 11
1.3 Satisfaction of Warrant Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Satisfaction of Technology Agreement Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5 Satisfaction of Service Agreement Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.6 Satisfaction of USSC Evaluation License Claims . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.7 Satisfaction of Executive Compensation Claims . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.8 Satisfaction of Shoreline Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.9 Satisfaction of Lehman Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2 -- RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Release of Seragen and STI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Effectiveness of Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Survival of Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3 -- TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4 -- FORBEARANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<TABLE>
<S> <C>
SECTION 5 -- REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Mutual Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Representations and Warranties of Seragen and STI . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Representations and Warranties of Boston
University, BU Holding, Marathon, USSC, Shoreline and Lehman . . . . . . . . . . . . . . . . . . 18
5.4 Representations and Warranties of Hirsch,
Josefsen, the Cassidys, Prior, Nichols, Chen and Crane . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6 -- CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Non-Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Amendments to Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Assignments of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 7 -- NO ADMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8 -- COMPLIANCE WITH AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 Representations and Warranties in Marathon Agreement . . . . . . . . . . . . . . . . . . . . . . 21
8.2 Compliance with Marathon Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9 -- INDEMNIFICATION OF MARATHON, 520 COMMONWEALTH
AND 660 CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 10 -- ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 11 -- FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 12 -- MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.2 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.4 Delay of No Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.5 Attorneys Fees and Other Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.6 No Third-Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<TABLE>
<S> <C> <C>
12.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.12 Inconsistent Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.13 No Party Deemed Drafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.14 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.15 Incorporation of Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 359
ACCORD AND SATISFACTION AGREEMENT
This Accord and Satisfaction Agreement (the "Agreement") is made
and entered into as of May 11, 1998 by and among
SERAGEN, INC. ("Seragen") and SERAGEN TECHNOLOGY, INC., ("STI"), as parties of
the first part,
TRUSTEES OF BOSTON UNIVERSITY ("Boston University"); SERAGEN LLC ("BU
Holding"); MARATHON BIOPHARMACEUTICALS, LLC ("Marathon"); UNITED STATES
SURGICAL CORPORATION ("USSC"); LEON C. HIRSCH ("Hirsch"); TURI JOSEFSEN
("Josefsen"); GERALD S.J. AND LORETTA P. CASSIDY (the "Cassidys"); REED R.
PRIOR ("Prior"); JEAN C. NICHOLS, PH.D. ("Nichols"); ELIZABETH C. CHEN
("Chen"); ROBERT W. CRANE ("Crane"); SHORELINE PACIFIC INSTITUTIONAL FINANCE
("Shoreline"); and LEHMAN BROTHERS INC. ("Lehman"; Boston University, BU
Holding, Marathon, USSC, Hirsch, Josefsen, the Cassidys, Prior, Nichols, Chen,
Crane, Shoreline and Lehman, collectively, the "Third Parties"), as parties of
the second part, and
520 COMMONWEALTH AVENUE REAL ESTATE CORP. ("520 Commonwealth") and 660
CORPORATION ("660 Corp"), as parties of the third part.
The Seragen, STI, the Third Parties, 520 Commonwealth, and 660 Corp are
hereinafter referred to collectively as the "parties."
RECITALS
PARTIES
A. Seragen is a Delaware corporation with a principal place of
business at 97 South Street, Hopkinton, Massachusetts 01748. STI is a Delaware
corporation with a principal place of business at 97 South Street, Hopkinton,
Massachusetts 01748, and is a subsidiary of Seragen.
B. Boston University is a Massachusetts not-for-profit
corporation having a principal place of business at 881 Commonwealth Avenue,
Boston, Massachusetts 02215.
C. BU Holding is a Massachusetts limited liability company
having a principal place of business at 147 Bay State Road, Boston,
Massachusetts 02115. BU Holding is an indirect wholly-owned subsidiary of
Boston University.
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D. Marathon is a Massachusetts limited liability company
having a principal place of business at 97 South Street, Hopkinton,
Massachusetts 01748. Marathon is an indirect wholly-owned subsidiary of Boston
University.
E. USSC is a Delaware corporation having a principal place of
business at 150 Glover Avenue, Norwalk, Connecticut 06856.
F. Hirsch is an individual having an address at c/o United
States Surgical Corporation, 150 Glover Avenue, Norwalk, Connecticut 06856.
G. Josefsen is an individual having an address at c/o United
States Surgical Corporation, 150 Glover Avenue, Norwalk, Connecticut 06856.
H. The Cassidys are individuals having an address at 700 13th
Street, N.W., Washington, D.C. 20005.
I. Prior is an individual having an address at c/o Seragen,
Inc., 97 South Street, Hopkinton, MA 01748.
J. Nichols is an individual having an address at c/o Seragen,
Inc., 97 South Street, Hopkinton, MA 01748.
K. Chen is an individual having an address at c/o Seragen,
Inc., 97 South Street, Hopkinton, MA 01748.
L. Crane is an individual having an address at c/o Seragen,
Inc., 97 South Street, Hopkinton, MA 01748.
M. Shoreline is a California sole proprietorship having a
principal place of business at 3 Harbor Drive, Suite 311, Sausalito, California
94065.
N. Lehman is a Delaware corporation having a principal place
of business at 3 World Financial Center, New York, New York 10285-1700.
O. 520 Commonwealth is a Massachusetts corporation having a
principal place of business at 881 Commonwealth Avenue, Boston, Massachusetts
02215.
P. 660 Corp is a Massachusetts corporation having a principal
place of business at 881 Commonwealth Avenue, Boston, Massachusetts 02215.
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THE MERGER AGREEMENT
Q. Seragen and LIGAND PHARMACEUTICALS INCORPORATED, a Delaware
corporation with a principal place of business at 10275 Science Center Drive,
San Diego, California 92121 ("Ligand") have negotiated an agreement, of even
date herewith (the "Merger Agreement"), providing for the merger of Seragen
with and into KNIGHT ACQUISITION CORPORATION, a Delaware corporation having a
principal place of business at 10275 Science Center Drive, San Diego,
California 92121 ("Merger Sub"), on the terms and for the consideration and
under the conditions set forth in the Merger Agreement (the "Merger
Transaction"). The Merger Agreement provides for the payment of certain
"Closing Consideration" (as defined in the Merger Agreement) and "Milestone
Consideration" (as defined in the Merger Agreement; the Closing Consideration
and the Milestone Consideration, together, the "Merger Consideration"). The
Merger Agreement is attached to this Agreement as Exhibit A.
R. Marathon, 520 Commonwealth, and 660 Corp (collectively, the
"BU Parties") and Ligand have negotiated an agreement, of even date herewith
(the "Marathon Agreement"), providing for the purchase by Ligand of
substantially all of the assets of Marathon. Each of the BU Parties is
wholly-owned, directly or indirectly, by Boston University.
S. The obligation of Ligand to consummate the transactions
contemplated by the Merger Agreement is conditioned on those representations
and warranties made by the BU Parties pursuant to the Marathon Agreement being
true and correct as of the Closing Date (as defined in the Merger Agreement)
with the same effect as thought such representations and warranties had been
made on and as of such date and on the BU Parties having performed, as of the
Closing Date, all of those covenants set forth in the Marathon Agreement
required to be performed by the BU Parties on or prior to the Closing Date.
Seragen is unwilling to enter into the Merger Agreement without assurance that
the aforesaid conditions to Ligand's obligations to consummate the transactions
contemplated by the Merger Agreement will be fulfilled at the Closing Date. In
order to induce Seragen to enter into the Merger Agreement, the BU Parties are
willing to provide such assurance.
T. The BU Parties are unwilling to enter into the Marathon
Agreement without certain indemnities from the Third Parties with respect to
the representations and warranties to be given by the BU Parties pursuant to
the Merger Agreement.
Series B Shares
U. BU Holding owns 11,800 shares of Series B preferred stock,
par value $.01 per share, of Seragen (the "Series B Stock"), with a liquidation
preference of $1,000 per share plus accrued and unpaid dividends from the date
of issuance and which are convertible by their terms into common stock, par
value $.01 per share, of Seragen
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(the "Common Stock"). As of December 31, 1997, accrued and unpaid dividends on
the Series B Stock owned by BU Holding were $1,459,201. The Series B Stock is
entitled to receive a cumulative cash dividend payable quarterly in arrears on
the last day of March, June, September, and December of each year at an annual
rate equal to the prime rate plus 1 1/2% through June 1999 and at an increasing
percentage rate thereafter up to a maximum rate of the prime rate plus 5% in
July 2003.
V. Hirsch owns 7,000 shares of Series B Stock. As of December
31, 1997, accrued and unpaid dividends on the Series B Stock owned by Hirsch
were $865,628. The Series B Stock is entitled to receive a cumulative cash
dividend payable quarterly in arrears on the last day of March, June,
September, and December of each year at an annual rate equal to the prime rate
plus 1 1/2% through June 1999 and at an increasing percentage rate thereafter
up to a maximum rate of the prime rate plus 5% in July 2003.
W. Josefsen owns 3,000 shares of Series B Stock. As of
December 31, 1997, accrued and unpaid dividends on the Series B Stock owned by
Josefsen were $370,983. The Series B Stock is entitled to receive a cumulative
cash dividend payable quarterly in arrears on the last day of March, June,
September, and December of each year at an annual rate equal to the prime rate
plus 1 1/2% through June 1999 and at an increasing percentage rate thereafter
up to a maximum rate of the prime rate plus 5% in July 2003.
X. The Cassidys own 2,000 shares of Series B Stock. As of
December 31, 1997, accrued and unpaid dividends on the Series B Stock owned by
Cassidys were $247,322. The Series B Stock is entitled to receive a cumulative
cash dividend payable quarterly in arrears on the last day of March, June,
September, and December of each year at an annual rate equal to the prime rate
plus 1 1/2% through June 1999 and at an increasing percentage rate thereafter
up to a maximum rate of the prime rate plus 5% in July 2003.
Y. BU Holding owns 11,800 shares of the Class B common stock,
par value $.01 per share, of STI (the "STI Class B Common Stock").
Z. Hirsch owns 7,000 shares of STI Class B Common Stock.
AA. Josefsen owns 3,000 shares of STI Class B Common Stock.
BB. The Cassidys own 2,000 shares of STI Class B Common Stock.
CC. On June 28, 1996, Seragen transferred all of its existing
and future United States patents and patent applications (the "Patents") to STI
in exchange for shares of the Class A common stock, par value $.01 per share,
of STI.
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DD. Shares of the STI Class B Common Stock are entitled to
cumulative dividends equal to any royalty payable to STI under the Irrevocable
License Agreement between Seragen and STI, dated June 28, 1996 (the
"Irrevocable License Agreement"). The STI Class B Common Stock is required to
be redeemed upon the redemption or conversion of shares of Series B Stock in a
number equal to the number of shares of Series B Stock redeemed or converted.
EE. Under the terms of the Irrevocable License Agreement,
Seragen is obligated to pay quarterly dividends to STI in an amount equal to
the amount of any dividends that the holders of shares of the Series B Stock
are entitled to receive but have not received by the royalty due date (which is
one day after each quarterly dividend payment date for the Series B Stock).
FF. On July 1, 1996, STI executed a collateral assignment of
the Patents (the "Collateral Assignment of Patents") in favor of the holders of
the STI Class B Common Stock. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (the "Escrow Agent") holds the Collateral Assignment of Patents under an
escrow agreement dated July 1, 1996 (the "Escrow Agreement"). The Escrow Agent
is required to deliver the Collateral Assignment of Patents to the holders of
the STI Class B Common Stock if dividends on the STI Class B Common Stock are
in arrears and STI fails, for 60 days, after the receipt of notice from the
holders of the STI Class B Common Stock, to pay the dividends due.
GG. The holders of the STI Class B Common Stock executed a
reassignment of the Patents (the "Reassignment of Patents") to STI, which also
is being held by the Escrow Agent. The Escrow Agent is obligated to deliver
the Reassignment of Patents to STI upon the redemption by STI of all of the STI
Class B Common Stock.
Series C Shares
HH. BU Holding owned 5,000 shares of Series C preferred stock,
par value $.01 per share, of Seragen (the "Series C Stock"), which converted
automatically by their terms into 3,360,625 shares of Common Stock (the
"Conversion Shares"), the maximum number of shares of Common Stock into which
the Series C Stock could convert by its terms, on March 30, 1998. BU Holding
is as of the date hereof the record owner of the Conversion Shares. Under the
terms of the Certificate of Designation for the Series C Stock, Seragen was
obligated to pay BU Holding $1,150 per share for each share of Series C Stock
that Boston University was unable to convert as a result of this limitation.
As of the date hereof, Seragen has not paid this amount and is therefore
obligated to pay to BU Holding $4,530,461 (the "Series C Debt Amount").
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Warrants
II. On May 31, 1995, Seragen issued to BU Holding warrants to
purchase 1,376,666 shares of Common Stock at a purchase price of $4.75 per
share. On June 28, 1996, Seragen issued to Boston University warrants to
purchase 2,950,000 shares of Common Stock at a purchase price of $4.00 per
share, subject to anti-dilution provisions. As of December 31, 1997, BU
Holding had received warrants to purchase an additional 4,354,008 shares of
Common Stock related to the anti-dilution provisions. All warrants held by BU
Holding for the purchase of capital stock of Seragen, whether outstanding as of
the date hereof or issued after the date hereof, are referred to as the "Boston
University Warrants."
JJ. On May 31, 1995, Seragen issued to Hirsch warrants to
purchase 816,666 shares of Common Stock at a purchase price of $4.75 per share.
On June 28, 1996, Seragen issued to Hirsch warrants to purchase 1,750,000
shares of Common Stock at a purchase price of $4.00 per share, subject to
anti-dilution provisions. As of December 31, 1997, Hirsch had received
warrants to purchase an additional 2,582,886 shares of Common Stock related to
the anti-dilution provisions. All warrants held by Hirsch for the purchase of
capital stock of Seragen, whether outstanding as of the date hereof or issued
after the date hereof, are referred to as the "Hirsch Warrants."
KK. On May 31, 1995, Seragen issued to Josefsen warrants to
purchase 350,000 shares of Common Stock at a purchase price of $4.75 per share.
On June 28, 1996, Seragen issued to Josefsen warrants to purchase 750,000
shares of Common Stock at a purchase price of $4.00 per share, subject to
anti-dilution provisions. As of December 31, 1997, Josefsen had received
warrants to purchase an additional 1,106,951 shares of Common Stock related to
the anti-dilution provisions. All warrants held by Josefsen for the purchase
of capital stock of Seragen, whether outstanding as of the date hereof or
issued after the date hereof, are referred to as the "Josefsen Warrants."
LL. On May 31, 1995, Seragen issued to the Cassidys warrants to
purchase 233,332 shares of Common Stock at a purchase price of $4.75 per share.
On June 28, 1996, Seragen issued to the Cassidys warrants to purchase 500,000
shares of Common Stock at a purchase price of $4.00 per share, subject to
anti-dilution provisions. As of December 31, 1997, the Cassidys had received
warrants to purchase an additional 737,967 shares of Common Stock related to
the anti-dilution provisions. All warrants held by the Cassidys for the
purchase of capital stock of Seragen, whether outstanding as of the date hereof
or issued after the date hereof, are referred to as the "Cassidy Warrants."
MM. On July 31, 1997, Seragen issued to USSC warrants to
purchase 500,000 shares of Common Stock at a purchase price of $0.5625 per
share. All warrants held by USSC for the purchase of capital stock of Seragen,
whether outstanding
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as of the date hereof or issued after the date hereof, are referred to as the
"USSC Warrants."
Technology Purchase and Royalty Agreement
NN. Boston University and Seragen are parties to a Technology
Purchase and Royalty Agreement, dated January 28, 1998 (the "Technology
Agreement"), pursuant to which Seragen has agreed to pay Boston University
certain royalties and granted Boston University a security interest in the
Technology (as defined in the Technology Agreement) transferred by Boston
University to Seragen pursuant to the Technology Agreement.
Service Agreement
OO. Boston University and Seragen are parties to a Service
Agreement, dated as of February 14, 1997 (the "Service Agreement"). Effective
December 31, 1997, Boston University, as permitted by the terms of the Service
Agreement, assigned the Service Agreement to Marathon, and Marathon assumed
Boston University's obligations under the Service Agreement as of such date.
Under the terms of the Service Agreement, Boston University or its assignee is
required to provide certain specified research, development, clinical trial,
and manufacturing services to Seragen in exchange for "Technology Service Fees"
of $5,521,342 during the first twelve months of the Service Agreement and
$6,605,651 during the second twelve months of the Service Agreement, subject to
proration for partial years of services. As of the date hereof, Seragen is
obligated to pay to Boston University $4,840,629 for accrued but unpaid
Technology Service Fees relating to the period February 14, 1997, through
December 31, 1997, and to Marathon $1,561,137 for accrued but unpaid Technology
Service Fees for the period January 1, 1998, through March 31, 1998, and
additional Technology Service Fees for the period April 1, 1998, through the
date hereof.
USSC Evaluation License
PP. Seragen and USSC are parties to an Evaluation License and
Option Agreement, dated as of July 31, 1997 (the "Evaluation License").
Pursuant to the Evaluation License, Seragen granted to USSC an option to obtain
exclusive worldwide rights to Seragen's DAB(389)EGF molecule (the "USSC
Technology"), together with the USSC Warrants, in exchange for a payment by
USSC to Seragen of $5,000,000. In the event USSC chooses not to acquire the
license, Seragen will be obligated to issue to USSC $5,000,000 worth of Common
Stock (the "USSC Shares").
Executive Compensation
QQ. Seragen and Prior are parties to an employment agreement
dated as of November 6, 1997, as amended December 18, 1996, January 6, 1997,
January 31,
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1997, March 28, 1997, April 30, 1997, September 30, 1997 (two amendments of
this date), and February 5, 1998 (the "Prior Employment Agreement").
RR. As of December 31, 1997, Seragen had granted to Prior
options to purchase 11,996,208 shares of Common Stock. Pursuant to the
anti-dilution provisions of the Prior Employment Agreement, Prior may be
entitled to receive additional options. Certain options (the "Prior ISOs")
granted by Seragen to Prior qualify or will qualify as incentive stock options
for purposes of the Internal Revenue Code. All options held by Prior for the
purchase of capital stock of Seragen, whether outstanding as of the date hereof
or issued after the date hereof, are referred to as the "Prior Options."
SS. The Prior Employment Agreement provides for payment to
Prior of an asset value realization bonus in the event of a change in ownership
of Seragen, as defined, in an amount equal to 8.5% of the net proceeds from the
change in ownership transaction. Under the Prior Employment Agreement, the
Prior Asset Value Realization Bonus is to be reduced by the amount of gain, if
any, recognized by Prior as a result of exercise of the Prior Options. That
portion of the asset value realization bonus payable by Seragen to Prior
pursuant to the Prior Employment Agreement that is in excess of the amount of
gain recognized by Prior as a result of the exercise of the Prior ISOs is
referred to herein as the "Prior Asset Value Realization Bonus."
TT. Seragen and Nichols are parties to an amended and restated
employment agreement dated as of September 22, 1997, as amended February 23,
1998 (the "Nichols Employment Agreement").
UU. As of December 31, 1997, Seragen had granted to Nichols
options to purchase 2,850,098 shares of Common Stock. Pursuant to the
anti-dilution provisions of the Nichols Employment Agreement, Nichols may be
entitled to receive additional options. Certain options (the "Nichols ISOs")
granted by Seragen to Nichols qualify or will qualify as incentive stock
options for purposes of the Internal Revenue Code. All options held by Nichols
for the purchase of capital stock of Seragen, whether outstanding as of the
date hereof or issued after the date hereof, are referred to as the "Nichols
Options."
VV. The Nichols Employment Agreement provides for payment to
Nichols of an asset value realization bonus in the event of a change in
ownership of Seragen, as defined, in an amount equal to 2.75% of the net
proceeds from the change in ownership transaction. In the event of a change in
ownership after which the purchaser makes Nichols a bona fide employment offer,
as defined in the Nichols Employment Agreement, the asset value realization
bonus will be payable to her as follows: 25% on the closing of the change in
ownership, 25% two months after closing, 25% four months after closing, and 25%
six months after closing, the obligation of Seragen to make each such payment
in respect of the asset value realization bonus being subject to Nichols'
continued employment with the purchaser at the time the payment falls due. If
the
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purchaser terminates Nichols' employment without just cause, as defined in the
Nichols Employment Agreement, or if Nichols terminates her employment with the
purchaser for good reason, as defined in the Nichols Employment Agreement,
Nichols is entitled to receive the entire unpaid balance of the asset value
realization bonus as a lump sum payment. Under the Nichols Employment
Agreement, the asset value realization bonus is to be reduced by the amount of
gain, if any, recognized by Nichols as a result of exercise of the Nichols
Options. That portion of the asset value realization bonus payable by Seragen
to Nichols pursuant to the Nichols Employment Agreement that is in excess of
the amount of gain recognized by Nichols as a result of the exercise of the
Nichols ISOs is referred to herein as the "Nichols Asset Value Realization
Bonus."
WW. Seragen and Chen are parties to an employment agreement
(the "Chen Employment Agreement") dated as of January 15, 1997, as amended
March 28, 1997, September 3, 1997, September 30, 1997, and February 17, 1998.
XX. As of December 31, 1997, Seragen had granted to Chen
options to purchase 2,894,174 shares of Common Stock. Pursuant to the
anti-dilution provisions of the Chen Employment Agreement, Chen may be entitled
to receive additional options. Certain options (the "Chen ISOs") granted by
Seragen to Chen qualify or will qualify as incentive stock options for purposes
of the Internal Revenue Code. All options held by Chen for the purchase of
capital stock of Seragen, whether outstanding as of the date hereof or issued
after the date hereof, are referred to as the "Chen Options."
YY. The Chen Employment Agreement provides for payment to Chen
of an asset value realization bonus in the event of a change in ownership of
Seragen, as defined, in an amount equal to 2.0% of the net proceeds from the
change in ownership transaction. Under the Chen Employment Agreement, the Chen
Asset Value Realization Bonus is to be reduced by the amount of gain, if any,
recognized by Chen as a result of exercise of the Chen Options. That portion
of the asset value realization bonus payable by Seragen to Chen pursuant to the
Chen Employment Agreement that is in excess of the amount of gain recognized by
Chen as a result of the exercise of the Chen ISOs is referred to herein as the
"Chen Asset Value Realization Bonus."
ZZ. Seragen and Crane are parties to an employment agreement (the
"Crane Employment Agreement") dated as of April 30, 1998.
AAA. As of the date hereof, Seragen has granted to Crane options
to purchase 3,690,962 shares of Common Stock (the "Crane Options"). Pursuant
to the anti-dilution provisions of the Crane Employment Agreement, Crane may be
entitled to receive additional options. Certain options (the "Crane ISOs")
granted by Seragen to Crane qualify or will qualify as incentive stock options
for purposes of the Internal Revenue Code. All options held by Crane for the
purchase of capital stock of Seragen, whether outstanding as of the date hereof
or issued after the date hereof, are referred to as the "Crane Options."
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BBB. The Crane Employment Agreement provides for payment to
Crane of an asset value realization bonus in the event of a change in ownership
of Seragen, as defined, in an amount equal to 2.75% of the net proceeds from
the change in ownership transaction. Under the Crane Employment Agreement, the
Crane Asset Value Realization Bonus is to be reduced by the amount of gain, if
any, recognized by Crane as a result of exercise of options. That portion of
the asset value realization bonus payable by Seragen to Crane pursuant to the
Crane Employment Agreement that is in excess of the amount of gain recognized
by Crane as a result of the exercise of the Crane ISOs is referred to herein as
the "Crane Asset Value Realization Bonus."
Shoreline
CCC. Seragen and Shoreline entered into an engagement letter,
dated as of October 1, 1997 (the "Shoreline Engagement Letter"), relating to a
proposed financing transaction. Pursuant to the Shoreline Engagement Letter,
Seragen is obligated to pay to Shoreline a fee of 1% of the aggregate purchase
price paid in any establishment of a strategic investment transaction, as
defined in the Shoreline Engagement Letter. The Shoreline Engagement Letter
also provides that Seragen pay Shoreline a fee of $100,000 on October 1, 1998,
in the event that no other fees are due to Shoreline under the terms of the
Shoreline Engagement Letter.
Lehman
DDD. Seragen and Lehman entered into a letter agreement, dated
as of April 30, 1998 (the "Lehman Letter Agreement"), engaging Lehman to
provide certain financial advisory services to Seragen. Pursuant to the Lehman
Letter Agreement, Seragen is obligated to pay to Lehman a fee of 2% of the
consideration involved in a sale of Seragen, as defined in the Lehman Letter
Agreement.
NOW, THEREFORE, for and in consideration of the foregoing premises
and the mutual covenants and promises of the parties to this Agreement, and for
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties to this Agreement agree as follows:
SECTION 1 -- SATISFACTION OF CLAIMS
1.1 Satisfaction of Claims Related to Series B Stock. BU
Holding, Hirsch, Josefsen and the Cassidys hereby agree to accept the right to
receive the Merger Consideration allocated to them in the Merger Agreement as
full and complete satisfaction for any and all Claims that they may have as of
the Closing Date (as defined in the Merger Agreement) against Seragen and STI
with respect to or arising under the Series B Stock, the STI Class B Common
Stock and the Collateral Assignment of
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Patents. BU Holding, Hirsch, Josefsen, and the Cassidys agree that, at the
Effective Time, all shares of Series B Stock and STI Class B Common Stock held
by them shall be extinguished, terminated, and of no further force and effect,
without any further action on the part of any person. Each of BU Holding,
Hirsch, Josefsen, and the Cassidys agrees to deliver and relinquish to Seragen
at the Closing (as defined in the Merger Agreement) certificates evidencing all
shares of Series B Stock and STI Class B Common Stock then held by them. Each
such certificate shall be duly endorsed in blank for transfer or accompanied by
a duly executed stock power in blank, with signatures guaranteed by a national
banking association or a member of the New York Stock Exchange. BU Holding,
Hirsch, Josefsen, and the Cassidys hereby agree that, at the Effective Time,
they shall be deemed for all purposes to have released any and all rights held
by them in or pursuant to the Collateral Assignment of Patents. BU Holding,
Hirsch, Josefsen and the Cassidys shall, and hereby do, instruct the Escrow
Agent to deliver the Reassignment of Patents to STI at the Effective Time.
1.2 Satisfaction of Claims Related to Series C Stock. BU
Holding hereby agrees to accept the right to receive the Merger Consideration
allocated to it in the Merger Agreement as full and complete satisfaction of
Seragen's obligation to pay to BU Holding the Series C Debt Amount. In
addition, BU Holding agrees to surrender to Seragen for cancellation,
immediately prior to the Effective Time and without any additional
consideration, that number of shares of Common Stock that is equal to the
number of Conversion Shares delivered by Seragen to BU Holding in connection
with the conversion of the Series C Stock.
1.3 Satisfaction of Warrant Claims. BU Holding, Hirsch,
Josefsen, the Cassidys, and USSC hereby agree to accept the right to receive
the Merger Consideration allocated to them in the Merger Agreement as full and
complete satisfaction for any and all Claims that they may have as of the
Closing Date against Seragen and STI with respect to or arising under,
respectively, the Boston University Warrants, the Hirsch Warrants, the Josefsen
Warrants, the Cassidy Warrants, and the USSC Warrants. BU Holding, Hirsch,
Josefsen, the Cassidys, and USSC agree that, at the Effective Time, all Boston
University Warrants, Hirsch Warrants, Josefsen Warrants, Cassidy Warrants, and
USSC Warrants shall be extinguished, terminated and of no further force or
effect, without any further action on the part of any person. Each of BU
Holding, Hirsch, Josefsen, the Cassidys, and USSC shall at the Closing
relinquish and surrender unexercised to Seragen all, respectively, Boston
University Warrants, Hirsch Warrants, Josefsen Warrants, Cassidy Warrants and
USSC Warrants.
1.4 Satisfaction of Technology Agreement Claims. Boston
University hereby agrees to accept the right to receive the Merger
Consideration allocated to it in the Merger Agreement as full and complete
satisfaction for any Claims it may have against Seragen with respect to or
arising under the Technology Agreement,
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including, without limitation, Seragen's obligation to pay to it royalties
pursuant to the Technology Agreement, and agrees that, as of the Effective
Time, the Technology Agreement, including, without limitation, Seragen's
obligations to pay royalties pursuant thereto, whether arising on or prior to
such time, and the security interest granted by Seragen pursuant thereto, shall
be terminated.
1.5 Satisfaction of Service Agreement Claims.
1.5.1 Boston University hereby agrees to accept the
right to receive the Closing Consideration allocated to it in the Merger
Agreement as full and complete satisfaction of Seragen's obligation to pay to
it any and all Technology Service Fees, Additional Service Fees, royalties, or
any other amounts whatsoever that are payable under the terms of the Service
Agreement for the period from February 14, 1997, through December 31, 1997.
1.5.2 Marathon hereby agrees to accept the right to
receive the Closing Consideration allocated to it in the Merger Agreement as
full and complete satisfaction of Seragen's obligation to pay to it any and all
Technology Service Fees, Additional Service Fees, royalties, or any other
amounts whatsoever that are payable under the terms of the Service Agreement
for the period from January 1, 1998, through the Closing Date.
1.6 Satisfaction of USSC Evaluation License Claims. USSC
hereby agrees to accept the right to receive the Closing Consideration
allocated to it in the Merger Agreement as full and complete satisfaction for
any and all Claims that it may have against Seragen with respect to or arising
under the Evaluation License and agrees that, as of the Effective Time, the
Evaluation License, including, without limitation, any right that USSC may have
to receive shares of Common Stock, shall be terminated.
1.7 Satisfaction of Executive Compensation Claims.
1.7.1 Prior, Nichols, Chen, and Crane hereby agree to
accept the right to receive the Merger Consideration allocated to them in the
Merger Agreement as full and complete satisfaction of Seragen's obligations to
them in connection with, respectively, the Prior Asset Value Realization Bonus,
the Nichols Asset Value Realization Bonus, the Chen Asset Value Realization
Bonus, and the Crane Asset Value Realization Bonus (collectively, the "Asset
Value Realization Bonuses") and, respectively, the Prior Options other than the
Prior ISOs, Nichols Options other than the Nichols ISOs, Chen Options other
than the Chen ISOs, and Crane Options other than the Crane ISOs (collectively,
the "Executive Options").
1.7.2 Any reduction pursuant to the terms hereof from
the amounts that Prior, Nichols, Chen and Crane would have been entitled to
receive under their respective employment agreement in respect of the Asset
Value Realization Bonuses and the Executive Options shall be deemed to be a
reduction first in amounts to which each such person was entitled in respect of
his Asset Value Realization Bonus and thereafter,
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to the extent of any further reduction, a reduction in amounts to which such
person was entitled in respect of his Executive Options.
1.7.3 Prior, Nichols, Chen and Crane hereby agree that
at the Effective Time each of the, respectively, Prior ISOs, Nichols ISOs, Chen
ISOs, and Crane ISOs shall, to the extent not exercised at or prior to such
time, be deemed for all purposes to have been relinquished and surrendered
unexercised to Seragen and shall thereafter be deemed terminated, extinguished,
and of no further force or effect.
1.7.4 Nothing in this Section 1.6 shall be construed to
limit the right of Seragen to pay any Merger Consideration allocated to Nichols
in the Merger Agreement in accordance with and subject to the provisions of
Section 3.7 of the Nichols Employment Agreement.
1.8 Satisfaction of Shoreline Claims. Shoreline hereby agrees
to accept the right to receive the Merger Consideration allocated to it in the
Merger Agreement as full and complete satisfaction of Seragen's obligations
pursuant to the Shoreline Engagement Letter to pay fees to Shoreline and to
reimburse Shoreline for its out-of-pocket expenses.
1.9 Satisfaction of Lehman Claims. Lehman hereby agrees to
accept the right to receive the Merger Consideration allocated to it in the
Merger Agreement as full and complete satisfaction of Seragen's obligations
pursuant to the Lehman Letter Agreement to pay fees to Lehman; provided,
however, that on or prior to Closing Date Seragen shall reimburse Lehman in
cash for its reasonable out-of-pocket expenses incurred by Lehman in connection
with the engagement contemplated by the Lehman Letter Agreement.
SECTION 2 -- RELEASE
2.1 Release of Seragen and STI.
2.1.1 Release. Each of the Third Parties hereby
releases Seragen and STI and their current and past directors, officers,
employees, agents, representatives, successors and assigns from any and all
Claims relating to any act, omission or circumstance whatsoever from the
beginning of time to the date of this Agreement to the extent the same relates
in any manner whatsoever, directly or indirectly, to the operations of Seragen
and STI or the conduct of their business, including, without limitation,
financing and other transactions entered into by Seragen and STI or to which
Seragen or STI was a party, sales of assets by Seragen and STI, licensing by
Seragen and STI of their patents, trademarks, trade secrets and other
intellectual property, transactions between Seragen and STI and directors,
officers or shareholders, and affiliates thereof, of Seragen or STI, and any
and all issuances by Seragen and STI of securities. Without limiting the
foregoing, each of the Third Parties hereby releases
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Seragen and STI and their current and past directors, officers, employees,
agents, representatives, successors and assigns from any and all Claims that
any such Third Party may have in respect of or relating to such Third Party's
subscription for or purchase of securities issued by Seragen or STI, including,
without limitation, Claims relating to any alleged fraud or misrepresentation
to which any such party may have been a party in connection with the issuance
or sale of securities by Seragen or STI.
2.1.2 Limitations on Release. The provisions of
Section 2.1.1 shall not apply, or effect any release of, any Claim by any Third
Party (a) to enforce the terms of this Agreement or the Merger Agreement, (b)
for indemnification from Seragen or STI to which such Third Party may be
entitled as a consequence of such Third Party having served as an director,
officer, employee or agent of Seragen or STI, whether such right to
indemnification arises pursuant to any provision of the charter or bylaws of
Seragen or STI, any provision of any employment agreement or other contract to
which such Third Party may be a party with Seragen or STI, any provision of
law, or otherwise, or (c) any Claim by any Third Party in respect of unpaid
salary, unpaid reimbursable commuting or living expenses, unpaid severance,
accrued vacation rights, or other employee benefits, and unpaid reimbursable
business expenses. The provisions of Section 2.1.1 are not intended to, and
shall not, effect the termination of any agreement or contract between any
Third Party and Seragen or STI, including, without limitation, the Service
Agreement, as the terms of the same apply following the Effective Time. The
provisions of this Section 2.1.2 are without prejudice to the provisions of
Section 1 hereof.
2.1.3 Definition. For purposes of this Agreement,
"Claims" means all actions, causes of action, suits, debts, liens, sums of
money, guarantees, warranties, demands, expenses, costs, attorneys' fees,
judgments, or other rights of any nature whatsoever, liquidated or
unliquidated, fixed or contingent, and whether or not matured.
2.2 Effectiveness of Release. The release for which provisions
is made in this Section 2 shall become effective on, and only on, the
occurrence of the Effective Time, failing which each such release shall be
deemed never to have occurred.
2.3 Survival of Release. Each of the parties expressly
acknowledges that it may hereafter discover Claims presently unknown or
unsuspected or facts different from or in addition to those which it now knows
or believes to be true with respect to the Claims released in this Agreement,
and each of the parties to this Agreement agrees that, notwithstanding the
discovery of such different or additional facts and/or Claims, the releases set
forth in this Section 2 shall survive the Effective Time and shall continue in
full force and effect.
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SECTION 3 -- TERM
3.1 Term. This Agreement shall enter into effect as of the
date first set forth above and shall continue in full force and effect subject
to termination in accordance with the provisions of Section 3.2.
3.2 Termination. In the event that the Merger Agreement is
terminated by any party thereto in accordance with its terms, this Agreement
shall terminate. If this Agreement is terminated in accordance with this
Section 3.2, the effective date of termination shall be the "Termination Date."
3.3 Effect of Termination. Nothing in this Agreement shall be
construed to release any party from any obligation that matured under this
Agreement prior to the Termination Date or any breach of this Agreement that
occurred prior to the Termination Date.
SECTION 4 -- FORBEARANCE
All parties to this Agreement agree, until the earlier of the
Closing Date or the Termination Date, (a) to forbear from exercising any right
or remedy that they may now or in the future have with respect to any right or
claim that is the subject of the provisions of Section 1 hereof or is to be
released at the Effective Time pursuant to Section 2.1 hereof and (b) to
forbear from exercising any warrant or stock option or exercising any right or
remedy that they may now or in the future have under or pursuant to any warrant
agreement or stock option agreement.
SECTION 5 -- REPRESENTATIONS AND WARRANTIES
5.1 Mutual Representations and Warranties. As part of the
consideration for this Agreement and the undertakings of the parties to this
Agreement, each of the parties expressly represents and warrants to each other
party as follows:
5.1.1 Consideration. The consideration received and to
be received by it as set forth in this Agreement is full, sufficient, adequate,
and fair in all respects.
5.1.2 Title to Claims. It has not heretofore assigned,
sold, transferred, pledged or encumbered, or purported to assign, sell,
transfer, pledge or encumber, either in writing or otherwise, any right, title,
or interest it has or may have in any Claims it is settling, resolving, or
releasing pursuant to this Agreement. It has not heretofore created any lien,
encumbrance, or other right by which any other party may claim all or any part
of the claim(s) it is releasing under this Agreement. Without limiting the
foregoing, as of the date hereof, it is the sole owner, beneficially and of
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record, of those securities, options and warrants of which it is stated to be
the owner in the recitals to this Agreement and it has not assigned,
transferred or encumbered any right under, pursuant to, or in connection with
any agreement identified in the recitals hereto to which it is a party.
Notwithstanding anything to the contrary contained in any other section of this
Agreement, it shall indemnify, defend, and hold harmless each of the other
parties to this Agreement from and against any Claims based on or arising in
connection with any such prior assignment, sale, transfer, lien, encumbrance,
or right, or any such purported assignment, sale, transfer, lien, encumbrance,
or right.
5.1.3 Full Information. Before executing this
Agreement, it has been fully informed and has satisfied itself of the terms,
contents, conditions, and effects of this Agreement and any documents to be
executed in connection with this Agreement, and, before entering into this
Agreement, it has had and has taken full and complete advantage of the benefit
and advice of counsel of its own choosing; in connection therewith, it has
relied solely and completely on its own judgment and the judgment and advice of
its own counsel in entering into this Agreement.
5.1.4 No Additional Payments. No party to this
Agreement or anyone acting on behalf of any party to his Agreement has made any
promise or representation of any kind, nature, or character in connection with
the matters relating to this Agreement, on which any other party is relying in
entering into this Agreement, except as expressly stated or otherwise
contemplated in this Agreement. This Section 5.1.4 shall not negate the effect
of any representations, denominated as such, set forth in this Agreement,
including any such representation contained in the Recitals.
5.2 Representations and Warranties of Seragen and STI. Seragen
and STI each hereby represents and warrants to the Third Parties as follows:
5.2.1 Organization and Standing. It is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
enter into, deliver and perform its obligations and undertakings under this
Agreement.
5.2.2 Validity. The execution, delivery and
performance by it of this Agreement have been duly authorized and approved by
all necessary corporate action. This Agreement has been duly executed and
delivered by it. This Agreement constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, subject to laws of general
application affecting creditors' rights and the exercise of judicial discretion
in accordance with general equitable principles.
5.2.3 No Conflicts. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, by it do not and will not
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(a) conflict with, or result in a breach of
any of the terms of, or constitute a default under, its certificate of
incorporation, statute of organization, or by-laws;
(b) conflict with or result in a breach of any
of the terms of, or constitute a default under, any agreement, instrument,
covenant or other restriction to which it is a party or by which any of its
properties or assets are bound, or
(c) conflict with any law, rule, regulation,
order or decree applicable to it or by which it is bound;
except, in each instance, for such conflicts, breaches or defaults as would
not, individually or in the aggregate, adversely affect its ability to
consummate the transactions contemplated hereby or thereby or materially and
adversely affect its financial condition, business or assets.
5.2.4 Governmental Consents. Except for filings,
consents, permits, approvals, registrations, qualifications and authorizations
which have been made or obtained by it, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required under existing laws, rules and regulations in connection
with its execution and delivery of this Agreement. Except as set forth or
contemplated in the Merger Agreement, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required to be made by it under existing laws, rules or
regulations in connection with its consummation of the transactions
contemplated hereby to be consummated at or prior to the Effective Time.
5.3 Representations and Warranties of Boston University, BU
Holding, Marathon, USSC, Shoreline, Lehman, 520 Commonwealth and 660 Corp.
Each of Boston University, BU Holding, Marathon, USSC, Shoreline, Lehman, 520
Commonwealth and 660 Corp represents and warrants to the other parties as
follows:
5.3.1 Organization and Standing. It is a corporation
or other legal entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or other organization
and has the corporate or other power and authority to enter into, deliver and
perform its obligations and undertakings under this Agreement.
5.3.2 Validity. The execution, delivery and
performance by it of this Agreement have been duly authorized and approved by
all necessary corporate or other entity action. This Agreement has been duly
executed and delivered by it. This Agreement constitutes its valid and binding
obligation, enforceable against it in accordance with its terms, subject to
laws of general application affecting creditors'
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rights and the exercise of judicial discretion in accordance with general
equitable principles.
5.3.3 No Conflicts. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, by it do not and will not
(a) conflict with, or result in a breach of
any of the terms of, or constitute a default under, its certificate of
incorporation, statute of organization, or by-laws;
(b) conflict with or result in a breach of any
of the terms of, or constitute a default under, any agreement, instrument,
covenant or other restriction to which it is a party or by which any of its
properties or assets are bound, or
(c) conflict with any law, rule, regulation,
order or decree applicable to it or by which it is bound; except, in each
instance, for such conflicts, breaches or defaults as would not, individually or
in the aggregate, adversely affect its ability to consummate the transactions
contemplated hereby or thereby or materially and adversely affect its financial
condition, business or assets.
5.3.4 Governmental Consents. Except for filings,
consents, permits, approvals, registrations, qualifications and authorizations
which have been made or obtained by it, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required under existing laws, rules and regulations in connection
with its execution and delivery of this Agreement. Except as set forth or
contemplated in the Merger Agreement, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required to be made by it under existing laws, rules or
regulations in connection with its consummation of the transactions
contemplated hereby to be consummated at or prior to the Effective Time.
5.4 Representations and Warranties of Hirsch, Josefsen, the
Cassidys, Prior, Nichols, Chen and Crane. Each of Hirsch, Josefsen, the
Cassidys, Prior, Nichols, Chen and Crane represents and warrants to the other
parties as follows:
5.4.1 Validity. He has duly executed and delivered
this Agreement. This Agreement constitutes his valid and binding obligation,
enforceable against him in accordance with its terms, subject to laws of
general application affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles.
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5.4.2 No Conflicts. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, by him do not and will not
(a) conflict with or result in a breach of any
of the terms of, or constitute a default under, any agreement, instrument,
covenant or other restriction to which he is a party or by which any of his
properties or assets are bound, or
(c) conflict with any law, rule, regulation,
order or decree applicable to him or by which he is bound;
except, in each instance, for such conflicts, breaches or defaults as would
not, individually or in the aggregate, adversely affect his ability to
consummate the transactions contemplated hereby or thereby or materially and
adversely affect his financial condition, business or assets.
5.4.3 Governmental Consents. Except for filings,
consents, permits, approvals, registrations, qualifications and authorizations
which have been made or obtained by it, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required under existing laws, rules and regulations in connection
with his execution and delivery of this Agreement. Except as set forth or
contemplated in the Merger Agreement, no filing, consent, approval,
registration, qualification or authorization with or of any governmental
authority is required to be made by him under existing laws, rules or
regulations in connection with his consummation of the transactions
contemplated hereby to be consummated at or prior to the Effective Time.
SECTION 6 -- CERTAIN COVENANTS
6.1 Non-Interference. No party shall take any action that
would interfere with the performance of this Agreement by any other party or
that would adversely affect any of the rights provided for in this Agreement.
6.2 Amendments to Merger Agreement. Seragen shall not, without
the written consent of all Third Parties, enter into any amendment to the
Merger Agreement that would alter the amount, kind or timing of Merger
Consideration payable to any Third Party. Without limiting the provisions of
the foregoing sentence, Seragen shall not, without the written consent of the
affected Third Party, enter into any amendment to the Merger Agreement that
would or could reasonably be expected to adversely affect the rights of any
Third Party.
6.3 Assignments of Claims. Except as contemplated hereby or in
the Merger Agreement, no Third Party shall assign, sell, transfer, pledge or
encumber,
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either in writing or otherwise, any right, title, or interest it has or may
have in any Claims it is settling, resolving, or releasing pursuant to this
Agreement, any of its right, title or interest in or to shares of Series B
Stock, shares of STI Class B Common Stock, Conversion Shares, or options or
warrants issued by Seragen, or any right under, pursuant to, or in connection
with any agreement to which it and Seragen or STI are parties. Notwithstanding
anything to the contrary contained in any other section of this Agreement, each
Third Party shall indemnify, defend, and hold harmless each of the other
parties to this Agreement from and against any Claims based on or arising in
connection with any such assignment, sale, transfer, lien, encumbrance, or
right, or any such purported assignment, sale, transfer, lien, encumbrance, or
right, in violation of the provisions of this Section 6.3.
SECTION 7 -- NO ADMISSION
In the event that this Agreement does not become fully effective in
accordance with its terms or becomes null and void for any reason whatsoever,
the parties agree that nothing contained in this Agreement and in any
settlement discussions, communications, and writings among the parties shall be
admissible or otherwise used in any subsequent litigation (including any
arbitration proceeding) among the parties, except in respect of any claim for
breach, or seeking enforcement, of the terms of this Agreement. No party, by
entering into this Agreement, admits or acknowledges the existence of any
liability or wrongdoing, all such liability and wrongdoing being expressly
denied by the parties.
SECTION 8 -- COMPLIANCE WITH AGREEMENTS
8.1 Representations and Warranties in Marathon Agreement. The
BU Parties represent and warrant to Seragen that each of the representations
and warranties of the BU Parties or any of them set forth in the Marathon
Agreement is true and correct in all respects. The provisions of this Section
8.1 are subject to the provisions of Section 9 hereof and shall not effect the
nature or extent of the indemnification provided by the Indemnifying Parties
(as hereinafter defined) pursuant thereto.
8.2 Compliance with Marathon Agreement. Marathon, 520
Commonwealth, and 660 Corp agree to comply fully and faithfully, until the
earlier of the Closing Date and the termination of the Marathon Agreement in
accordance with its terms, with each and every one of their obligations set
forth in the Marathon Agreement.
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SECTION 9 -- INDEMNIFICATION OF MARATHON, 520 COMMONWEALTH AND 660 CORP
Each of the Third Parties other than Lehman and Shoreline (the
"Indemnifying Parties") hereby agrees, severally and not jointly, to indemnify
Marathon, 520 Commonwealth and 660 Corp and hold them harmless from and against
that fraction of any Claims that may arise under or in respect of the
representations and warranties made by Marathon, 520 Commonwealth and 660 Corp
pursuant to Section 4.1 of the Marathon Agreement, but only to the extent that
such Claims arise as a result of or relate to matters not known to Kenneth G.
Condon or other officers of Boston University and its direct and indirect
wholly-owned subsidiaries other than Marathon, that is equal to the portion of
the Remaining Milestone Consideration allocable to such Indemnifying Party
divided by the aggregate amount of the Remaining Milestone Consideration
allocated to all Indemnifying Parties; provided, however, that in no event
shall the liability of any Indemnifying Party pursuant to the provisions of
this Section 9 exceed a fraction of $1,000,000 that is equal to the portion of
the Remaining Milestone Consideration allocable to such Indemnifying Party
divided by the aggregate amount of the Remaining Milestone Consideration
allocated to all Indemnifying Parties.
SECTION 10 -- ARBITRATION
10.1 Arbitration. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in New York, New York in accordance with the commercial arbitration
rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators(s) may be entered in any court having jurisdiction
thereof.
10.2 Injunctive Relief. Any party hereto may seek specific
performance of the obligations of any other party hereunder, and the parties
hereby agree that the failure of any party hereto fully and faithfully to
perform its obligations hereunder would result in irreparable injury to the
other parties hereto for which damages would be an inadequate remedy.
Arbitrators acting pursuant to Section 8.1 shall have the right to grant
injunctive relief to any party hereto.
10.3 Fees and Costs. In any arbitration brought pursuant to
Section 8.1 hereof, the arbitrators shall allocate all reasonable fees and
costs incurred by the parties to such arbitration (including, without
limitation, the reasonable fees and disbursements to counsel to the parties) in
accordance with the degree, as determined by the arbitrators, to which the
initial position of each party to the arbitration has been sustained by the
decision of the arbitrators.
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SECTION 11 -- FURTHER ASSURANCES
Each of the parties to this Agreement covenants with each other
party to this Agreement to do any and all things and to execute and deliver any
and all acknowledgements, instruments, or other documents whatsoever, at any
time or from time to time after the date of this Agreement on the request of
any party to this Agreement, that may be necessary or desirable in order more
fully and effectively to carry into effect and consummate the provisions of
this Agreement and the transactions contemplated by this Agreement.
SECTION 12 -- MISCELLANEOUS
12.1 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes and cancels any previous agreement, negotiations,
commitments and writings in respect to the subject matter of this Agreement.
12.2 Modification. Any modification of this Agreement must be
in writing and signed by the duly authorized representative of each party.
12.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
12.4 Delay of No Effect. No failure or delay on the part of any
party in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, and no single or partial exercise of any power,
right or remedy shall preclude any other exercise thereof or the exercise of
any other power, right or remedy.
12.5 Attorneys Fees and Other Costs. Each party to this
Agreement shall bear its own attorney fees and other costs incurred in
connection with the negotiation, drafting and consideration of this Agreement.
12.6 Third-Party Beneficiaries.
12.6.1 Limits on Third Party Beneficiaries. Other than
as set forth in Section 12.6.1, nothing contained in this Agreement shall be
construed to confer upon any other party, other than the parties to this
Agreement, the rights of a third-party beneficiary.
12.6.2 Third Party Beneficiary. Ligand, its successors
and assigns are an intended beneficiary of the terms and provisions of this
Agreement. Ligand shall have the right independently to enforce its rights in
respect thereof without the need to
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join any party hereto or any other person in any arbitration or action for the
enforcement of the same.
12.7 Binding Effect. This Agreement shall inure to the benefit
of, and be binding upon, the parties and to their respective successors and
permitted assigns. This Agreement shall be binding to the fullest extent
allowed by law on the parties to this Agreement and their respective heirs,
successors in interest, and assigns, whether by operation of law or otherwise.
12.8 Assignment. The rights and obligations under this
Agreement may not be assigned by any party to this Agreement without the prior
written consent of the other parties. For the avoidance of doubt, however, the
parties acknowledge and agree that Seragen may consummate the Merger
Transaction as contemplated by the Merger Agreement and in connection therewith
convey by way of the Merger Transaction all of its rights and obligations
hereunder to the Surviving Corporation (as defined in the Merger Agreement).
12.9 Counterparts. This Agreement may be executed in any number
of counterparts (including by facsimile transmission), each of which shall be
an original and all of which, when taken together, shall constitute one
agreement.
12.10 Signatures. Delivery of an executed counterpart of a
signature page of this Agreement by facsimile transmission shall be as
effective as delivery of a manually executed counterpart of this Agreement.
12.11 Headings. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of, any of the terms or
provisions of this Agreement.
12.12 Inconsistent Provisions. Unless otherwise agreed by the
parties to this Agreement, if any of the provisions of any documents or
agreements executed in connection with this Agreement are inconsistent with the
provisions of this Agreement, the provisions of this Agreement shall control,
and any such inconsistent provisions of such other documents or agreements
shall be disregarded and overridden.
12.13 No Party Deemed Drafter. No party shall be deemed the
drafter of this Agreement, and this Agreement should not be construed against
any party as the drafter.
12.14 Notices. Any notice or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
given by prepaid first-class mail, by facsimile or other means of electronic
communication, or by delivery as provided below.
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12.14.1 Any such notice or other communication, if mailed
by prepaid first-class mail at any time other than during a general
discontinuance of postal service due to strike, lockout or otherwise, shall be
deemed to have been received on the third Business Day after the post-marked
date of the notice or communication, or if sent by facsimile or other means of
electronic communication or by nationally recognized overnight courier service,
shall be deemed to have been received on the Business Day following the
sending, or if delivered by hand shall be deemed to have been received at the
time it is delivered to the applicable address noted below either to the
individual designated below or to an individual at such address having apparent
authority to accept deliveries on behalf of the addressee.
12.14.2 In the event of a general discontinuance of
postal service due to strike, lockout or otherwise, notices or other
communications shall be delivered by hand or sent by facsimile or other means
of electronic communication and shall be deemed to have been received in
accordance with the guidelines set forth above.
12.14.3 Notice of change of address shall also be
governed by this Section 12.14.
12.14.4 Notwithstanding the foregoing, any notice or
other communication required or permitted to be given by any party pursuant to
or in connection with any arbitration procedures contemplated by this Agreement
may only be delivered by hand.
12.14.5 For purposes of this Section 10.14, "Business
Day" means any day other than a Saturday, Sunday or day on which banks are
required or permitted to close in the Commonwealth of Massachusetts.
12.14.6 Notices and other communications shall be
addressed as follows:
If to Seragen:
Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Attention: Robert W. Crane
Telecopier number: (508) 435-9805
with a copy to Seragen's counsel at:
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Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington D.C. 20044
Attention: Edward C. Britton
Telecopier number: (202) 662-6291
If to STI:
Seragen Technology, Inc.
c/o Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Attention: Robert W. Crane
Telecopier number: (508) 435-9805
with a copy to Seragen's counsel at:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington D.C. 20044
Attention: Edward C. Britton
Telecopier number: (202) 662-6291
If to Boston University:
Boston University
881 Commonwealth Avenue
Boston, MA 02215
Attention: Kenneth G. Condon
Telecopier number: (617) 353-5492
If to BU Holding:
Seragen LLC
147 Bay State Road
Boston, MA 02115
Attention: Kenneth G. Condon
Telecopier number: (617) 353-5492
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If to Marathon:
Marathon Biopharmaceuticals, LLC
97 South Street
Hopkinton, MA 01748
Attention: Elizabeth C. Chen
Telecopier number: (508) 497-0777
If to USSC:
United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
Attention: Thomas R. Bremer
Telecopier number: (203) 845-1736
If to Hirsch:
Leon C. Hirsch
c/o United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
Telecopier number: (203) 845-1736
If to Josefsen:
Turi Josefsen
c/o United States Surgical Corporation
150 Glover Avenue
Norwalk, CT 06856
Telecopier number: (203) 845-1736
If to the Cassidys:
Gerald S.J. and Loretta P. Cassidy
c/o Cassidy and Associates, Inc.
700 13th Street, N.W.
Suite 400
Washington, D.C. 20005
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<PAGE> 385
Telecopier number: (202) 347-2708
If to Prior:
Reed R. Prior
c/o Seragen Inc.
97 South Street
Hopkinton, MA 01748
Telecopier number: (508) 435-9805
If to Nichols:
Jean C. Nichols, Ph. D.
c/o Seragen Inc.
97 South Street
Hopkinton, MA 01748
Telecopier number: (508) 435-9805
If to Chen:
Elizabeth C. Chen
c/o Seragen Inc.
97 South Street
Hopkinton, MA 01748
Telecopier number: (508) 435-9805
If to Crane:
Robert W. Crane
c/o Seragen Inc.
97 South Street
Hopkinton, MA 01748
Telecopier number: (508) 435-9805
If to Shoreline:
Shoreline Pacific
3 Harbor Drive
Suite 211
Sausalito, CA 94965
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Attention: Vida B. Harband
Telecopier number: (415) 332-7808
If to Lehman:
Lehman Brothers, Inc.
3 World Financial Center
New York, NY 10285-0001
Attention: Rodney Young
Telecopier number: (212) 526-9731
12.15 Incorporation of Recitals. The recitals hereto form an
integral part of this Agreement and are hereby incorporated by reference as
fully as if they were herein fully set forth.
[The balance of this page was intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above.
SERAGEN, INC.
By: /s/ Reed R. Prior
------------------------------------------------
Name: Reed R. Prior
Title: Chairman and Chief Executive Officer
SERAGEN TECHNOLOGY, INC.
By: /s/ Reed R. Prior
------------------------------------------------
Name: Reed R. Prior
Title: President
TRUSTEES OF BOSTON UNIVERSITY
By: /s/ Kenneth G. Condon
------------------------------------------------
Name: Kenneth G. Condon
Title: Treasurer
SERAGEN LLC
By: /s/ Kenneth G. Condon
------------------------------------------------
Name: Kenneth G. Condon
Title:
MARATHON BIOPHARMACEUTICALS, LLC
By: /s/ Kenneth G. Condon
------------------------------------------------
Name: Kenneth G. Condon
Title: Manager
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UNITED STATES SURGICAL CORPORATION
By: /s/ Thomas R. Bremer
------------------------------------------------
Name: Thomas R. Bremer
Title:
/s/ Leon C. Hirsch
------------------------------------------------
Leon C. Hirsch
/s/ Turi Josefen
------------------------------------------------
Turi Josefen
/s/ Turi Josefen
------------------------------------------------
Turi Josefsen by Scott Pitkin as her
Attorney-in-fact
/s/ Gerald S. J. Cassidy
------------------------------------------------
Gerald S. J. Cassidy
/s/ Loretta P. Cassidy
------------------------------------------------
Loretta P. Cassidy
/s/ Reed R. Prior
------------------------------------------------
Reed R. Prior
/s/ Jean C. Nichols
------------------------------------------------
Jean C. Nichols
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/s/ Elizabeth C. Chen
------------------------------------------------
Elizabeth C. Chen
/s/ Robert W. Crane
------------------------------------------------
Robert W. Crane
SHORELINE PACIFIC INSTITUTIONAL FINANCE
By: /s/ Harlan P. Kleiman
--------------------------------------------
Harlan P. Kleiman
President
LEHMAN BROTHERS INC.
By: /s/
--------------------------------------------
Name:
Title: Vice Chairman
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
By: /s/ Kenneth G. Condon
--------------------------------------------
Name: Kenneth G. Condon
Title: President
660 CORPORATION
By: /s/ Kenneth G. Condon
--------------------------------------------
Name: Kenneth G. Condon
Title: Treasurer
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<PAGE> 390
LIST OF EXHIBITS
EXHIBIT A Merger Agreement, dated May 11, 1998, by and between Seragen, Inc.,
Ligand Pharmaceuticals Incorporated, and Knight Acquisition
Corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 145 of the Delaware General Corporation Law permits
indemnification of officers and directors of Ligand under certain conditions
and subject to certain limitations. Section 145 of the Delaware General
Corporation Law also provides that a corporation has the power to purchase and
maintain insurance on behalf of its officers and directors against any
liability asserted against such person and incurred by him or her in such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under the provisions of Section 145 of the Delaware General Corporation Law.
(b) Article VII, Section 1 of the Bylaws of Ligand provides that Ligand
shall indemnify its officers, directors, employees and agents to the full
extent permitted by the General Corporation Law of Delaware. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding by reason of the fact that he or she is or was a
director or officer of Ligand (or was serving at Ligand's request as a director
or officer of another corporation) shall be paid by Ligand in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by Ligand as authorized by the relevant section of the Delaware
General Corporation Law.
(c) As permitted by Section 102(b)(7) of the Delaware General Corporation
Law, Article V, Section (A)2 of Ligand's Certificate of Incorporation provides
that a director of Ligand shall not be personally liable for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to Ligand or its stockholders, (ii)
for acts or omissions not in good faith or acts or omissions that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived any improper personal benefit.
(d) Article V, Section (A)1 of Ligand's Certificate of Incorporation
provides that the liability of the directors of Ligand for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Accordingly, to the extent California law applies, a director will not be
liable for monetary damages for breach of duty to Ligand or its stockholders in
any action brought by or in the right of Ligand. However, a director remains
liable to the extent required by law (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) for
acts or omissions that a director believes to be contrary to the best interests
of Ligand or its stockholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived
an improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to Ligand or its stockholders in
circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to Ligand or its stockholders, (v) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to Ligand or its stockholders,, (vi) for any act or omission
occurring prior to the date when the exculpation provision became effective and
(vii) for any act or omission as an officer, notwithstanding that the officer
is also a director or that his or her actions, if negligent or improper, have
been ratified by the directors. The effect of the provisions in the
Certificate of Incorporation is to eliminate the rights of Ligand and its
stockholders (through stockholders' derivative suits on behalf of Ligand) to
recover monetary
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damages against a director for breach of duty as a director, including breaches
resulting from negligent behavior in the context of transactions involving a
change of control of Ligand or otherwise, except in the situations described in
clauses (i) through (vii) above. These provisions will not alter the liability
of directors under federal securities laws.
(e) Pursuant to authorization provided under the Certificate of
Incorporation, Ligand has entered into indemnification agreements with each of
its present and certain of its former directors. Ligand has also entered into
similar agreements with certain of Ligand's executive officers who are not
directors. Generally, the indemnification agreements attempt to provide the
maximum protection permitted by Delaware and California law as it may be
amended from time to time. Moreover, the indemnification agreements provide
for certain additional indemnification. Under such additional indemnification
provisions, however, an individual will not receive indemnification for
judgments, settlements or expenses if he or she is found liable to Ligand
(except to the extent the court determines he or she is fairly and reasonably
entitled to indemnity for expenses), for settlements not approved by Ligand or
for settlements and expenses if the settlement is not approved by the court.
The indemnification agreements provide for Ligand to advance to the individual
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding. In order to
receive an advance of expenses, the individual must submit to Ligand copies of
invoices presented to him or her for such expenses. Also, the individual must
repay such advances upon a final judicial decision that he or she is not
entitled to indemnification. Ligand's Bylaws contain a provision of similar
effect relating to advancement of expenses to a director or officer, subject to
an undertaking to repay if it is ultimately determined that indemnification is
unavailable.
(f) There is directors and officers liability insurance now in effect which
insures directors and officers of Ligand.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS (All references to the Company in this Item 21 shall mean
Ligand)
<TABLE>
<S> <C> <C>
(1)(2)(3) 2.1 Agreement and Plan of Reorganization, dated May 11, 1998, by and among the
Company, Knight Acquisition Corp. and Seragen, Inc.
(1) 2.2 Form of Certificate of Merger.
(1) 3.1 Amended and Restated Certificate of Incorporation of the Company.
(1) 3.2 Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of the Company.
(1) 3.3 Bylaws of the Company, as amended.
(1) 5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the securities by
registration.
(8) 10.1 Form of Seragen Stockholder Voting Agreement.
(8) 10.2 Form of Irrevocable Proxy to Vote Seragen, Inc. stock.
(1)(2)(3) 10.3 Option and Asset Purchase Agreement, dated May 11, 1998, by and among the
Company, Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate
Corp. and 660 Corporation.
(2)(6) 10.4 Extension Option Agreement, dated May 11, 1998, by and among the Company,
Seragen, Inc., Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation.
(7) 10.5 Letter agreement, dated May 11, 1998, by and among the Company, Eli Lilly &
Company and Seragen, Inc.
(1) 10.6 Amendment No. 3 to Option and Wholesale Purchase Agreement, dated May 11, 1998,
by and between Eli Lilly and Company and the Company.
(1) 10.7 Agreement, dated May 11, 1998, by and among Eli Lilly and Company, the Company
and Seragen, Inc.
(1) 10.8 Form of Escrow Agreement to be entered into by and among Lehman Brothers Inc.,
Shoreline Pacific Institutional Finance, Seragen LLC, Reed R. Prior, Jean C.
Nichols, Elizabeth C. Chen, Robert W. Crane, Leon C. Hirsch, Turi Josefsen,
Gerald S.J. Cassidy and Loretta P. Cassidy, the Company, Knight Acquisition
Corporation, Seragen, Inc. and State Street Bank and Trust Company.
(4) 10.9 Settlement Agreement, dated May 1, 1998, by and among Seragen, Inc., Seragen
Biopharmaceuticals Ltd./Seragen Biopharmaceutique Ltee, Sofinov Societe
Financiere D'Innovation Inc., Societe Innovatech Du Grand Montreal, MDS Health
Ventures Inc., Canadian Medical Discoveries Fund Inc., Royal Bank Capital
Corporation and Health Care and Biotechnology Venture Fund.
(2)(5) 10.10 Accord and Satisfaction Agreement, dated May 11, 1998, by and among Seragen,
Inc., Seragen Technology, Inc., Trustees of Boston University, Seragen LLC,
Marathon Biopharmaceuticals, LLC, United States Surgical Corporation, Leon C.
Hirsch, Turi Josefsen, Gerald S.J. and Loretta P. Cassidy, Reed R. Prior, Jean
C. Nichols, Elizabeth C. Chen, Robert W. Crane, Shoreline Pacific Institutional
Finance, Lehman Brothers Inc., 520 Commonwealth Avenue Real Estate Corp. and
660 Corporation.
(1) 10.11 Amendment No. 1 to Service Agreement, dated as of May 11, 1998, by and between
Seragen, Inc. and Marathon Biopharmaceuticals, LLC.
(1) 21.1 Subsidiaries of the Company.
(1) 23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
(1) 23.2 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
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<PAGE> 394
<TABLE>
<S> <C> <C>
(1) 23.3 Consent of Arthur Andersen LLP, Independent Auditors (Seragen, Inc.).
(1) 23.4 Consent of PriceWaterhouseCoopers LLP, Independent Auditors (Seragen, Inc.).
(1) 24.1 Power of Attorney. (Refer to Signature Page.)
(1) 27.1 Financial Data Schedule.
(1) 99.1 Form of Seragen, Inc. Proxy Card
</TABLE>
_______________________
(1) Filed herewith.
(2) Annexed as an Appendix to the Proxy Statement/Prospectus included
in this Registration Statement.
(3) The schedules referenced in this agreement have not been included
because they are either disclosed in such agreement or do not
contain information which is material to an investment decision.
The Company agrees to furnish a copy of such schedules to the
Commission upon request.
(4) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.2 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(5) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.4 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(6) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.5 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(7) Previously filed as, and hereby incorporated by reference, to
Exhibit 99.6 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(8) Previously filed as, and hereby incorporated by reference to,
Exhibit A filed with the Schedule 13D of the Company filed with the
Commission on May 21, 1998 for Seragen, Inc.
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<PAGE> 395
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in the amount of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 42(b) under the
Securities Act if, in the aggregate, the changes in amount and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of Regulation S-X at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of Regulation S-X if such financial statements
and information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or 15(d) or the
Exchange Act that are incorporated by reference in the Form F-3.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant
II-5
<PAGE> 396
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 397
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ON THE 9TH DAY OF JULY, 1998.
LIGAND PHARMACEUTICALS INC.
By /s/ David E. Robinson DAVID E.
-------------------------------------
ROBINSON Chairman, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David E. Robinson and Paul V. Maier, or
either of them, as his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any registration statement related to this Registration Statement and filed
pursuant to Rule 462 under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David E. Robinson Chairman of the Board, President July 9, 1998
- ------------------------------------------- and Chief Executive Officer
DAVID E. ROBINSON (Principal Executive Officer)
/s/ Paul V. Maier Senior Vice President and Chief July 9, 1998
- ------------------------------------------- Financial Officer
PAUL V. MAIER (Principal Financial Officer and
Accounting Officer)
/s/ Henry F. Blissenbach Director July 9, 1998
- -------------------------------------------
HENRY F. BLISSENBACH
/s/ Alexander D. Cross Director July 9, 1998
- -------------------------------------------
ALEXANDER D. CROSS
/s/ John Groom Director July 9, 1998
- -------------------------------------------
JOHN GROOM
/s/ Irving S. Johnson Director July 9, 1998
- -------------------------------------------
IRVING S. JOHNSON
/s/ Carl C. Peck Director July 9, 1998
- -------------------------------------------
CARL C. PECK
/s/ Victoria R. Fash Director July 9, 1998
- -------------------------------------------
VICTORIA R. FASH
</TABLE>
<PAGE> 398
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<S> <C> <C>
(1)(2)(3) 2.1 Agreement and Plan of Reorganization, dated May 11, 1998, by and among the
Company, Knight Acquisition Corp. and Seragen, Inc.
(1) 3.1 Amended and Restated Certificate of Incorporation of the Company.
(1) 3.2 Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of the Company.
(1) 3.3 Bylaws of the Company, as amended.
(1) 5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the securities by
registration.
(8) 10.1 Form of Seragen Stockholder Voting Agreement.
(8) 10.2 Form of Irrevocable Proxy to Vote Seragen, Inc. stock.
(1)(2)(3) 10.3 Option and Asset Purchase Agreement, dated May 11, 1998, by and among the
Company, Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate
Corp. and 660 Corporation.
(2)(6) 10.4 Extension Option Agreement, dated May 11, 1998, by and among the Company,
Seragen, Inc., Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation.
(7) 10.5 Letter agreement, dated May 11, 1998, by and among the Company, Eli Lilly &
Company and Seragen, Inc.
(1) 10.6 Amendment No. 3 to Option and Wholesale Purchase Agreement, dated May 11, 1998,
by and between Eli Lilly and Company and the Company.
(1) 10.7 Agreement, dated May 11, 1998, by and among Eli Lilly and Company, the Company
and Seragen, Inc.
(1) 10.8 Form of Escrow Agreement to be entered into by and among Lehman Brothers Inc.,
Shoreline Pacific Institutional Finance, Seragen LLC, Reed R. Prior, Jean C.
Nichols, Elizabeth C. Chen, Robert W. Crane, Leon C. Hirsch, Turi Josefsen,
Gerald S.J. Cassidy and Loretta P. Cassidy, the Company, Knight Acquisition
Corporation, Seragen, Inc. and State Street Bank and Trust Company.
(4) 10.9 Settlement Agreement, dated May 1, 1998, by and among Seragen, Inc., Seragen
Biopharmaceuticals Ltd./Seragen Biopharmaceutique Ltee, Sofinov Societe
Financiere D'Innovation Inc., Societe Innovatech Du Grand Montreal, MDS Health
Ventures Inc., Canadian Medical Discoveries Fund Inc., Royal Bank Capital
Corporation and Health Care and Biotechnology Venture Fund.
(2)(5) 10.10 Accord and Satisfaction Agreement, dated May 11, 1998, by and among Seragen,
Inc., Seragen Technology, Inc., Trustees of Boston University, Seragen LLC,
Marathon Biopharmaceuticals, LLC, United States Surgical Corporation, Leon C.
Hirsch, Turi Josefsen, Gerald S.J. and Loretta P. Cassidy, Reed R. Prior, Jean
C. Nichols, Elizabeth C. Chen, Robert W. Crane, Shoreline Pacific Institutional
Finance, Lehman Brothers Inc., 520 Commonwealth Avenue Real Estate Corp. and
660 Corporation.
(1) 10.11 Amendment No. 1 to Service Agreement, dated as of May 11, 1998, by and between
Seragen, Inc. and Marathon Biopharmaceuticals, LLC.
(1) 21.1 Subsidiaries of the Company.
(1) 23.1 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
(1) 23.2 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
<PAGE> 399
<TABLE>
<S> <C> <C>
(1) 23.3 Consent of Arthur Andersen LLP, Independent Auditors (Seragen, Inc.).
(1) 23.4 Consent of Coopers & Lybrand LLP, Independent Auditors (Seragen, Inc.).
(1) 24.1 Power of Attorney. (Refer to Signature Page.)
(1) 99.1 Form of Seragen, Inc. Proxy Card
</TABLE>
_______________________
(1) Filed herewith.
(2) Annexed as an Appendix to the Proxy Statement/Prospectus included
in this Registration Statement.
(3) The schedules referenced in this agreement have not been included
because they are either disclosed in such agreement or do not
contain information which is material to an investment decision.
The Company agrees to furnish a copy of such schedules to the
Commission upon request.
(4) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.2 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(5) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.4 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(6) Previously filed as, and hereby incorporated by reference to,
Exhibit 99.5 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(7) Previously filed as, and hereby incorporated by reference, to
Exhibit 99.6 filed with the Current Report on Form 8-K of Seragen,
Inc. filed with the Commission on May 15, 1998.
(8) Previously filed as, and hereby incorporated by reference to,
Exhibit A filed with the Schedule 13D of the Company filed with the
Commission on May 21, 1998 for Seragen, Inc.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LIGAND PHARMACEUTICALS INCORPORATED,
KNIGHT ACQUISITION CORPORATION
AND
SERAGEN, INC.
DATED AS OF MAY 11, 1998
May 11, 1998
Execution
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
ARTICLE I THE MERGER
1.1 The Merger.............................................................. 2
1.2 Effective Time.......................................................... 2
1.3 Effect of the Merger.................................................... 2
1.4 Certificate of Incorporation; Bylaws.................................... 3
1.5 Directors and Officers.................................................. 3
1.6 Consideration to Be Issued.............................................. 3
1.7 Distribution of Merger Consideration.................................... 6
1.8 Effect on Company Capital Stock......................................... 12
1.9 Dissenting Shares....................................................... 13
1.10 Surrender of Certificates............................................... 13
1.11 No Further Ownership Rights in Company Capital Stock.................... 15
1.12 Lost, Stolen or Destroyed Certificates.................................. 15
1.13 Deliveries.............................................................. 15
1.14 Tax and Accounting Consequences......................................... 16
1.15 Taking of Necessary Action; Further Action.............................. 16
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 16
2.1 Organization of the Company............................................. 17
2.2 Company Capital Structure............................................... 17
2.3 Subsidiaries and Joint Ventures......................................... 18
2.4 Authority............................................................... 18
2.5 Non-Contravention....................................................... 19
2.6 Consents and Approvals.................................................. 19
2.7 Company Financial Statements; SEC Documents............................. 20
2.8 Ownership of Parent Stock............................................... 20
2.9 No Undisclosed Liabilities.............................................. 20
2.10 No Changes.............................................................. 21
2.11 Tax and Other Returns and Reports....................................... 23
2.12 Restrictions on Business Activities..................................... 25
2.13 Title to Properties; Absence of Liens and Encumbrances.................. 26
2.14 Intellectual Property................................................... 26
2.15 Agreements, Contracts and Commitments................................... 29
2.16 Interested Party Transactions........................................... 31
2.17 Compliance with Laws.................................................... 31
2.18 Litigation.............................................................. 31
2.19 Insurance............................................................... 31
2.20 Minute Books............................................................ 32
2.21 Relationships With Suppliers and Licensors.............................. 32
2.22 Environmental Matters................................................... 32
2.23 Brokers' and Finders' Fees; Third Party Expenses........................ 33
2.24 Permits and Licenses; No Debarment...................................... 33
2.25 Employee Matters and Benefit Plans...................................... 34
</TABLE>
i
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<TABLE>
<S> <C>
2.26 Employees............................................................... 37
2.27 Distribution of Merger Consideration.................................... 37
2.28 Disclosure Documents.................................................... 38
2.29 Opinion of Lehman Brothers.............................................. 38
2.30 Representation Complete................................................. 38
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................. 38
3.1 Organization, Standing and Power........................................ 39
3.2 Authority............................................................... 39
3.3 Capital Structure....................................................... 40
3.4 SEC Documents; Parent Financial Statements.............................. 41
3.5 No Material Adverse Change.............................................. 41
3.6 Litigation.............................................................. 42
3.7 Disclosure Documents.................................................... 42
3.8 Ownership of Company Stock.............................................. 42
3.9 Subsidiaries and Joint Ventures......................................... 42
3.10 Compliance with Laws.................................................... 43
3.11 Minute Books............................................................ 43
3.12 No Undisclosed Liabilities.............................................. 43
3.13 Restrictions on Business Activities..................................... 44
3.14 Representations Complete................................................ 44
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................... 44
4.1 Conduct of Business of the Company...................................... 44
4.2 Conduct of Business of Parent........................................... 47
4.3 Other Offers............................................................ 47
4.4 Employee Releases....................................................... 48
4.5 Option and Asset Purchase Agreement..................................... 48
ARTICLE V ADDITIONAL AGREEMENTS................................................... 48
5.1 Stockholders' Meeting; Proxy Material; Registration Statement........... 48
5.2 Access to Information................................................... 50
5.3 Confidentiality......................................................... 50
5.4 Intellectual Property................................................... 51
5.5 Expenses................................................................ 51
5.6 Public Disclosure....................................................... 51
5.7 Consents................................................................ 51
5.8 FIRPTA Compliance....................................................... 51
5.9 Best Efforts............................................................ 51
5.10 Notification of Certain Matters......................................... 52
5.11 Additional Documents and Further Assurances............................. 53
5.12 Company Auditors........................................................ 53
5.13 Preclosing Company Payables; Preclosing Company Revenues................ 53
5.14 Marathon Service Agreement.............................................. 54
5.15 Obligations of Merger Sub............................................... 54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.16 Development Activities.................................................. 54
5.17 FDA Contacts............................................................ 55
5.18 Payables................................................................ 56
5.19 Certain Escrow Amounts.................................................. 56
ARTICLE VI CONDITIONS TO THE MERGER................................................ 56
6.1 Conditions to Obligations of Each Party to Effect the Merger............ 56
6.2 Additional Conditions to Obligations of the Company..................... 57
6.3 Additional Conditions to the Obligations of Parent and Merger Sub....... 58
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER....................................... 60
7.1 Termination............................................................. 60
7.2 Effect of Termination................................................... 62
7.3 Amendment............................................................... 62
7.4 Extension; Waiver....................................................... 62
ARTICLE VIII GENERAL PROVISIONS...................................................... 62
8.1 Survival of Representations, Warranties and Agreements; Right of
Set-off................................................................. 62
8.2 Notices................................................................. 64
8.3 Interpretation.......................................................... 65
8.4 Counterparts............................................................ 65
8.5 Entire Agreement: Assignment............................................ 65
8.6 Severability............................................................ 65
8.7 Other Remedies.......................................................... 66
8.8 Governing Law........................................................... 66
8.9 Consent to Jurisdiction and Forum Selection............................. 66
8.10 Rules of Construction................................................... 66
8.11 Specific Performance.................................................... 67
8.12 Corporate Transaction involving Parent.................................. 67
8.13 Insurance............................................................... 67
8.14 Third Party Beneficiaries............................................... 67
8.15 Termination Fee......................................................... 67
</TABLE>
iii
<PAGE> 5
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 6.2(d) Form of Legal Opinion of Counsel to Parent
Exhibit 6.3(d) Form of Legal Opinion of Counsel to the Company
SCHEDULE DESCRIPTION
- -------- -----------
Schedule 1.7(a)(i)(A) Escrow Agreement
Schedule 1.8(c) Company Warrants to be Assumed
Company Schedules
Parent Schedules
Schedule 4.1(n) Severance Payments
Schedule 6.2(c) Third Party Consents
Schedule 6.3(c) Third Party Consents
Schedule 6.3(k) Amended License Agreements
</TABLE>
iv
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of May 11, 1998 among Ligand Pharmaceuticals Incorporated, a
Delaware corporation ("Parent"), Knight Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and Seragen,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") may be converted into the
right to receive shares of voting common stock, par value $.001 per share, of
Parent ("Parent Common Stock").
C. As part of the Merger Consideration (as defined in Section 1.6
below), the Company will receive Thirty Seven Million Dollars ($37,000,000)
contingent on receiving Final FDA Approval (as defined in Section 1.6(c) below),
which consideration may be paid in the form of cash, Parent Common Stock or a
combination of both, at the sole discretion of Parent.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The Company, Parent and Merger Sub desire to enter into this
Agreement for the following reasons: (i) if the Company does not consummate a
financing or other transaction, then the Company's current cash position may not
be sufficient to meet its financial obligations at the current level beyond June
1998; (ii) the Company has filed a biologics license application for DAB389IL-2
with the United States Food and Drug Administration ("FDA") in December 1997 and
currently anticipates participating in a meeting with the advisory panel to the
FDA in June 1998, the results of which are uncertain; (iii) the Company's
ability to commercialize the DAB389IL-2 product on an economically viable basis
is uncertain as a result of the Company's obligations to third parties; (iv)
Ligand desires to obtain certain rights to DAB389IL-2 and has an existing
arrangement with Eli Lilly & Co. ("Lilly") pursuant to which Ligand has been
granted certain rights to DAB389IL-2; and (v) in connection with the execution
and performance of this Merger Agreement and as a result of the Merger, Ligand
has represented that it will lose certain rights under its agreements with
Lilly.
<PAGE> 7
F. The Company, as of the date hereof, intends to enter into that
certain Accord and Satisfaction Agreement, of even date herewith (the "Accord
Agreement"), between the Company, Seragen Technology, Inc. ("STI"), Trustees of
Boston University ("BU"), Seragen LLC ("BU Holding"), Marathon
Biopharmaceuticals, LLC ("Marathon"), United States Surgical Corporation
("USSC"), Reed R. Prior ("Mr. Prior"), Jean C. Nichols, Ph.D. ("Dr. Nichols"),
Elizabeth C. Chen ("Ms. Chen"), Robert W. Crane ("Mr. Crane"), Leon C. Hirsch
("Mr. Hirsch"), Turi Josefsen ("Ms. Josefsen"), Gerald S.J. and Loretta P.
Cassidy (the "Cassidys"), Shoreline Pacific Institutional Finance ("Shoreline"),
Lehman Brothers Inc. ("Lehman"), 520 Commonwealth Avenue Real Estate Corp. and
660 Corporation, which is a material inducement to Ligand to enter into this
Merger Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 7.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Brobeck, Phleger & Harrison LLP, 550 West "C" Street, Suite 1200, San Diego,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of Delaware (the "Merger Agreement"), in
accordance with the relevant provisions of applicable law (the time of
confirmation by the Secretary of State of Delaware of such filing, or such later
time as may be set forth in this Agreement, being referred to herein as the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving
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<PAGE> 8
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Seragen, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Consideration to Be Issued. Subject to the terms and conditions of
this Agreement, Parent agrees to pay to, or on behalf of, as specified in
Section 1.7 hereof, holders of Company Capital Stock, or cause to be paid, an
aggregate amount of Sixty Seven Million Dollars ($67,000,000) (the "Merger
Consideration"), in the amounts and in the manner set forth in Sections 1.6(a)
and (b) herein.
(a) Closing Consideration. Parent shall pay as specified in
Section 1.7 hereof at the Closing an aggregate amount of Thirty Million Dollars
($30,000,000) (the "Closing Consideration"), payable in the form of cash in the
amount of Four Million Dollars ($4,000,000), and shares of Parent Common Stock
in the amount of Twenty Six Million Dollars ($26,000,000), the issuance of which
has been registered under the Securities Act of 1933, as amended (the "1933
Act"), as described herein; provided Parent may, in its sole discretion,
increase the amount of cash paid hereunder solely to cover amounts due pursuant
to Sections 1.7(a)(i)(A), (B), (C)(2) and (C)(3) of this Agreement, in which
case the Closing Consideration payable in shares of Parent Common Stock shall be
correspondingly reduced. The Closing Consideration allocable to the holders of
Company Common Stock and Company Series D Preferred Stock (as defined herein)
shall be delivered to the Exchange Agent (as defined in Section 1.10(a) below)
on or before the Closing Date for distribution pursuant to Section 1.10 below.
In addition, the Remaining Closing Consideration shall be delivered at the
Closing pursuant to Section 1.13 below.
-3-
<PAGE> 9
(b) Milestone Consideration. Parent shall also pay as specified
in Section 1.7 hereof an aggregate amount of Thirty Seven Million Dollars
($37,000,000) (the "Milestone Consideration") on the earlier of (i) the date
which is six (6) months after the date of receipt of Final FDA Approval and (ii)
the second anniversary of the Closing Date (the "Milestone Date"); provided,
however, that in the event the Final FDA Approval has not been received by the
second anniversary of the Closing Date and, in addition, that Parent has not
breached its obligations under Section 5.16, Parent shall be relieved of all
obligations to pay the Milestone Consideration pursuant to this Section 1.6(b).
The Milestone Consideration, if any, may be paid in the form of cash (which
together with any cash consideration paid pursuant to Section 1.6(a) above shall
hereinafter be referred to as the "Cash Consideration"), shares of Parent Common
Stock, the issuance of which has been registered under the 1933 Act, as
described herein, or a combination of both as determined by Parent in its sole
discretion. The Milestone Consideration allocable to the holders of Company
Common Stock and Company Series D Preferred Stock shall be delivered to the
Exchange Agent on or before the Milestone Date for distribution pursuant to
Section 1.10 below. In addition, the Milestone Consideration allocable to the
recipients of the Stakeholder Closing Consideration (as defined herein) (the
"Variable Company Stakeholders") shall be delivered on the Milestone Date
pursuant to Section 1.13 below.
(c) Final FDA Approval. For purposes of this Agreement, "Final
FDA Approval" shall be deemed to have been received by the Company, Parent or
the Surviving Corporation, as the case may be, at such time as such party has
received such approval from the U.S. Food and Drug Administration ("FDA") as is
adequate to permit such party to begin the marketing, distribution in interstate
commerce and selling of DAB(389)IL-2 in the United States for cutaneous T-Cell
lymphoma ("CTCL") if such approval is supported to any material extent by
clinical and development efforts conducted by the Company prior to the Closing
Date. The approval contemplated by the aforesaid sentence shall include approval
by the FDA of the content of the label (the "Label") under which DAB(389)IL-2 is
to be marketed for CTCL; provided, however, that if, as of the later of the
ninetieth day following the Closing Date and the ninetieth day following receipt
by Parent or the Surviving Corporation, as the case may be, of a "Complete
Review" letter from the FDA in respect of DAB(389)IL-2 for CTCL, Parent or the
Surviving Corporation, as the case may be, has failed to reach agreement with
the FDA regarding the contents of the Label, Parent shall, or shall cause the
Surviving Corporation to:
(i) accept the following changes in the Label if requested by the
FDA: (A) patients indicated in the Label restricted to those patients deemed
"heavily pre-treated" or "refractory"; (B) patients indicated in the Label
restricted to those patients who are IL-2 receptor positive; and (C) imposition
of requirements that physicians have extensive training in the use of
DAB(389)IL-2 for CTCL; and
(ii) promptly file a Label incorporating the changes required to
be included in the Label by clause (i) of this sentence.
In the event that Final FDA Approval is not obtained by the Closing
Date, and additional clinical tests and studies or other activities are
necessary after the Closing Date to
-4-
<PAGE> 10
obtain Final FDA Approval, Parent shall, or shall cause the Surviving
Corporation to, perform such activities so as to facilitate the earliest
possible receipt of Final FDA Approval; provided, however, neither Parent nor
the Surviving Corporation shall be required to perform such activities to the
extent that the aggregate Study Costs (as hereinafter defined) exceed $4,000,000
annually; and provided further that in the event that Final FDA Approval on an
accelerated basis is conditioned by the FDA upon its receipt of a Phase IV
commitment by Parent or the Surviving Corporation, as the case may be, such
party shall accept such Phase IV commitment provided such commitment is based on
(A) the Company's studies 04-11 and/or 04-14, or (B) substitute studies, the
Study Costs of which do not exceed in the aggregate $4,000,000 annually, and
Parent or the Surviving Corporation, as the case may be, shall acknowledge
acceptance of such Phase IV commitment in the form and manner necessary to
facilitate the earliest possible receipt of Final FDA Approval. For purposes of
this Section 1.6(c), "Study Costs" shall mean the internal, external and
overhead costs for clinical development and regulatory activities calculated in
accordance with Parent's current standard project cost accounting with respect
to Parent's PanretinTM Gel and TargretinTM Gel clinical development and
regulatory activities.
During the period from the Closing Date through the earlier of the
receipt of Final FDA Approval and the second anniversary of the Closing Date,
Parent shall not, and shall not cause the Surviving Corporation to, make any
change with respect to the manufacturing processes, standard operating
procedures, workforce or facilities and equipment of the Company or Marathon
that could reasonably be expected to adversely affect the prospects for, or
delay, the receipt by Parent or the Surviving Corporation, as the case may be,
of Final FDA Approval.
In the event that the BLA is transferred to any person other than the
Surviving Corporation, Parent shall cause such transferee to comply in full with
the provisions of this Section 1.6(c).
(d) Stock Consideration. For purposes of determining the value of
the shares of Parent Common Stock, if any, distributed pursuant to Section
1.6(a) and Section 1.6(b) (collectively, the "Stock Consideration"), Parent
Common Stock shall be valued as follows:
(i) The value of each share of Parent Common Stock issued
as part of the Closing Consideration shall be valued at the average of the
closing prices of a share of Parent Common Stock on the Nasdaq National Market
for the five (5) consecutive trading days immediately preceding the date of
execution of this Agreement.
(ii) The value of each share of Parent Common Stock issued
as part of the Milestone Consideration shall be valued at the average of the
closing prices of the a share of Parent Common Stock on the Nasdaq National
Market for the ten (10) consecutive trading days immediately preceding the date
of issuance of such Parent Common Stock.
All references to numbers of shares of Parent Common Stock in
this Agreement or provisions for the calculation of the number thereof shall be
automatically adjusted to
-5-
<PAGE> 11
reflect any stock splits, dividends, stock combinations, reverse splits or
similar changes in Parent Common Stock between the date of this Agreement and
the dates shares of Parent Common Stock are issued pursuant to the Merger.
1.7 Distribution of Merger Consideration.
(a) Distribution of Closing Consideration. The Closing
Consideration shall be distributed as set forth in this Section 1.7(a).
(i) Distribution of Closing Consideration to Persons Other
Than Holders of Company Common Stock. The balance of the Closing Consideration
remaining after distribution of the portion of the Closing Consideration
contemplated by Section 1.7(a)(ii) (the "Remaining Closing Consideration") shall
be distributed as set forth in this Section 1.7(a)(i).
(A) Escrow. A $200,000 portion of the Cash
Consideration included in the Closing Consideration shall be delivered to State
Street Bank & Trust Company of Boston, Massachusetts, as escrow agent, to be
held and distributed in accordance with the terms of an escrow agreement
substantially in the form of Schedule 1.7(a)(i)(A) (the "Escrow Agreement").
(B) Satisfaction of Preclosing Company Payables.
The Cash Consideration included in the Remaining Closing Consideration remaining
after compliance with the provisions of Section 1.7(a)(i)(A) shall be applied to
the extent necessary, after application of all cash held by the Company as of
the Closing, to pay and satisfy the Preclosing Company Payables (as defined in
Section 5.13 below) as follows: first to the obligees of the Preclosing Company
Payables other than the Executives (as defined in Section 1.7(a)(i)(D)), pro
rata; and second, to each of the Executives, pro rata. In the event the Cash
Consideration remaining after compliance with the provisions of Section
1.7(a)(i)(A) is not sufficient to satisfy the Preclosing Company Payables of the
Executives, such Preclosing Company Payables shall be satisfied using Stock
Consideration included within the Remaining Closing Consideration.
(C) Distributions Pursuant to Accord Agreement. The
balance of the Remaining Closing Consideration remaining after compliance with
the provisions of Section 1.7(a)(i)(A) and (B) (the "Distributable Closing
Consideration") shall be distributed as set forth in this Section 1.7(a)(i)(C)
and Sections 1.7(a)(i)(D) and (E), all in accordance with the Accord Agreement.
(1) A $5,000,000 portion of the
Distributable Closing Consideration shall be delivered to USSC.
(2) A $3,769,863 portion of the
Distributable Closing Consideration shall be delivered to BU.
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<PAGE> 12
(3) A $2,132,329 portion of the
Distributable Closing Consideration shall be delivered to Marathon.
(4) A $500,000 portion of the Distributable
Closing Consideration shall be delivered to BU.
(5) 3.39113385 percent of the balance of the
Remaining Closing Consideration remaining after the payments contemplated by
Sections 1.7(a)(i)(C)(1), (2), (3) and (4) (the "Stakeholder Closing
Consideration") shall be delivered to Lehman.
(6) 1.69556693 percent of the Stakeholder
Closing Consideration shall be delivered to Shoreline.
(7) 13.91735164 percent of the Stakeholder
Closing Consideration shall be delivered to Mr. Prior; provided, however, that
the amount of Stakeholder Closing Consideration to which Mr. Prior would
otherwise be entitled pursuant to the provisions of this clause (7) shall be
reduced by the amount of the Option Stock Gain (as such term is defined in that
certain Employment Agreement, dated as of November 6, 1996, between the Company
and Mr. Prior, as amended through the date hereof) realized by Mr. Prior in
respect of the Prior ISOs (as defined in the Accord Agreement). Any Option Stock
Gain realized by Mr. Prior in respect of the Prior ISOs in excess of the amount
of Stakeholder Closing Consideration to which Mr. Prior is entitled pursuant to
the preceding sentence without regard to the provisos is hereinafter referred to
as the "Prior Excess Amount."
(8) 4.50267259 percent of the Stakeholder
Closing Consideration shall be delivered to Dr. Nichols; provided, however, that
the amount of Stakeholder Closing Consideration to which Dr. Nichols would
otherwise be entitled pursuant to the provisions of this clause (8) shall be
reduced by the amount of the Option Stock Gain (as such term is defined in that
certain Amended and Restated Employment Agreement, dated as of September 22,
1997, between the Company and Dr. Nichols, as amended through the date hereof)
realized by Dr. Nichols in respect of the Nichols ISOs (as defined in the Accord
Agreement). Any Option Stock Gain realized by Dr. Nichols in respect of the
Nichols ISOs in excess of the amount of Stakeholder Closing Consideration to
which Dr. Nichols is entitled pursuant to the preceding sentence without regard
to the provisos is hereinafter referred to as the "Nichols Excess Amount."
(9) 3.27467097 percent of the Stakeholder
Closing Consideration shall be delivered to Ms. Chen; provided, however, that
the amount of Stakeholder Closing Consideration to which Ms. Chen would
otherwise be entitled pursuant to the provisions of this clause (9) shall be
reduced by the amount of the Option Stock Gain (as such term is defined in that
certain Employment Agreement, dated as of January 15, 1997, between the Company
and Ms. Chen, as amended through the date hereof) realized by Ms. Chen in
respect of the Chen ISOs (as defined in the Accord Agreement). Any Option Stock
Gain realized by Ms. Chen in respect of the Chen ISOs in excess of the amount of
Stakeholder Closing Consideration to which Ms. Chen is entitled pursuant to the
preceding
-7-
<PAGE> 13
sentence without regard to the provisos is hereinafter referred to as the "Chen
Excess Amount."
(10) 4.50267259 percent of the Stakeholder
Closing Consideration shall be delivered to Mr. Crane; provided, however, that
the amount of Stakeholder Closing Consideration to which Mr. Crane would
otherwise be entitled pursuant to the provisions of this clause (10) shall be
reduced by the amount of the Option Stock Gain (as such term is defined in that
certain Employment Agreement, dated as of April 30, 1998, between the Company
and Mr. Crane, as amended through the date hereof) realized by Mr. Crane in
respect of the Crane ISOs (as defined in the Accord Agreement). Any Option Stock
Gain realized by Mr. Crane in respect of the Crane ISOs in excess of the amount
of Stakeholder Closing Consideration to which Mr. Crane is entitled pursuant to
the preceding sentence without regard to the provisos is hereinafter referred to
as the "Crane Excess Amount."
(11) 34.06924332 percent of the Stakeholder
Closing Consideration shall be delivered to BU Holding.
(12) 20.21056806 percent of the Stakeholder
Closing Consideration shall be delivered to Mr. Hirsch.
(13) 8.66167203 percent of the Stakeholder
Closing Consideration shall be delivered to Ms. Josefsen.
(14) 5.77444803 percent of the Stakeholder
Closing Consideration shall be delivered to the Cassidys.
(D) Allocation of Cash Consideration and Stock
Consideration Among Persons Receiving Closing Consideration Pursuant to the
Accord Agreement. In the event that the Distributable Closing Consideration
consists of both Cash Consideration and Stock Consideration, the cash portion of
the Distributable Closing Consideration shall be delivered as follows: (1)
first, to Mr. Prior, Dr. Nichols, Ms. Chen and Mr. Crane (collectively, the
"Executives"), pro rata based on the portion of the Distributable Closing
Consideration to which each such person is entitled, up to an amount equal to
one-half of that portion of the Distributable Closing Consideration to which
each of the Executives is entitled, and, (2) second, to BU and Marathon, pro
rata based on the portion of the Distributable Closing Consideration to which
each such person is entitled, up to the amount of the Distributable Closing
Consideration to which each is entitled pursuant to, respectively, Sections
1.7(a)(i)(C)(2) and (3). In the event that any Cash Consideration remains as
part of the Distributable Closing Consideration after compliance with the
foregoing sentence, those persons designated to receive Distributable Closing
Consideration pursuant to Sections 1.7(a)(i)(C)(1), (4), (5), (6), (11), (12),
(13), and (14) shall receive such remaining Cash Consideration, pro rata based
on the portion of the Distributable Closing Consideration to which each such
person is entitled.
-8-
<PAGE> 14
(E) Valuation of Stock Consideration for Allocation
Purposes. For purposes of applying the provisions of this Section 1.7(a)(i), the
Stock Consideration shall be valued in accordance with the provisions of Section
1.6(d)(i), subject to any adjustment for which provision is made in the final
paragraph of Section 1.6(d).
(ii) Distribution of Closing Consideration to Holders of
Company Common Stock. Shares of Parent Common Stock shall be distributed, in
accordance with the provisions of Section 1.10 hereof, among
(A) the holders of shares of the Company's common
stock, par value $.01 per share (the "Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (including, without
limitation, shares of Company Common Stock issued by the Company pursuant to (1)
that certain Settlement Agreement, dated April 29, 1998 (the "Seragen Canada
Settlement Agreement"), between the Company, Seragen Biopharmaceuticals
Ltd./Seragen Biopharmaceutique Ltee ("Seragen Canada"), Sofinov Societe
Financiere d'Innovation Inc., Societe Innovatech du Grand Montreal, MDS Health
Ventures Inc., Canadian Medical Discoveries Fund Inc., Royal Bank Capital
Corporation, and Health Care and Biotechnology Venture Fund and (2) the Prior
ISOs, the Nichols ISOs, the Chen ISOs, and the Crane ISOs), and
(B) holders of shares of the Company's Series D
preferred stock, par value $.01 per share (the "Company Series D Preferred
Stock") at the rate of 0.035746 shares of Parent Common Stock per share of
Company Common Stock held by each holder. For purposes of this Section
1.7(a)(ii), each holder of shares of the Company Series D Preferred Stock shall
be deemed to hold the number of shares of Company Common Stock that would have
been issued to the holder had the holder converted all of his or her Company
Series D Preferred Stock into Company Common Stock immediately prior to the
Effective Time.
(b) Distribution of Milestone Consideration. The Milestone
Consideration shall be distributed as set forth in this Section 1.7(b).
(i) Distribution of Milestone Consideration to Persons
Other Than Holders of Company Common Stock. The balance of the Milestone
Consideration remaining after distribution of that portion of the Milestone
Consideration contemplated in Section 1.7(b)(ii) (the "Remaining Milestone
Consideration") shall be distributed as set forth in this Section 1.7(b)(i), all
in accordance with the Accord Agreement.
(A) A $4,500,000 portion of the Remaining Milestone
Consideration shall be delivered to BU Holding.
(B) A $1,070,766 portion of the Remaining Milestone
Consideration shall be delivered to BU.
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<PAGE> 15
(C) A portion of the Remaining Milestone
Consideration equal to the sum of
(x) $103,730 plus
(y) $11,780.82 multiplied by the number of
days elapsed between June 30, 1998 (exclusive of such date), and the Closing
Date (inclusive of such date) shall be delivered to Marathon.
(D) 3.39113385 percent of the Remaining Milestone
Consideration after the payments contemplated by Section 1.7(b)(i)(A), (B) and
(C) (the "Stakeholder Milestone Consideration") shall be delivered to Lehman.
(E) 1.69556693 percent of the Stakeholder Milestone
Consideration shall be delivered to Shoreline.
(F) 13.91735164 percent of the Stakeholder
Milestone Consideration shall be delivered to Mr. Prior; provided, however, that
the amount of Milestone Consideration to which Mr. Prior would otherwise be
entitled pursuant to the provisions of this clause (F) shall be reduced by the
amount of the Prior Excess Amount, if any; provided further that an amount of
Stakeholder Milestone Consideration to which Mr. Prior is entitled pursuant to
the provisions of this clause (F) equal to the Prior Escrow Amount (as defined
below) shall be delivered to the Escrow Agent pursuant to Section 1.13(b)(i).
(G) 4.50267259 percent of the Stakeholder Milestone
Consideration shall be delivered to Dr. Nichols; provided, however, that the
amount of Milestone Consideration to which Dr. Nichols would otherwise be
entitled pursuant to the provisions of this clause (G) shall be reduced by the
amount of the Nichols Excess Amount, if any; provided further that an amount of
Stakeholder Milestone Consideration to which Dr. Nichols is entitled pursuant to
the provisions of this clause (G) equal to the Nichols Escrow Amount (as defined
below) shall be delivered to the Escrow Agent pursuant to Section 1.13(b)(i).
(H) 3.27467097 percent of the Stakeholder Milestone
Consideration shall be delivered to Ms. Chen; provided, however, that the amount
of Milestone Consideration to which Ms. Chen would otherwise be entitled
pursuant to the provisions of this clause (H) shall be reduced by the amount of
the Chen Excess Amount, if any.
(I) 4.50267259 percent of the Stakeholder Milestone
Consideration shall be delivered to Mr. Crane; provided, however, that the
amount of Milestone Consideration to which Mr. Crane would otherwise be entitled
pursuant to the provisions of this clause (I) shall be reduced by the amount of
the Crane Excess Amount, if
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<PAGE> 16
any; provided further that an amount of Stakeholder Milestone Consideration to
which Mr. Crane is entitled pursuant to the provisions of this clause (I) equal
to the Crane Escrow Amount (as defined below) shall be delivered to the Escrow
Agent pursuant to Section 1.13(b)(i).
(J) 34.06924332 percent of the Stakeholder
Milestone Consideration shall be delivered to BU Holding.
(K) 20.21056806 percent of the Stakeholder
Milestone Consideration shall be delivered to Mr. Hirsch.
(L) 8.66167203 percent of the Stakeholder Milestone
Consideration shall be delivered to Ms. Josefsen.
(M) 5.77444803 percent of the Stakeholder Milestone
Consideration shall be delivered to the Cassidys.
(ii) Distribution of Milestone Consideration to Holders of
Company Common Stock. A portion of the Milestone Consideration shall be
distributed, in accordance with the provisions of Section 1.10 hereof, among
(A) the holders of shares of the Company Common
Stock issued and outstanding immediately prior to the Effective Time (including,
without limitation, shares of Company Common Stock issued by the Company
pursuant to (1) the Seragen Canada Settlement Agreement and (2) the Prior ISOs,
the Nichols ISOs, the Chen ISOs, and the Crane ISOs), and
(B) holders of shares of the Company Series D
Preferred Stock on the basis of the number of shares of Company Common Stock
held by each holder at the rate of $0.23 per share of Company Common Stock held
by each holder. For purposes of this Section 1.7(b)(ii), each holder of shares
of the Company Series D Preferred Stock shall be deemed to hold the number of
shares of Company Common Stock that would have been issued to the holder had the
holder converted all of his or her Company Series D Preferred Stock into Company
Common Stock immediately prior to the Effective Time.
(iii) Allocation of Cash Consideration and Stock
Consideration. In the event that the Milestone Consideration consists of both
Cash Consideration and Stock Consideration, each person designated to receive
Milestone Consideration pursuant to this Section 1.7(b) shall receive that
percentage of the Cash Consideration that is included in the Milestone
Consideration that is equal to the percentage of the Milestone Consideration to
which such person is entitled and that percentage of the Stock Consideration
that is included in the Milestone Consideration that is equal to the percentage
of the Milestone Consideration to which such person is entitled.
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(iv) Valuation of Stock Consideration for Allocation
Purposes. For purposes of applying the provisions of this Section 1.7(b), the
Stock Consideration shall be valued in accordance with the provisions of Section
1.6(d)(ii).
1.8 Effect on Company Capital Stock.
(a) Conversion of Company Capital Stock. Each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Capital Stock to be canceled pursuant to
Section 1.8(b) and any Dissenting Shares (as defined and to the extent provided
in Section 1.9(a)) shall be canceled and extinguished and be converted
automatically into the right to receive that portion of the Merger Consideration
set forth in Section 1.7, upon surrender of the certificate representing such
share of Company Capital Stock in the manner provided in Section 1.10.
(b) Cancellation of Company-Owned Stock. Each share of Company
Capital Stock owned by the Company or any direct or indirect wholly-owned
subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Certain Stock Options and Warrants Not Assumed. Prior to the
Effective Time, the Company and its Board of Directors shall take all actions
necessary to (i) accelerate and effect the exercise and/or termination of each
option to purchase Company Capital Stock ("Company Options"), whether issued
under one of the Company's option plans or otherwise, and (ii) cause each holder
of a warrant to purchase Company Capital Stock (the "Company Warrants")
outstanding at any time prior to the Effective Time to exercise or agree to the
termination of the warrant in full prior to the Effective Time, other than those
holders listed on Schedule 1.8(c) whose Company Warrants are not terminated
pursuant to the Accord Agreement. Except as set forth on Schedule 1.8(c)
attached hereto, Parent will not assume any warrant not exercised prior to the
Effective Time. In the case of each warrant set forth on Schedule 1.8(c) (the
"Assumed Warrants") and to the extent such Assumed Warrants are not terminated
by their terms in connection with the Merger, Parent shall, effective as of the
Effective Time, assume the Assumed Warrants (and if required by the terms of the
Assumed Warrants or if otherwise appropriate under the terms of the Assumed
Warrants, execute a supplemental agreement at the Closing in connection
therewith) and shall reserve, make available for issuance and, upon exercise of
such Assumed Warrants in accordance with their terms after the Effective Time,
issue the number of shares of Parent Common Stock issuable upon such exercise.
(d) Capital Stock of Merger Sub. Each share of common stock, par
value $.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation (the "Surviving Corporation Common Stock").
Each stock certificate of Merger Sub evidencing ownership of any such shares of
Merger Sub Common Stock shall, as of the Effective Time, evidence ownership of
such shares of Surviving Corporation Common Stock.
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(e) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall be entitled to receive, without any interest,
from Parent an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average of the closing
prices of a share of Parent Common Stock on the Nasdaq National Market for the
five (5) consecutive trading days ending five (5) trading days prior to (A) the
Closing Date with respect to the Closing Consideration and (B) the Milestone
Date with respect to the Milestone Consideration.
1.9 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
Delaware Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("Dissenting Shares") shall not be
converted into or represent a right to receive the portion of the Merger
Consideration otherwise issuable with respect to such shares pursuant to Section
1.7, but the holder thereof shall only be entitled to such rights as are granted
by Delaware Law.
(b) Notwithstanding the provisions of Section 1.9(a), if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under Delaware Law shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive that
amount of Merger Consideration that would have been issuable with respect to
such shares pursuant to Section 1.7 had they not demanded appraisal, without
interest thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Delaware Law and received by the Company and (ii) the opportunity to participate
in all negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, which consent shall not be unreasonably withheld, voluntarily make any
payment with respect to any demands for appraisal of Company Capital Stock or
offer to settle or settle any such demands.
1.10 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company with assets of not less than $500 million to
act as exchange agent (the "Exchange Agent").
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<PAGE> 19
(b) Parent to Provide Merger Consideration. Parent shall make
available to the Exchange Agent (i) the Closing Consideration allocable to the
holders of Company Common Stock and Company Series D Preferred Stock under
Section 1.7 hereof on or before the Closing Date and (ii) the Milestone
Consideration, if any, allocable to the holders of Company Common Stock and
Company Series D Preferred Stock under Section 1.7 hereof on or before the
Milestone Date.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock and
Company Series D Preferred Stock and which shares were converted into the right
to receive the portion of the Merger Consideration issuable with respect to such
shares pursuant to Section 1.7, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify) and (ii) instructions for effecting the surrender of the Certificates
in exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor the portion
of the Merger Consideration issuable pursuant to Section 1.7 as and when the
Exchange Agent receives the Merger Consideration with respect to the shares of
Company Common Stock and Company Series D Preferred Stock represented by such
Certificate, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Common Stock and Company Series D Preferred
Stock will be deemed from and after the Effective Time, for all corporate
purposes, subject to the provisions of Section 1.10(d), to evidence the right to
receive in accordance with Section 1.8(a) the portion of the Merger
Consideration issuable pursuant to Section 1.7 as and when the Exchange Agent
receives the Merger Consideration with respect to the shares of Company Common
Stock and Company Series D Preferred Stock represented by such Certificate.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock declared or
made after the date such shares are to be distributed to the holders of the
Company Capital Stock and with a record date after such date will be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions theretofore payable with respect to whole
shares of Parent Common Stock with a record date after the date such shares of
Parent Common Stock are to be delivered by Parent to the Exchange Agent for
distribution to the holders of the Company Capital Stock. The provisions of the
foregoing sentence are in addition to, and not by way of limitation of, the
provisions of the final paragraph of Section 1.6(d).
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<PAGE> 20
(e) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.10, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Capital Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.11 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued or cash paid upon the surrender for exchange of
shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Capital Stock, and there shall, after the Effective Time, be
no further registration of transfers on the records of the Surviving Corporation
of shares of Company Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article 1.
1.12 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, cash and such shares of Parent Common Stock, if any, as
may be required to be delivered in exchange therefor pursuant to Section 1.7;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.13 Deliveries.
(a) At the Closing, Parent shall deliver or cause to be delivered
pursuant to Section 1.7(a):
(i) the Escrow Amount (as defined in the Escrow Agreement)
to the Escrow Agent;
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(ii) to each of the obligees of Preclosing Company
Payables, Cash Consideration in an amount necessary to pay and satisfy such
obligee's Preclosing Company Payables to the extent such payables have not been
satisfied by the Company at or prior to the Closing; and
(iii) to each of the Variable Company Stakeholders, the
portion of the Remaining Closing Consideration issuable to such Variable Company
Stakeholder pursuant to Section 1.7(a).
(b) At the Milestone Date, Parent shall deliver or cause to be
delivered pursuant to Section 1.7(b)(i)
(i) the Prior Escrow Amount, the Nichols Escrow Amount and
the Crane Escrow Amount to the Escrow Agent;
(ii) to each Variable Company Stakeholder, the portion of
the Milestone Consideration issuable to such Variable Company Stakeholder
pursuant to Section 1.7(b)(i).
1.14 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall be accounted for as a purchase, not a pooling of
interests. It is also intended by the Company that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"); provided, however, that the parties hereto
acknowledge that such a reorganization within the meaning of Section 368 of the
Code is contingent on the Merger Consideration consisting of at least eighty
percent (80%) Parent Common Stock.
1.15 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company, Parent and Merger Sub are fully authorized in the name of their
respective corporations to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants, on behalf of itself and each
of its Subsidiaries (defined below), to Parent and Merger Sub, as of the date of
this Agreement and as of the Closing Date, except as otherwise expressly
provided herein, subject to such exceptions as are specifically disclosed in the
disclosure letter (referencing the appropriate schedule or section number)
supplied by the Company to Parent (the "Company Schedules")
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and dated as of the date hereof and updated as of the Closing Date by mutual
agreement of the Parent and Company, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own, operate and lease its
properties and to carry on its business as now being conducted. The Company is
duly qualified or licensed to conduct its business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have, or would reasonably be expected to have, a Material Adverse Effect
on the Company. For purposes of this Agreement, a "Material Adverse Effect",
with respect to any person or entity, means a material adverse effect on the
business, assets (including intangible assets), financial condition, results of
operations, liabilities or prospects of such person or entity and its
Subsidiaries and Joint Ventures (each as defined in Section 2.3(a) below) taken
as a whole; and "Material Adverse Change" shall mean a change which would have a
Material Adverse Effect. The Company has delivered a true and correct copy of
its Certificate of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure. The authorized capital stock of the
Company consists of 70,000,000 shares of Common Stock, par value $0.01, and
5,000,000 shares of Preferred Stock, par value $0.01, of which 4,000 shares are
designated as Series A Preferred Stock, 23,800 shares are designated as Series B
Preferred Stock and 5,000 shares are designated as Series C Preferred Stock, and
979 shares are designated as Series D Preferred Stock. As of December 31, 1997,
there were issued and outstanding:
(a) 20,905,710 shares of Company Common Stock; and
(b) No shares of Series A Preferred Stock, 23,800 shares of
Series B Preferred Stock, 5,000 shares of Series C Preferred Stock and 923
shares of Series D Preferred Stock.
All outstanding shares have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in this
Section, as set forth on Schedule 2.2, and as otherwise contemplated by this
Agreement, and except for changes since December 31, 1997 resulting from the
exercise of Company Options and Company Warrants, there are outstanding (i) no
shares of capital stock or other voting securities of Company, (ii) no
securities of the Company convertible into or exchangeable for shares of capital
stock or voting securities of Company and (iii) no options or other rights to
acquire from Company, and no obligation of Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or other voting securities of Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). Except as
disclosed above, there are no outstanding obligations of Company or any of its
Subsidiaries or Joint Ventures (as defined in Section 2.3(a) below) to
repurchase, redeem or otherwise acquire any Company Securities.
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2.3 Subsidiaries and Joint Ventures.
(a) Schedule 2.3(a) sets forth the name and respective
jurisdiction of incorporation or organization of all of the Company's
Subsidiaries and Joint Ventures. Each of the Company's Subsidiaries is a
corporation or other entity duly incorporated or otherwise organized, validly
existing in good standing (or local law equivalent) under the laws of its
jurisdiction of organization. Each of the Company's Subsidiaries has the
corporate power and authority to own and lease the properties and assets it now
owns and leases and to carry on its business as and where such properties and
assets are now owned or leased and such business is now conducted. The Company
has heretofore delivered to Parent true, correct and complete copies of the
Articles of Incorporation, Bylaws, or equivalent governing instruments, each as
amended to the date hereof, for each such Subsidiary. Each of the Company's
Subsidiaries is duly licensed or qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the failure to
be so licensed or qualified and in good standing would have a Material Adverse
Effect. For purposes of this Agreement, (i) "Subsidiary" means, with respect to
any entity, any corporation or organization of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are directly or
indirectly owned by such entity, and (ii) "Joint Venture" means, with respect to
any entity, any corporation or organization (other than such entity and any
Subsidiary thereof) of which such entity or any Subsidiary thereof is, directly
or indirectly, the beneficial owner of 40% or more of any class of equity
securities or equivalent profit participation interest.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary of the Company that is owned by the Company,
directly or indirectly, is free and clear of any material Lien (as defined in
Section 2.5 below) and free of any other material limitation or restriction on
the Company's rights as owner thereof (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests), other than those imposed by applicable law. Except as set forth on
Schedule 2.3(b), there are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
or equity interests of any Subsidiary of the Company. The ownership interests of
the Company in any Joint Ventures are owned by the Company free and clear of any
Liens, limitations, restrictions, options, calls or commitments, other than
those that are immaterial.
2.4 Authority. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger and this Agreement by the Company's stockholders. The
Board of Directors of the Company has unanimously (i) approved this Agreement,
the Plan of Merger and the transactions contemplated hereby and thereby, (ii)
determined that the Merger is in the best interests of the stockholders of the
Company and is on terms that are fair to such stockholders, and (iii)
recommended that the stockholders of the Company approve this Agreement, the
Plan of Merger and the Merger. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy,
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<PAGE> 24
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
2.5 Non-Contravention. The execution and delivery of this Agreement by
the Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, (i) conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), any provision of the Certificate of Incorporation or Bylaws of the
Company or any of its Subsidiaries; (ii) assuming compliance with the matters
referred to in Section 2.6 and assuming the requisite approval of the Company's
stockholders of the Merger, (a) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company or any of its Subsidiaries
or Joint Ventures except for any such contravention, conflict or violation that
does not have a Material Adverse Effect on the Company; or (b) constitute a
default under or give rise to a right of termination, cancellation, acceleration
or loss of any material benefit under any (A) material agreement, contract or
other instrument binding upon the Company or any of its Subsidiaries or Joint
Ventures or (B) license, franchise, permit or other similar authorization held
by the Company or any such Subsidiary or Joint Venture with respect to which a
default, termination, cancellation, acceleration or loss of any material benefit
would result in a material adverse effect on the Company's rights in or ability
to use the patents included in the Company Registered Intellectual Property or
on the prospects for Final FDA Approval; or (iii) result in the creation or
imposition of any material Lien on any material asset of the Company or any of
its Subsidiaries or Joint Ventures (any of (i), (ii) or (iii), a "Conflict").
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
2.6 Consents and Approvals. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, country, local or
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party (so as not to trigger any Conflict)
is required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Delaware Secretary of State; (ii) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; (iii)
compliance with any applicable requirements of the 1933 Act and the rules and
regulations promulgated thereunder; (iv) compliance with any applicable foreign
or state securities or "blue sky" laws; (v) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"); (vi) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially and adversely affect the ability of the Company, Parent or Merger Sub
to consummate the Merger; or (vii) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 2.6.
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2.7 Company Financial Statements; SEC Documents.
(a) The Company has delivered to Parent the unaudited condensed
balance sheet of the Company as of March 31, 1998, and the related unaudited
condensed statements of income, stockholders' equity and cash flows for the
quarter ended March 31, 1998 (the "1998 Financial Statements"). The 1998
Financial Statements and the audited financial statements and unaudited interim
condensed financial statements of the Company included in its annual reports on
Form 10-K, quarterly reports on Form 10-Q, and amendments thereto, referred to
in Section 2.7(b) (collectively, the "Company Financial Statements") present
fairly, in all material respects and in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of the Company as of
the dates thereof and its consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
any interim financial statements and except for the absence of footnotes with
respect to the 1998 Financial Statements). For purposes of this Agreement,
"Company Balance Sheet" means the condensed balance sheet of the Company as of
March 31, 1998, contained in the 1998 Financial Statements and "Company Balance
Sheet Date" means March 31, 1998.
(b) The Company has furnished or made available to Parent true
and complete copies of all reports or registration statements filed by it with
the U.S. Securities and Exchange Commission (the "SEC") under the 1933 Act and
the Exchange Act for all periods since December 31, 1996, all in the form so
filed (all the foregoing being collectively referred to as the "SEC Documents").
As of their respective filing dates, the SEC Documents of the Company complied
in all material respects with the requirements of the 1933 Act, or the Exchange
Act, as the case may be, and none of such SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC.
2.8 Ownership of Parent Stock. As of the date hereof, and during the
three (3) year period immediately preceding the date hereof, neither the Company
nor, to the Company's knowledge, any affiliate or associate (as defined in
Section 203 of Delaware Law) thereof is an "interested stockholder" of the
Parent within the meaning of Section 203 of the Delaware Law.
2.9 No Undisclosed Liabilities. There are no liabilities of the Company
or any of its Subsidiaries or Joint Ventures of any kind whatsoever that are,
individually or in the aggregate, material to the Company and its Subsidiaries
and Joint Ventures taken as a whole, other than (i) liabilities disclosed or
provided for in the Company Balance Sheet or liabilities of a nature not
required to be disclosed in a balance sheet under generally accepted accounting
principles; (ii) liabilities incurred in the ordinary course of business since
the Company Balance Sheet Date; and (iii) liabilities under this Agreement or
incurred in connection with the transactions contemplated hereby. The Surviving
Corporation will not
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have any liability for any Third Party Expenses (as defined in Section 5.5
below) of the Company after the Closing.
2.10 No Changes. Since the Company Balance Sheet Date, except as set
forth on Schedule 2.10 or as otherwise contemplated by this Agreement or the
Accord Agreement, there has not been, occurred or arisen:
(a) any transaction by the Company or any of its Subsidiaries
that creates an obligation that will continue to bind the Company or any of its
Subsidiaries after the Effective Time except for transactions in the ordinary
course of business as conducted on the Company Balance Sheet Date and consistent
with past practices;
(b) any amendments or changes to the Certificate of Incorporation
or Bylaws of the Company or any of its Subsidiaries;
(c) any capital expenditure by the Company or any of its
Subsidiaries, either individually exceeding $10,000 or in the aggregate
exceeding $25,000;
(d) any destruction of, damage to or loss of any assets, business
or customer of the Company or any of its Subsidiaries (whether or not by covered
by insurance) that would result in a Material Adverse Effect to the Company;
(e) any material labor trouble or any claim of wrongful discharge
or other unlawful labor practice or action;
(f) any revaluation by the Company or any of its Subsidiaries of
any of its assets that results in a Material Adverse Effect to the Company;
(g) any declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company or any of
its Subsidiaries, or any direct or indirect redemption, purchase or other
acquisition by the Company or any of Subsidiaries of any Company Capital Stock
or the capital stock of any Subsidiary;
(h) any issuance of Company Securities (except upon exercise
after the date hereof of any options), any grant of any Company Options or
Company Warrants or any amendment of any material term of any outstanding
Company Securities or any of its Subsidiaries Securities;
(i) any sale, lease, license or other disposition of any of the
assets or properties of the Company or any of its Subsidiaries, except in the
ordinary course of business as conducted on the Company Balance Sheet Date and
consistent with past practices;
(j) any amendment or termination of any material contract,
agreement or license to which the Company or any of its Subsidiaries is a party
or by which it is bound;
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(k) any loan by the Company or any of its Subsidiaries to any
natural person, corporation, general partnership, limited partnership, limited
liability company, proprietorship, other business organization, trust, union,
association or governmental or regulatory authority ("Person"), incurring by the
Company or any Subsidiary of any indebtedness for borrowed money, guaranteeing
by the Company or any of its Subsidiaries of any indebtedness, issuance or sale
of any debt securities of the Company or any of its Subsidiaries or guaranteeing
of any debt securities of others, except for advances to employees for travel
and business expenses in the ordinary course of business, consistent with past
practices;
(l) any material waiver or release of any right or claim of the
Company or any of its Subsidiaries, including any write-off or other compromise
of any material account receivable of the Company or any of its Subsidiaries;
(m) any commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or any of its
Subsidiaries or their respective affairs that would have a Material Adverse
Effect on the Company;
(n) any notice of any claim of ownership by a third party of
Company Intellectual Property (as defined in Section 2.14 below), or of
revocation or change in material terms of any license to any item of any Company
Intellectual Property by a licensor, or of infringement by the Company or any of
its Subsidiaries of any third party's intellectual property rights;
(o) any material change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries or Joint Ventures, except for
any such change required by reason of a concurrent change in generally accepted
accounting principles or disclosed in the 1998 Financial Statements;
(p) other than in the ordinary course of business or as
contemplated by this Agreement, any (i) grant of any severance or termination
pay to any director, officer or employee of the Company or any of its
Subsidiaries who earns more than $50,000 per year, (ii) entering into of any
written employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of the Company or any such Subsidiary who earns more than $50,000 per year,
(iii) any material increase in benefits payable under any existing severance or
termination pay policies or employment agreements, or (iv) any material increase
in compensation, bonus or other benefits payable to any director, officer or
employee of the Company or any such Subsidiary who earns more than $50,000 per
year;
(q) any change in pricing or royalties set or charged by the
Company or any of its Subsidiaries to its customers or licensees or in pricing
or royalties set or charged by Persons who have licensed Company Intellectual
Property to the Company or any of its Subsidiaries other than any changes
effected pursuant to the terms of a written agreement existing prior to the date
hereof;
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(r) any event or condition of any character that has had or could
be reasonably expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any of its
Subsidiaries or any officer or employee thereof to do any of the things
described in the preceding clauses (a) through (r) (other than negotiations with
Parent and its representatives regarding the transactions contemplated by this
Agreement).
2.11 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any and all
federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other Person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.11
as of the Effective Time:
(i) The Company and each Subsidiary will have timely
prepared and filed all required material federal, state, local and foreign
returns, estimates, statements and reports ("Returns") relating to any and all
Taxes of, concerning or attributable to the Company and its operations and each
Subsidiary and its operations with respect to any Taxable period ending on or
before the Effective Time. To the knowledge of the Company, such Returns are
true, correct and complete in all material respects. No material Taxes, whether
or not shown on the Returns, will be owing after the Closing for any period
covered by any of the Returns. Neither the Company nor any of its Subsidiaries
has applied for or received an extension of time within which to file any
Return. No tax authority has asserted in writing to the Company that the Company
or any of its Subsidiaries is required to file a Return in any jurisdiction in
which the Company has not previously filed Returns. For purposes of this
Agreement, the "Company's knowledge," "knowledge of the Company" or "known to
the Company" means the knowledge of the Chairman and Chief Executive Officer,
the President and Chief Technology Officer, the Chief Financial Officer, any
Vice President or any director of the Company, in each case after due inquiry
and reasonable investigation.
(ii) The Company and each of its Subsidiaries as of the
Effective Time: (A) will have paid or accrued all material Taxes shown as due
and payable on the Returns and (B) will have withheld and deposited, or will
have made arrangements for withholding with respect to amounts which have not
yet been paid but are due on or before the Closing Date in connection with this
Agreement or otherwise, all material federal, state, local or foreign income
taxes, FICA, FUTA and other Taxes required to be withheld.
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(iii) Neither the Company nor any of its Subsidiaries has
been a member of an affiliated group other than one of which the Company was the
common parent, or filed or been included in a combined, consolidated or unitary
Return other than one filed by the Company (or a return for a group consisting
solely of its Subsidiaries or predecessors), or participated in any other
similar arrangement whereby any income, revenues, receipts, gains, losses,
deductions, credits or other Tax items of the Company or any such Subsidiary was
determined or taken into account for Tax purposes with reference to or in
conjunction with any such items of another Person other than the Company or any
such Subsidiary or predecessor;
(iv) Neither the Company nor any of its Subsidiaries has
any unaccrued material liability for the payment of any material Tax. Except as
disclosed on Schedule 2.10(b)(iv), there is no Tax deficiency outstanding,
proposed or assessed against the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(v) No audit or other examination of any Return of the
Company or any of its Subsidiaries is currently in progress, nor has the
Company, any of its Subsidiaries or the officers, directors or other Tax
advisors been notified in writing of any request for such an audit or other
examination.
(vi) Neither the Company nor any of its Subsidiaries has
any material liabilities for unpaid federal, state, local and foreign Taxes
which have not been accrued or reserved against in accordance with GAAP on the
balance sheet, whether asserted or unasserted, contingent or otherwise, and, to
the knowledge of the Company, there is no basis of the assertion of any such
unaccrued and unreserved liabilities attributable to the Company, its assets or
operations or any Subsidiary, its assets or operations. No material liability
for Tax shall be incurred prior to the Effective Time other than in the
Company's ordinary course of business consistent with its past practices.
(vii) The Company has provided to Parent copies of all
federal, state, local and foreign Tax Returns for the last five (5) fiscal years
of the Company and each of its Subsidiaries.
(viii) To the knowledge of Company, there are (and as of
immediately following the Effective Time there will be) no Liens on the assets
of the Company or any of its Subsidiaries relating to or attributable to Taxes
except Liens for current Taxes not yet due.
(ix) Immediately prior to the Merger, there will be no
material limitations on the Company's right to utilize its net operating loss
carryforwards for federal income tax purposes.
(x) To the Company's knowledge, neither it nor any of its
Subsidiaries will be required to include any adjustment in Taxable income for
any Tax period (or portion thereof) ending after the Effective Time pursuant to
Section 481(c) of the Code
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<PAGE> 30
(or any similar provision of the Tax laws of any jurisdiction) as a result of a
change in method of accounting for any Tax period (or portion thereof) ending on
or before the Effective Time or pursuant to the provisions of any agreement
entered into with any governmental authority (a "Taxing Authority") responsible
for the imposition of any such tax with regard to the Tax liability of the
Company or any such Subsidiary for any Tax period (or portion thereof) ending on
or before the Effective Time.
(xi) There are no requests for rulings in respect of any
Tax pending between the Company or any of its Subsidiaries and any Taxing
Authority;
(xii) None of the Company's nor any of its Subsidiaries'
assets are treated as "tax-exempt use property" within the meaning of Section
168(h) of the Code.
(xiii) Neither the Company nor any of its Subsidiaries has
filed any consent agreement under Section 341(f) of the Code.
(xiv) The Company does not have any liability for the
Taxes of any Person other than the Company, any of its Subsidiaries or Joint
Ventures (A) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local, or foreign law), (B) as a transferee or successor,
(C) by contract, or (D) otherwise.
(xv) Except as disclosed on Schedule 2.10(b)(xv), neither
the Company nor any of its Subsidiaries is a party to a tax sharing or
allocation agreement nor does the Company or any of its Subsidiaries owe any
amount under any such agreement.
(xvi) Neither the Company nor any of its Subsidiaries is,
nor has been at any time, a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code.
(xvii) The Company's and each of its Subsidiaries' tax
basis in its assets for purposes of determining its future amortization,
depreciation and other federal income tax deductions is accurately reflected on
the Company's tax books and records.
(c) Notwithstanding any of the foregoing, no representation or
warranty is made by the Company with respect to the Tax consequences that may
result from the transactions contemplated by this Agreement.
2.12 Restrictions on Business Activities. Except as set forth on
Schedule 2.12, there is no agreement (non-compete or otherwise), commitment,
judgment, injunction, order or decree to which the Company, any of its
Subsidiaries or any Joint Venture is a party or otherwise binding upon the
Company, any of its Subsidiaries or any Joint Venture which has or reasonably
could be expected to have the effect of prohibiting or materially impairing the
ability of the Company, any of its Subsidiaries or any Joint Venture to conduct
the Company's business, such Subsidiary's business or such Joint Venture's
business, as such business is currently conducted, or any acquisition of
property (tangible or intangible) by the Company, any of its Subsidiaries or any
Joint Venture. Without limiting the foregoing,
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except as set forth in Schedule 2.14(i), none of the Company or any of its
Subsidiaries or Joint Ventures has entered into any agreement under which the
Company, any Subsidiary or any Joint Venture is restricted from selling,
licensing or otherwise distributing any of its products or drug candidates to
any class of customers, in any geographic area, during any period of time or in
any segment of the market.
2.13 Title to Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor any of its Subsidiaries owns any real
property, nor have they ever owned any real property. Schedule 2.13(a) sets
forth a list of all real property currently, or at any time in the past, leased
by the Company or any of its Subsidiaries, and, with respect to all real
property currently leased by the Company or any of its Subsidiaries, the name of
the lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such current
leases are, to the knowledge of the Company, in full force and effect, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing material default or event of default by the
Company or any of its Subsidiaries (or event which with notice or lapse of time,
or both, would constitute such a material default).
(b) To the knowledge of the Company, the Company and each of its
Subsidiaries, if any, has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Company
Financial Statements or in Schedule 2.13(b) and except for Liens for taxes not
yet due and payable and such imperfections of title and encumbrances, if any,
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the property subject thereto or affected thereby.
2.14 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
(i) "Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (a) all
United States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (b) all inventions (whether patentable or not),
invention disclosures, improvements, drug candidates, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (c) all copyrights, copyrights
registrations and applications therefor, and all other rights corresponding
thereto throughout the world; (d) all industrial designs and any registrations
and applications therefor throughout the world; (e) all trade names, logos,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (f) all databases
and data collections and all rights therein throughout the world; and (g) any
similar or equivalent rights to any of the foregoing anywhere in the world.
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(ii) "Company Intellectual Property" shall mean that
Intellectual Property owned by, or exclusively licensed to, the Company or any
of its Subsidiaries that is set forth on Schedule 2.14(a).
(iii) "Company Registered Intellectual Property" means
those United States, international and foreign: (a) patents and patent
applications (including provisional applications); (b) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks; and (c) registered
copyrights and applications for copyright registration that are listed on
Schedule 2.14(b).
(c) Schedule 2.14(c) lists all non-routine proceedings or actions
known to the Company before any court, tribunal (including the United States
Patent and Trademark Office ("PTO") or equivalent authority anywhere in the
world) related to any Company Intellectual Property. To the knowledge of the
Company, no Company Intellectual Property is the subject of any non-routine
proceeding or outstanding decree, order, judgment, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by the Company
or any of its Subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(d) With respect to (i) each item of Company Registered
Intellectual Property, necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been made and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent
authorities in the United States for the purposes of maintaining such Company
Registered Intellectual Property and (ii) those patents set forth on Schedule
2.14(d)(ii) ("Company Core Intellectual Property"), no information material to
patentability under applicable law has been withheld from the examining office
that would constitute fraud or inequitable conduct. Claims 2 and 3 in United
States Patent No. 4,675,382, claims 17 through 21, 32 and, as each claim depends
from claim 32, claims 34 through 39 in United States Patent No. 5,703,039,
claims 17 through 21, 32, 39 and, as each claim depends from claim 39, claims 41
and 42 in United States Patent No. 5,677,148 and claims 17 through 21 and 32 in
United States Patent No. 5,616,482 (I) are valid over the prior art made of
record in and/or considered by the examining office in connection therewith and
(II) the supporting specifications comply in all material respects with
applicable law, in each case to the extent that such claims read upon making,
using or selling DAB389IL-2.
(e) The Company and each of its Subsidiaries owns and has good
and exclusive title free and clear of any Lien to all Company Registered
Intellectual Property listed on Schedule 2.14(b), that is owned by the Company
(for purposes of this Section 2.14(e), joint ownership with third parties of
such Company Registered Intellectual Property constitutes "good and exclusive
title").
(f) [reserved]
(g) To the extent that any work, invention, or material has been
developed or created by a third party for the Company or any of its
Subsidiaries, the Company and each
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of its Subsidiaries has a written agreement with such third party with respect
thereto and the Company and each of its Subsidiaries thereby has obtained
ownership of, and is the exclusive owner of, or has a valid license to use, all
Company Intellectual Property in such work, material or invention by operation
of law or by valid assignment or by agreement, as the case may be.
(h) Except as set forth on Schedule 2.14(i), neither the Company
nor any of its Subsidiaries has transferred ownership of, or granted any
exclusive license with respect to, any Company Intellectual Property, to any
third party.
(i) Schedule 2.14(i) lists all contracts, licenses and agreements
to which the Company or any of its Subsidiaries is a party that are currently in
effect (i) with respect to Company Intellectual Property licensed or offered to
any third party; or (ii) pursuant to which a third party has licensed or
transferred any Company Intellectual Property to the Company or any of its
Subsidiaries.
(j) To the knowledge of the Company, the contracts, licenses and
agreements listed on Schedule 2.14(i) are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of such contracts, licenses and agreements listed on Schedule
2.14(i). The Company and each of its Subsidiaries is in material compliance
with, and has not materially breached any term any of such contracts, licenses
and agreements listed on Schedule 2.14(i) and, to the knowledge of the Company,
all other parties to such contracts, licenses and agreements listed on Schedule
2.14(i) are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. To the knowledge of the Company, following
the Closing Date the Surviving Corporation will be permitted to exercise all of
the Company's and each of its Subsidiaries', if any, rights under the contracts,
licenses and agreements listed on Schedule 2.14(i) to the same extent the
Company and such Subsidiary would have been able to had the transactions
contemplated by this Agreement not occurred and without the payment of any
additional funds other than ongoing fees, royalties or payments which the
Company or such Subsidiary would otherwise be required to pay.
(k) To the knowledge of the Company, Schedule 2.14(k) lists all
contracts, licenses and agreements between the Company or any of its
Subsidiaries and any third party wherein or whereby the Company or any of its
Subsidiaries has agreed to, or assumed, any obligation or duty to warrant,
indemnify, hold harmless or otherwise assume or incur any obligation or
liability with respect to the infringement or misappropriation by the Company or
any of its Subsidiaries or such third party of the Intellectual Property of any
third party.
(l) The operation of the business of the Company with respect to
DAB(389)IL-2, as such business currently is conducted, including the Company's
design, development, manufacture, marketing and sale of DAB(389)IL-2, does not
infringe or misappropriate the Intellectual Property of any third party. To the
knowledge of the Company, the operation of the remainder of the business of the
Company and each of its Subsidiaries, if any, as such businesses currently are
conducted, including the Company's and
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<PAGE> 34
such Subsidiary's design, development, manufacture, marketing and sale of the
products, drug candidates or services (including products and drug candidates
currently under development) other than DAB(389)IL-2, does not infringe or
misappropriate the Intellectual Property of any third party or constitute unfair
competition or trade practices under the laws of any jurisdiction.
(m) The Company and each of its Subsidiaries, if any, (including
each of their executive officers, directors and, to the knowledge of the
Company, employees) has not received notice from any third party that the
operation of its business or any act, product, drug candidate or service of the
Company or any of its Subsidiaries, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition or
trade practices under the laws of any jurisdiction.
(n) To the knowledge of the Company, (i) no Person has or is
infringing or misappropriating any Company Core Intellectual Property and (ii)
there have been, and are, no claims asserted against the Company or any of its
Subsidiaries or against any customer of the Company or any of its Subsidiaries,
related to DAB(389)IL-2.
(o) The Company and each of its Subsidiaries, if any, has taken
measures they each deem reasonable to protect their respective rights in their
respective confidential information and trade secrets or any trade secrets or
confidential information of third parties provided to the Company or any of its
Subsidiaries. To the knowledge of the Company, neither the Company or any of its
Subsidiaries, nor any employees or consultants of the Company or any of its
Subsidiaries, have permitted any such confidential information or trade secrets
to be used, divulged or appropriated for the benefit of Persons to the material
detriment of the Company or any of its Subsidiaries.
2.15 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.15(a), neither the Company nor any of its Subsidiaries has, or is a
party to or is bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company or any of its Subsidiaries;
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of
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<PAGE> 35
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any agreement of indemnification or guaranty;
(viii) any agreement, contract, commitment, transaction or
series of transactions for any purpose other than in the ordinary course of the
Company's or any of its Subsidiaries' business relating to capital expenditures
or commitments or long-term obligations in excess of $10,000;
(ix) any material agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's or any of its
Subsidiaries' business;
(x) any material mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (vii) hereof;
(xi) any purchase order or contract for the purchase of
raw materials involving $10,000 or more;
(xii) any distribution, joint marketing or development
agreement, that has a Material Adverse Effect on the Company or any of its
Subsidiaries;
(xiii) any assignment, license or other agreement with
respect to any form of intangible property that would have a Material Adverse
Effect on the Company; or,
(xiv) any other agreement, contract or commitment that
involves $10,000 or more or is not cancelable without penalty in excess of
$10,000 within thirty (30) days (collectively, any of (i) through (xiv) above
shall be known as "Contracts").
Except for such alleged material breaches, violations and defaults, and events
that would constitute a material breach, violation or default with the lapse of
time, giving of notice, or both, all of which are noted in Schedule 2.15(b),
neither the Company nor any of its Subsidiaries has materially breached,
violated or defaulted under, or received notice that it has materially breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.15(a) or Schedule
2.14(i) (any such agreement, contract or commitment, a "Contract"). The Company
is in material compliance with each such Contract and, to the Company's
knowledge, each such contract is in full force and effect and, except as
otherwise disclosed in Schedule 2.15(b), is not subject to any default
thereunder of which the Company or any of its Subsidiaries has knowledge by any
party obligated to the Company or any of its Subsidiaries pursuant thereto.
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2.16 Interested Party Transactions. Except as set forth on Schedule
2.16, no officer, director or, to the knowledge of the Company, stockholder of
the Company or any of its Subsidiary (nor, to the Company's knowledge, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has an interest), has
directly or indirectly, (i) a material economic interest in any entity which
furnishes or sells, services, drug candidates or products that the Company or
any of its Subsidiaries furnishes or sells or proposes to furnish or sell, (ii)
a material economic interest in any entity that purchases from or sells or
furnishes to, the Company or any of its Subsidiaries, any goods or services, or
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.14(i) or filed as an exhibit to a SEC Document; provided, that ownership of no
more than five percent (5%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.16.
2.17 Compliance with Laws. The Company and each of its Subsidiaries has
complied in all respects with, is not in violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation, the failure to comply with which would have a
Material Adverse Effect.
2.18 Litigation. Except as set forth in Schedule 2.18, there is no
action, suit or proceeding of any nature pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries or Joint
Ventures, their respective properties or any of their respective officers or
directors, in their respective capacities as such. There is no investigation
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries or Joint Ventures, their respective properties or any of
their respective officers or directors by or before any governmental entity. To
the knowledge of the Company, no governmental entity has at any time challenged
or questioned the legal right of the Company or any of its Subsidiaries or Joint
Ventures to conduct the Company's, such Subsidiary's or such Joint Venture's
respective businesses in the present manner or style thereof. No order of any
governmental entity exists that would restrict the ability of the Company, any
of its Subsidiaries or Joint Ventures to conduct the Company's, such
Subsidiary's or such Joint Venture's respective research, development and
manufacturing activities in the present manner or style thereof. For purposes of
this Section 2.18, "investigation" shall not include ordinary and routine
compliance inspections or audits or inspections in connection with receipt of
regulatory approval.
2.19 Insurance. The Company has provided Parent with true and correct
copies of the insurance policies covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company and any
of its Subsidiaries, if any (collectively, the "Company Insurance Policies"). As
of the date of this Agreement, there is no material claim by the Company or any
of its Subsidiaries pending under any of the material Company Insurance Policies
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums payable under all such material Company
Insurance Policies have been paid and, to the knowledge of the Company, the
Company and its Subsidiaries, if any, are otherwise in material compliance with
the terms of such policies (or other policies and providing substantially
similar insurance coverage). As
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of the date of this Agreement, the Company does not know of any threatened
termination of, or material premium increase with respect to, any of its
material Company Insurance Policies.
2.20 Minute Books. The minute books of the Company and each of its
Subsidiaries, if any, made available to counsel for Parent are the only minute
books of the Company and such Subsidiary and contain a reasonably accurate
summary of all meetings of directors (or committees thereof) and stockholders or
actions by written consent since the time of incorporation of the Company and
such Subsidiary.
2.21 Relationships With Suppliers and Licensors. No current supplier to
the Company or any of its Subsidiaries has notified the Company or such
Subsidiary of an intention to terminate or substantially alter its existing
business relationship with the Company or such Subsidiary, nor has any licensor
under a license agreement with the Company or any of its Subsidiaries notified
the Company or such Subsidiary of an intention to terminate or substantially
alter the Company's or such Subsidiary's rights under such license, which
termination or alteration would have a Material Adverse Effect on the Company.
2.22 Environmental Matters.
(a) Except as set forth on Schedule 2.22(a), neither the Company
nor any of its Subsidiaries is to the knowledge of the Company in violation of
any Federal, state or local Environmental Law (as defined below), which
violation could reasonably be expected to result in a Material Adverse Effect on
the Company. Except as set forth on Schedule 2.22(a), neither the Company, any
of its Subsidiaries nor any third party has, to the knowledge of the Company,
used, released, discharged, generated, manufactured, produced, stored, or
disposed of in, on, under or about its owned or leased property or other assets,
or transported thereto or therefrom, any Hazardous Materials (as defined below)
in a manner that could reasonably be expected to subject the Company or any
Subsidiary to a material liability under any Environmental Law; to the knowledge
of the Company, there are no, nor has there ever been, underground tanks,
whether operative or temporarily or permanently closed, located on its owned or
leased property or other assets; to the knowledge of the Company, there are no,
nor has there ever been, polychlorinated biphenyls ("PCBs") or items containing
PCBs used, stored or present at, on or, to the knowledge of the Company, near
its owned or leased property or assets; and, to the knowledge of the Company,
there is or has been no condition, circumstance, action, activity or event that
could reasonably be expected to form the basis of any violation of, or material
liability to the Company or any of its Subsidiaries under, any local, state or
Federal Environmental Law.
(b) The Company has not within five (5) years preceding the date
hereof received any written notice, demand, citation, summons, complaint or
order and, to the Company's knowledge, no proceeding, investigation or review is
pending or overtly threatened by any local, state or Federal governmental entity
or non-governmental third-party with respect to the presence or release of any
Hazardous Material in, on, from or to the Company or any Subsidiary's owned or
leased property.
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(c) For purposes of this Agreement, (i) "Environmental Law" means
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Sections 9601, et seq.) ("CERCLA"); the Federal
Clean Water Act (33 U.S.C. Section 1251, et seq.); the Federal Clean Air Act (42
U.S.C. Section 7401); Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.); Toxic Substances Control Act (15 U.S.C. Section
2601 et seq.); Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.) ("RCRA"); and Emergency Planning and Community Right to Know Act (42
U.S.C. Section 11001 et seq.), together with applicable state and local laws of
similar substance, and (ii) "Hazardous Materials" shall mean substances defined
as "hazardous substances," "hazardous materials," or "toxic substances" in
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et
seq.) and RCRA; those substances defined as "hazardous waste," "hazardous
materials" or "regulated substances" by RCRA; those substances designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317); those substances regulated as a hazardous
chemical substance or mixture or as an imminently hazardous chemical substance
or mixture pursuant to Section 6 or 7 of the Toxic Substances Control Act (15
U.S.C. Sections 2605, 2606); those substances defined as a pesticide pursuant to
Section 136(u) of the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136(u)); those substances defined as hazardous waste constituents
in 40 CFR 260.10, specifically including Appendix VII and VIII of Subpart D of
40 CFR 261; and those substances defined by the Atomic Energy Act of 1954, as
amended (42 U.S.C. Sections 3011, et seq., as amended) as a source, special
nuclear or by-product material; and in the regulations adopted and publications
promulgated pursuant to said laws.
2.23 Brokers' and Finders' Fees; Third Party Expenses. Except pursuant
to the engagement of Lehman Brothers Incorporated and Shoreline Pacific (the
"Company Financial Advisors") pursuant to engagement letters dated April 30,
1998, and October 1, 1997, respectively, neither the Company nor any of its
Subsidiaries has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Schedule 2.23 sets forth the Company's current reasonable estimate of
all Third Party Expenses expected to be incurred by the Company and any
Subsidiary in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.24 Permits and Licenses; No Debarment.
(a) Schedule 2.24 contains a complete and correct copy of (i)
each pending application or registration for governmental approval and each
governmental approval held by the Company or any of its Subsidiaries to develop,
manufacture, test (including, without limitation, preclinical tests and clinical
trials), import, export, store, market and sell the Company's or any
Subsidiary's products or drug candidates, and (ii) the most recent report by or
on behalf of the FDA or any other governmental body involving or relating to any
facility inspection of the Company's or any Subsidiary's facilities. Except as
set forth in Schedule 2.24, (i) the Company and each of its Subsidiaries
possesses such governmental approvals from all governmental bodies including,
without limitation, all FDA approvals, necessary to
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permit the operation of its business in the manner as the same is currently
conducted, and to operate, own or occupy its properties, (ii) there have been no
product recalls, field corrective activity, medical device reports, warning
letters or administrative actions by the FDA or any other governmental body, and
(iii) to the knowledge of the Company, (aa) there is no administrative action
pending or threatened for the revocation of any such governmental approval and
(bb) assuming the obtaining of the authorizations, consents, approvals and other
actions listed in Schedule 2.24, no governmental approval by any governmental
body having jurisdiction over the operation of the Company's or any Subsidiary's
business, whether in whole or in part, will be revoked, or become ineffective or
subject to revocation, as a consequence of the transactions contemplated by this
Agreement.
(b) Neither the Company nor any of its Subsidiaries (i) has been
debarred or received notice of action or threat of action with respect to its
debarment under the provisions of the Generic Drug Enforcement Act of 1992, 21
U.S.C. Section 335(a) and (b), or (ii) to the Company's knowledge, has used in
any capacity the services of any individual, corporation, partnership or
association which has been debarred under the provisions of the Generic Drug
Enforcement Act of 1992, 21 U.S.C. Section 335(a) and (b).
2.25 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.25(a)(i) below (which definition shall apply
only to this Section 2.25), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other Person under common
control with or otherwise required to be aggregated with the Company or any
Subsidiary as set forth in Section 414(b), (c), (m) or (o) of the Code and the
regulations thereunder;
(ii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan"
within the meaning of Section 3(3) of ERISA, which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any of its
Subsidiaries or any Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which the Company or any Subsidiary or any Affiliate has
or may have any material liability contingent or otherwise;
(iii) "Employee" shall mean any current, former or retired
employee, officer, or director of the Company or any Subsidiary or any
Affiliate;
(iv) "Employee Agreement" shall refer to any material
management, employment, severance, consulting, relocation, repatriation,
expiration, visas, work permit or similar agreement or contract between the
Company or any Subsidiary or any Affiliate and any Employee or consultant that
is not a Company Employee Plan;
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(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Sections 3(37)
and 4001(a)(3) of ERISA; and
(viii) "Pension Plan" shall refer to each Company and
Subsidiary Employee Plan which is an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.25(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement. Except as set
forth on Schedule 2.25(b), neither the Company nor any of its Subsidiaries has
any announced plan or commitment, whether legally binding or not, to establish
any new Company Employee Plan or Employee Agreement, to modify any Company
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Company Employee Plan or Employee Agreement to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any Company
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent correct and
complete copies of all material documents embodying or relating to each Company
Employee Plan and each Employee Agreement including: (i) all amendments thereto
and written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any Company
Employee Plan; (vii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company or any Subsidiary; and (viii) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company and each of its
Subsidiaries, if any, has performed in all material respects all obligations
required to be
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performed by it under each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA and the Code; (ii) to the
knowledge of the Company, no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any Company Employee Plan; (iii) to the knowledge of the Company, there are no
material actions, suits or claims pending, or threatened or anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (iv) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability to the Company or any of
its Subsidiaries, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v) to the
knowledge of the Company, there are no inquiries or proceedings pending or
threatened by the IRS or DOL with respect to any Company Employee Plan; (vi) to
the knowledge of the Company, neither the Company nor any of its Subsidiaries is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code; and (vii) all
contributions, including any top heavy contributions, required to be made by the
Company or any ERISA affiliate to any Company Employee Plan have been made or
shall be made on or before the Closing Date.
(e) Pension Plans. Neither the Company nor any of its
Subsidiaries currently maintains, sponsors, participates in or contributes to,
nor has it ever maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or any of its
Subsidiaries contributed to or been requested to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. Except as set forth on
Schedule 2.25(g) or as required by local, state or federal law, no Company
Employee Plan provides, or has any liability to provide, life insurance, medical
or other employee benefits to any Employee upon his or her retirement or
termination of employment for any reason, including continuation health care
coverage under Section 4980B of the Code, and the Company and each of its
Subsidiaries, if any, has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as a
group) that such Employee(s) would be provided with life insurance, medical or
other employee welfare benefits upon their retirement or termination of
employment.
(h) Effect of Transaction. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
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(i) Employment Matters. The Company and each of its Subsidiaries,
if any, (i) is in compliance in all material respects with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries,
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company
or any Subsidiary is pending or, to the knowledge of the Company, threatened.
Neither the Company nor any of its Subsidiaries is involved in or, to the
knowledge of the Company, threatened with, any labor dispute, grievance,
administrative proceeding or litigation relating to labor, safety, employment
practices or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly have a Material Adverse Effect on the Company. Neither
the Company nor any of its Subsidiaries is presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company or any Subsidiary.
2.26 Employees. To the knowledge of the Company, (i) no employees of the
Company or any Subsidiary are in material violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by the Company or such
Subsidiary or to the use of trade secrets or proprietary information of others,
(ii) as of the date hereof, no employees have given notice to the Company or any
Subsidiary, nor is the Company or any Subsidiary otherwise aware, that any such
employee intends to terminate his or her employment with the Company or any
Subsidiary and (iii) as of the Closing Date, there have been no terminations of
employment with the Company or any of its Subsidiaries that would have a
Material Adverse Effect.
2.27 Distribution of Merger Consideration. The Merger Consideration,
when distributed in accordance with Sections 1.7 and 1.8, will have been
distributed to the holders of Company Capital Stock in accordance with the
provisions of the Company's Certificate of Incorporation in effect immediately
prior to the Effective Time and any other document or agreement among the
Company and such holders related to the distribution of the Merger
Consideration. No holder of Company Capital Stock shall have any claims against
Parent in connection with the distribution of the Merger Consideration by the
Exchange Agent to the
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extent that the Exchange Agent receives and distributes the Merger Consideration
in accordance with the terms hereof, except as provided herein.
2.28 Disclosure Documents. None of the information supplied or to be
supplied by the Company for inclusion in (i) the proxy statement relating to the
meeting of the Company's stockholders to be held in connection with the Merger
(the "Proxy Statement"), and (ii) any registration statement on Form S-4 or
other appropriate registration form to be filed with the SEC by Parent in
connection with the offer and issuance of the Parent Common Stock in or as a
result of the Merger (each, a "Registration Statement"), including the Proxy
Statement included therein, will, in the case of the Proxy Statement, at the
time of mailing of the Proxy Statement to stockholders of the Company, contain
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or will, in the case of each Registration Statement, at the time each such
Registration Statement becomes effective under the 1933 Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder applicable to the Company,
except that no representation is made by the Company with respect to information
supplied by Parent or Merger Sub for inclusion therein and no representation is
made by the Company with respect to any forward-looking information, budgets or
projections which may have been supplied by the Company.
2.29 Opinion of Lehman Brothers. The Company has received the opinion of
Lehman Brothers to the effect that, as of May 1, 1998, the Merger Consideration
is fair, from a financial point of view, to the common shareholders of the
Company.
2.30 Representation Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement contains or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading. The
Company has disclosed to Parent all facts that are known to the Company to be
material (individually or in the aggregate) to the business, assets,
liabilities, financial condition, prospects or operations of the Company and
each Subsidiary taken together.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company, as of
the date of this Agreement and as of the Closing Date, except as otherwise
expressly provided herein, subject to such exceptions as are specifically
disclosed in the disclosure letter (referencing the
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appropriate schedule or section number) supplied by Parent to Company (the
"Parent Schedules") and dated as of the date hereof and updated as of the
Closing Date by mutual agreement of the Parent and Company, as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own, operate and lease its properties and to
carry on its business as now being conducted and is duly qualified or licensed
to conduct its business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have, or would
reasonably be expected to have, a Material Adverse Effect on Parent or Merger
Sub. Parent has delivered a true and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date, to the Company. Merger Sub
has delivered a true and correct copy of its Certificate of Incorporation and
Bylaws, each as amended to date, to the Company.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by the Parent and Merger Sub does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, (i) conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both) any provision of the Certificate of Incorporation or
Bylaws of Parent or Merger Sub or (ii) assuming compliance with the matters
referred to in the next succeeding sentence, (a) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Parent or Merger Sub
or any of their respective Subsidiaries or Joint Ventures except for any such
contravention, conflict or violation that does not have a Material Adverse
Effect on Parent or Merger Sub, as applicable; or (b) constitute a default under
or give rise to a termination, cancellation, acceleration or loss of any
material benefit under any material agreement, contract or other instrument
binding upon Parent, Merger Sub or any of their respective Subsidiaries or Joint
Ventures or any material license, franchise, permit or other similar
authorization held by Parent, Merger Sub or any of their respective Subsidiaries
or Joint Ventures; or (iii) result in the creation or imposition of any material
Lien on any material asset of Parent or Merger Sub or any of their respective
Subsidiaries or Joint Ventures. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, country, local or
foreign governmental authority, instrumentality, agency or commission or any
shareholder of
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Parent or Merger Sub or any third party (so as not to trigger any Conflict) is
required by or with respect to the Parent in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the Delaware
Secretary of State, (ii) compliance with any applicable requirements of the
Exchange Act, and the rules and regulations promulgated thereunder; (iii)
compliance with any applicable requirements of the 1933 Act, and the rules and
regulations promulgated thereunder, (iv) compliance with any applicable foreign
or state securities or "blue sky" laws; (v) compliance with any applicable
requirements of the HSR Act; (vi) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially and adversely affect the ability of the Company, Parent or Merger Sub
to consummate the Merger; or (vii) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 3.2.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 80,000,000 shares
of Common Stock and 5,000,000 shares of Preferred Stock. As of December 31, 1997
there were issued and outstanding:
(i) 38,504,459 shares of Parent Common Stock;
(ii) No shares of Preferred Stock;
(iii) Options to purchase an aggregate of 4,068,506 shares
of Parent Common Stock (of which such options to purchase an aggregate of
2,442,187 shares of Parent Common Stock were exercisable);
(iv) Warrants to purchase an aggregate of 6,606,094 shares
of Parent Common Stock (of which all such Warrants were exercisable) and an
aggregate principal amount of $6,250,000 of convertible promissory notes
convertible into 558,991 shares of Parent Common Stock; and
(v) an aggregate principal amount of $50 million of 7-1/2%
Convertible Subordinated Debentures of Glycomed, Inc., a wholly owned subsidiary
of Parent, convertible into 1,885,370 shares of Parent Common Stock.
All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. Except as set forth
in this Section 3.3 and except for changes since December 31, 1997 resulting
from the issuance or exercise of stock options and stock purchase rights to or
by employees, directors and consultants in the ordinary course of business
consistent with past practice, as of the date hereof there are outstanding (i)
no shares of capital stock or other voting securities of Parent, (ii) no
securities of Parent convertible into or exchangeable for shares of capital
stock or voting securities of Parent and (iii) no options or other rights to
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acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or other voting securities of Parent (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Parent Securities"). Except as
disclosed above and in SEC Documents filed by Parent, as of the date hereof
there are no outstanding obligations of Parent or any of its Subsidiaries or
Joint Ventures to issue or to repurchase, redeem or otherwise acquire any Parent
Securities.
(b) The shares of Parent Common Stock to be issued pursuant to
the Merger, when issued, will be duly authorized, validly issued, fully paid and
nonassessable. Parent has reserved and will keep reserved sufficient shares of
Parent Common Stock for issuance in connecting with payment of the Closing
Consideration and Milestone Consideration.
(c) The authorized capital stock of Merger Sub consists of 100
shares of Common Stock, all of which are issued and outstanding and are held by
Parent.
3.4 SEC Documents; Parent Financial Statements. As of the date hereof,
Parent has furnished or made available to the Company true and complete copies
of all SEC Documents previously filed by it with the SEC under the 1933 Act and
the Exchange Act. As of their respective filing dates, all such SEC Documents of
Parent complied in all material respects with the requirements of the 1933 Act
or the Exchange Act, as the case may be, and none of such SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a document subsequently filed with the SEC.
The financial statements of Parent, including the notes thereto, included in the
aforesaid SEC Documents (the "Parent Financial Statements") comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated financial
position of Parent at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal audit adjustments). As of the date hereof, there
has been no change in Parent accounting policies except as described in the
notes to the Parent Financial Statements.
3.5 No Material Adverse Change. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-K (the "Parent
Balance Sheet") and continuing through the date hereof, Parent has conducted its
business in the ordinary course and there has not occurred: (a) any material
adverse change in the financial condition, liabilities, assets (including
intellectual property assets) or business of Parent or any of its Subsidiaries
or Joint Ventures; (b) any amendment or change in the Certificate of
Incorporation or Bylaws of Parent or any of its Subsidiaries or Joint Ventures,
or Merger Sub (with respect to Merger Sub, since the date of its incorporation);
or (c) any damage to, destruction or loss of any assets of Parent or any of its
Subsidiaries or Joint Ventures (whether or not covered by insurance) that
materially and adversely affects the financial
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condition or business of Parent or any of its Subsidiaries or Joint Ventures.
Since December 31, 1997 and continuing through the Effective Time, there has not
occurred delisting or suspension of the trading of Parent's Common Stock on the
Nasdaq National Market.
3.6 Litigation. As of the date hereof, there is no material action, suit
or proceeding of any nature pending or to the knowledge of Parent threatened
against Parent or Merger Sub, any of their respective Subsidiaries or Joint
Ventures, their respective properties or any of their respective officers or
directors, in their respective capacities as such. As of the date hereof, there
is no material investigation pending or to the knowledge of Parent threatened
against Parent or Merger Sub, any of their respective Subsidiaries or any Joint
Ventures, any of their respective properties or any of their respective officers
or directors by or before any Governmental Entity. To the knowledge of Parent,
as of the date hereof no Governmental Entity has at any time challenged or
questioned the legal right of Parent or Merger Sub, or any of their respective
Subsidiaries or Joint Ventures to conduct research, development and
manufacturing activities in the present manner or style thereof.
3.7 Disclosure Documents. None of the information supplied or to be
supplied by Parent for inclusion in (i) the Proxy Statement, and (ii) any
Registration Statement, including the Proxy Statement included therein, will, in
the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement to stockholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or will, in the case of
each Registration Statement, at the time each such becomes effective under the
1933 Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each Registration Statement will comply as to form in all material
respects with the provisions of the 1933 Act and the rules and regulations
thereunder, except that no representation is made by Parent with respect to
information supplied by the Company for inclusion therein and no representation
is made by Parent with respect to any forward-looking information, budgets or
projections which may have been supplied by Parent.
3.8 Ownership of Company Stock. As of the date hereof, and during the
three (3) year period immediately preceding the date hereof, neither Parent or
Merger Sub nor, to the Company's knowledge, any affiliate or associate (as
defined in Section 203 of Delaware Law) thereof is an "interested stockholder"
of the Company within the meaning of Section 203 of the Delaware Law.
3.9 Subsidiaries and Joint Ventures.
(a) Schedule 3.9 sets forth, as of the date hereof, the
name and respective jurisdiction of incorporation or organization of all
Subsidiaries and Joint Ventures of Parent. Each of the Subsidiaries of Parent as
of the date hereof is a corporation or other entity duly incorporated or
otherwise organized, validly existing in good standing (or local law equivalent)
under the laws of its jurisdiction of organization. Each of the Subsidiaries of
Parent as of the date hereof has the corporate power and authority to own and
lease the
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properties and assets it now owns and leases and to carry on its business as and
where such properties and assets are now owned or leased and such business is
now conducted. Parent has heretofore delivered to the Company true, correct and
complete copies of the Articles of Incorporation, Bylaws, or equivalent
governing instruments, each as amended to the date hereof, for each such
Subsidiary. Each of the Subsidiaries of Parent as of the date hereof is duly
licensed or qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which the failure to be so licensed or
qualified and in good standing would have a Material Adverse Effect.
(b) All of the outstanding capital stock of, or other
ownership interests in, each Subsidiary of Parent that is owned by Parent,
directly or indirectly, is as of the date hereof free and clear of any material
Lien and free of any other material limitation or restriction on Parent's rights
as owner thereof (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests), other
than those imposed by applicable law. As of the date hereof, there are no
existing options, calls or commitments of any character relating to the issued
or unissued capital stock or other securities or equity interests of any
Subsidiary of Parent. As of the date hereof, the ownership interests of Parent
in any Joint Ventures are owned by Parent free and clear of any Liens,
limitations, restrictions, options, calls or commitments, other than those that
are immaterial.
3.10 Compliance with Laws. As of the date hereof, Parent, Merger Sub and
each of their respective Subsidiaries has complied in all respects with, is not
in violation of, and has not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation, the failure to
comply with which would have a Material Adverse Effect.
3.11 Minute Books. The minute books of Parent and each of its
Subsidiaries (other than Ligand Pharmaceuticals (Canada) Inc. ("Ligand Canada"))
made available to counsel for the Company prior to the date hereof are, as of
the date hereof, the only minute books of Parent and such Subsidiaries and
contain, as of the date hereof, a reasonably accurate summary of all meetings of
directors (or committees thereof) and stockholders or actions by written consent
since the time of incorporation of Parent and such Subsidiaries. Parent
represents and warrants that the Board of Directors and shareholders of Ligand
Canada have authorized and approved any action of Ligand Canada that would
require such authorization or approval, and that there is nothing set forth in
such minutes, or that should have been recorded in such minutes, that would have
a Material Adverse Effect on Ligand Canada or would adversely affect the
consummation of the Merger or other transactions contemplated hereby.
3.12 No Undisclosed Liabilities. Except as disclosed in the Parent
Balance Sheet, as of the date hereof, there are no liabilities of Parent or any
of its Subsidiaries or Joint Ventures of any kind whatsoever that are,
individually or in the aggregate, material to Parent and its Subsidiaries and
Joint Ventures taken as a whole, other than (a) liabilities disclosed or
provided for in the Parent Balance Sheet or liabilities of a nature not required
to be disclosed in a balance sheet under generally accepted accounting
principles; (b) liabilities incurred in the
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ordinary course of business since the date of the Company Balance Sheet; and (c)
liabilities under this Agreement, the Marathon Agreement and as previously
described by Parent to the Company arising in connection with the agreement
between Ligand and Lilly dated the date hereof or incurred in connection with
the transactions contemplated hereby or thereby.
3.13 Restrictions on Business Activities. Except as disclosed in the
Parent's Annual Report on Form 10-K for the year ended December 31, 1997 or as
set forth on Schedule 3.13, as of the date hereof, there is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which Parent or Merger Sub, or any of their respective Subsidiaries or Joint
Ventures is a party or otherwise binding upon Parent or Merger Sub, or any of
their respective Subsidiaries or Joint Ventures which has or reasonably could be
expected to have the effect of prohibiting or materially impairing the ability
of Parent, any of its Subsidiaries or Joint Ventures to conduct its business as
currently conducted or any acquisition of property (tangible or intangible) by
Parent or any of its Subsidiaries or Joint Ventures.
3.14 Representations Complete. None of the representations and
warranties made by Parent or Merger Sub (as modified by the Parent Schedules),
nor any statement made in any schedule or certificate furnished by Parent or
Merger Sub pursuant to this Agreement, or included in any Registration
Statement, contains, or will contain at the Effective Time, any untrue statement
of a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which made, not misleading. Parent
has, as of the date hereof, disclosed to the Company all facts that are known to
Parent to be material (individually or in the aggregate) to the business,
assets, liabilities, financial condition, prospects or operations of Parent,
Merger Sub and each of their respective Subsidiaries taken together.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. The Company shall promptly notify
Parent of any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting the Company or
its business. Except as expressly contemplated by this Agreement or the Accord
and Satisfaction Agreement, the Company shall not, without the prior written
consent of Parent:
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(a) Enter into any commitment, activity or transaction that
creates an obligation that will continue to bind the Company or any of its
Subsidiaries after the Closing Date, which commitment, activity or transaction
is not in the ordinary course of business as conducted on the Company Balance
Sheet Date and consistent with the Company's past practices;
(b) Transfer to any Person or entity any rights to any Company
Intellectual Property;
(c) Enter into, amend, willfully violate the terms of, fail to
perform under or terminate any material agreement, including, without
limitation, any agreement pursuant to which (i) any other party is granted
manufacturing, marketing, distribution or similar rights of any type or scope
with respect to any products or drug candidates of the Company or (ii) the
Company is granted exclusive rights in a geographical area or field of use;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business consistent with the Company's past practices, or
willfully violate the terms of, any of the material agreements set forth or
described in the Company Schedules;
(e) Amend or otherwise modify (or agree to do so), or willfully
violate the terms of, any of the agreements set forth or described in Schedule
2.13(i);
(f) Settle or compromise, or agree to settle or compromise, any
suit or other litigation matter or matter in an arbitration proceeding for any
material amount (after taking into account any insurance proceeds to which the
Company is entitled) or otherwise on terms which would have a Material Adverse
Effect on the Company;
(g) Except as contemplated by the Accord Agreement, declare, set
aside or pay any dividends on or make any other distributions (whether in cash,
stock or property) in respect of any Company Capital Stock, or split, combine or
reclassify any Company Capital Stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Company Capital Stock, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of Company Capital Stock (or options, warrants or other
rights exercisable therefor);
(h) Grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of Company Securities, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities; except for (i) the issuance of
shares of Company Capital Stock upon exercise or conversion of Company Options
or Company Warrants outstanding at the date of execution of this Agreement, (ii)
options required to be issued by the Company pursuant to employment or
consultant agreements with certain key executive officers and consultants in
effect as of the date hereof, or (iii) additional options exercisable into not
more than 200,000 shares of Company Common Stock, in the aggregate;
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(i) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(k) Knowingly fail in any material respect to comply with any
laws, ordinances, regulations or other governmental restrictions applicable to
the Company;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(m) Make loans or advances or incur any indebtedness for borrowed
money or guarantee or otherwise become responsible for any such indebtedness or
guarantee such indebtedness or issue or sell any of its debt securities or
guarantee, endorse or otherwise become responsible for the obligations of
others;
(n) Grant any severance or termination pay to any director,
officer, employee or consultant, except (i) payments made pursuant to written
agreements outstanding on the date hereof (which agreements are disclosed on
Schedule 4.1(n)) or (ii) other payments disclosed on Schedule 4.1(n))
("Severance Payments");
(o) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant in excess of an aggregate of $75,000, or increase the
salaries or wage rates of its employees, except pursuant to payments under the
Accord and Satisfaction Agreement;
(p) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice,
so as to result in a Material Adverse Effect to the Company;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000
in any one case, or $25,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements,
other than Third Party Expenses which shall be paid pursuant to Section 5.5 of
this Agreement;
(r) Fail to pay Taxes when due, make or change any material
election in respect of Taxes, adopt or change any accounting method in respect
of Taxes, enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any
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extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes to the extent that any of the foregoing would
have a Material Adverse Effect on the Company; provided, however, that the
consent of Parent shall not be unreasonably withheld;
(s) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(t) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith and except
such obligations as are due under the Service Agreement;
(u) Waive or commit to waive any rights with a value in excess of
$10,000 in any one case, or $25,000 in the aggregate;
(v) Cancel, modify, reduce or renew at rates not substantially
similar to those rates in recent prior years any of its existing liability
insurance, including without limitation existing directors' and officers'
liability insurance, except an extension of the existing directors' and
officers' liability insurance for two years following the Closing Date at a cost
to the Company not to exceed $350,000, which extension the Company shall be free
to obtain without the consent of Parent or Merger Sub;
(w) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds an interest on the date hereof;
(x) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (w) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 Conduct of Business of Parent. Except as expressly contemplated by
this Agreement, the Parent shall not, without the prior written consent of the
Company:
(a) Adopt any changes in its Amended and Restated Certificate of
Incorporation or Bylaws that in any respect adversely affects the rights of the
holders of Parent Common Stock or adversely affects the ability of Parent to
consummate the transactions contemplated hereby; or
(b) Take any action that would result in a failure to maintain
the trading of Parent Common Stock on the Nasdaq National Market without causing
such stock to be listed for trading on a national securities exchange at or
prior to the termination of its trading on the Nasdaq National Market.
4.3 Other Offers. From the date hereof until the termination of this
Agreement, the Company and the officers, directors, employees or other agents of
the Company will not, directly or indirectly, take any action to solicit,
initiate or encourage the making of any Acquisition Proposal (as hereinafter
defined); provided, however, that the Board of Directors
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of the Company may engage in negotiations with, or disclose any nonpublic
information relating to the Company or afford access to the properties, books or
records of the Company to, any person or entity that informs the Board of
Directors that it is considering making, or has made, an Acquisition Proposal.
Until this Agreement shall be terminated, the Company will not enter into any
agreement to merge or consolidate with, or sell a substantial portion of its
assets to, any person or entity. The Company will promptly notify Parent after
receipt of any Acquisition Proposal or any request for nonpublic information
relating to the Company in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company by any person or entity that
informs the Board of Directors that it is considering making, or has made, an
Acquisition Proposal. The term "Acquisition Proposal" as used herein means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving the Company or the acquisition of a majority by
voting power of the outstanding shares of Company Capital Stock or a majority of
the assets of the Company, other than the transactions contemplated by this
Agreement.
4.4 Employee Releases. Prior to the Effective Time, the Company shall
not grant severance rights or make Excess Severance Payments to any person
employed by the Company without such person executing a general release and
waiver, effective upon receipt of such payment, in a form reasonably acceptable
to Parent of all claims arising out of the relationship of employment, the
termination of employment or any matter arising out of the employee's
relationship with the Company or the transactions contemplated by this
Agreement, other than any rights the employee may have to receive a portion of
the Merger Consideration as a holder of any Company Capital Stock. For purposes
of this Agreement, "Excess Severance Payments" shall mean severance payments to
a person in excess of amounts typically paid by the Company to an employee of
similar rank and seniority as such person.
4.5 Option and Asset Purchase Agreement. Parent shall not exercise its
Option (as defined under the Purchase Agreement (as defined herein)) or
otherwise acquire any right, title or interest in or to Marathon or its assets
or businesses prior to the Closing Date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholders' Meeting; Proxy Material; Registration Statement.
(a) If the Merger Consideration is to consist of Parent Common
Stock, Parent shall reserve sufficient shares of Parent Common Stock for
issuance in or as a result of the Merger and, prior to the Closing Date, Parent
(i) shall prepare and file with the SEC all Registration Statements necessary to
provide that all Parent Common Stock issued as part of the Merger Consideration
is freely tradable, except as contemplated by Section 5.1(c) of this Agreement
or Rule 145 under the 1933 Act, and subject to the prospectus delivery
requirements of the 1933 Act, and shall use its best efforts to cause such
Registration Statements to be declared effective, (ii) shall take such actions
as are necessary to qualify
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such shares of Parent Common Stock for sale under applicable foreign or state
securities or "blue sky" laws, and, in the case of both clause (i) and (ii), to
maintain in effect such registrations and qualifications until the later of (A)
six (6) months following the date of payment of the Milestone Consideration
pursuant to Section 1.6, and (B) the second anniversary of the Closing Date, and
(iii) shall take such actions as are necessary to authorize such shares for
listing on the Nasdaq National Market upon official notice of issuance.
(b) The Company shall cause a meeting of its stockholders to be
duly called and held as soon as practicable following the effectiveness of all
the Registration Statements for the purpose of voting on the approval and
adoption of this Agreement and the Merger. The Board of Directors of the Company
shall, subject to its fiduciary duties, recommend approval and adoption of such
matters by the Company's stockholders. In connection with such meeting, Parent
and the Company:
(i) will together promptly prepare and file with the SEC
the Proxy Statement and will use their best efforts to have cleared by the SEC
the Proxy Statement; and
(ii) will otherwise comply with all legal requirements
applicable to such meeting.
In connection with such meeting, the Company (i) will mail to its
stockholders as promptly as practicable the Proxy Statement and all other proxy
materials for such meeting; and (ii) will use its best efforts, subject to
Section 4.3, to obtain the necessary approvals by its stockholders of this
Agreement and the transactions contemplated hereby.
(c) Lock-Up of Parent Common Stock.
(i) If any Stock Consideration is paid pursuant to Section
1.6 above, shares of Parent Common Stock issued in the Merger to the holders of
Company Capital Stock described in Section 5.1(c)(ii) below shall be subject to
lock-up for periods specified in Section 5.1(c)(ii) below, and such holder of
any Company Capital Stock that receives any shares of Parent Common Stock in the
Merger shall not, to the extent requested by Parent, directly or indirectly,
sell, transfer or otherwise dispose of, or offer or contract to sell, transfer
or otherwise dispose of, any Parent Common Stock received by such holder in the
Merger at any time during such period ("Lock-Up"). In order to enforce the
foregoing restriction on transfer, the Company may impose stop-transfer
instructions with respect to the Parent Common Stock issued to such stockholders
issued in the Merger until the end of such period.
(ii) That portion of the shares of Parent Common Stock
issued in the Merger to Boston University as Stakeholder Closing Consideration,
if any, shall be subject to Lock-Up until the later of (A) the second
anniversary of the Closing Date and (B) the first anniversary of the date of
issuance of such Parent Common Stock. All shares of Parent Common Stock issued
in the Merger to Eli Lilly and Company ("Lilly") shall be subject to the
restrictions on transfer set forth in Section 4.1 of that certain Stock Purchase
Agreement dated November 25, 1997 between Parent and Lilly as if such shares of
Parent Common
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Stock were shares pursuant to such agreement. Finally, all shares of Parent
Common Stock issued in the Merger to Company Financial Advisors and fifty
percent (50%) of the shares of Parent Common Stock issued in the Merger to
management of the Company, including, without limitation, any shares of Parent
Common Stock delivered to the Escrow Agent pursuant to Section 1.13(b)(ii),
shall be subject to Lock-Up for a period of ninety (90) days from the date of
issuance of such shares.
(d) Additional Assurances. Each party, at the request of the
other, shall use its reasonable efforts to cause the its stockholders to execute
and deliver such instruments and do and perform such acts and things as may be
necessary or desirable for complying with all applicable securities laws and
state corporate law.
5.2 Access to Information. Each party shall afford the others and their
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request;
provided however, neither party shall be required to permit any inspection, or
to disclose any information, which in the reasonable judgment of such party
would result in the disclosure of any trade secrets of third parties or violate
any obligation of such party with respect to confidentiality, or constitute a
waiver of attorney-client or other privilege of such party. Consistent with such
obligations, such party must provide a summary description of items subject to
non-disclosure. No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions of the parties to
consummate the Merger.
5.3 Confidentiality. (a) Except as and to the extent required by law,
the parties hereto will not disclose or use, and will direct their respective
representatives not to disclose or use to the detriment of the other parties,
any Confidential Information (as defined below) with respect to such other party
furnished, or to be furnished, by such other party or its representatives to the
disclosing party or its representatives at any time or in any manner other than
in connection with the transaction contemplated in this Agreement. For purposes
of this Agreement, "Confidential Information" means any information about
Parent, Merger Sub, the Company or any Subsidiary or Joint Venture stamped
"confidential" or identified in writing as such promptly following its
disclosure, unless (a) such information is already known to the party receiving
such information or its representatives or to others not bound by a duty of
confidentiality as demonstrated by its written records or such information
becomes publicly available through no fault of the party receiving such
information or its representatives, (b) the use of such information is necessary
or appropriate in making any filing or obtaining any consent or approval
required for the consummation of the transactions contemplated herein, or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings; provided that in cases
described above in (b) or (c), the non-disclosing party shall be informed of
such required disclosure prior to its disclosure and shall have the opportunity
to comment on any required disclosure so as to minimize the disclosure of
Confidential Information.
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(b) Upon termination of this Agreement, the party receiving any
such Confidential Information shall (a) return to the party disclosing the same,
or shall destroy in a manner satisfactory to such disclosing party, all tangible
forms of such Confidential Information, including any and all copies thereof,
and those portions of any documents, memoranda, notes, studies and analyses
prepared by or on behalf of the receiving party or any of its directors,
officers, employees, advisors or representatives that incorporate or are derived
from such Confidential Information, and (b) immediately cease, and shall cause
its directors, officers, employees, advisors and representatives to cease, use
of such Confidential Information as well as any information or materials that
incorporate or are derived from such Confidential Information.
5.4 Intellectual Property. Parent and Company each agree that prior to
the Merger, any and all Intellectual Property, including trade secrets, created
or developed by either party shall remain the exclusive property of the party
who created or developed such property, notwithstanding the sharing of
information prior to the Merger.
5.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting, investment banking,
broker and finder fees and expenses and all other fees and expenses of third
parties (collectively, "Third Party Expenses") incurred by a party in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby shall be the obligation of
the respective party incurring such fees and expenses.
5.6 Public Disclosure. Each of Parent and the Company shall use all
reasonable efforts to consult with the other before issuing any press release or
making any public statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law upon the
advice of counsel, the rules of any market or stock exchange on which the
securities of the Company or Parent, as the case may be, are listed or, if
applicable, the rules of the Nasdaq National Market, shall use all reasonable
efforts not to issue any such press release or make any such public statement
prior to such consultation.
5.7 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules), including without limitation, the release of
security interests effected in connection with the Seragen Canada Settlement
Agreement, so as to preserve all rights of and benefits to the Company
thereunder.
5.8 FIRPTA Compliance. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.9 Best Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its best efforts to ensure that
its representations and
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warranties remain true and correct in all material respects at and prior to the
Effective Time, except as set forth in such representation or warranty, and to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided, however, that Parent shall not be required to agree to any divestiture
by Parent or the Company or any of Parent's subsidiaries or affiliates of shares
of capital stock or any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.10 Notification of Certain Matters. (a) Each of Parent and the Company
shall, upon obtaining knowledge of any of the following, promptly notify the
other of:
(i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
Merger;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger;
(iii) any actions, suits, claims, investigations or other
judicial proceedings known to its executive officers commenced or threatened
against the such party or any of its Subsidiaries which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 2.18 or 3.6 as applicable or which relate to the consummation of the
Merger;
(v) occurrence or non-occurrence of any other event known to its
executive officers which is likely to cause any representation or warranty of
the such party contained in this Agreement to be materially untrue or inaccurate
at or prior to the Effective Time; and
(vi) any failure of such party known to its executive officers to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
(b) In addition to its obligations set forth in Section 5.10(a), the
Company shall promptly notify Parent of any adverse determination or
recommendation in connection with any governmental proceeding to license any of
the Company's products, and any report filed with the FDA regarding an
unexpected fatal or life-threatening experience with respect to any such
product.
(c) The delivery of any notice pursuant to this Section 5.10 shall not
limit or otherwise affect any remedies available to a party.
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5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions and contemplated hereby.
5.12 Company Auditors. The Company will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements of the Company
(including pro forma financial statements if required) as required by Parent to
comply with applicable SEC regulations and (ii) the review of the Company's
audit work papers for up to the past three years, including the examination of
selected interim financial statements and data.
5.13 Preclosing Company Payables; Preclosing Company Revenues.
(a) For purposes of this Section 5.13: (i) "Preclosing Company
Revenues" shall mean all revenues of the Company, including without limitation,
(A) returns of prepaid deposits, insurance premiums, the remaining balance in
any bank accounts or other amounts and (B) any payments received from Lilly on
or after the Closing Date whether in respect of amounts reimbursed to the
Company by Lilly in the normal course of business or one-time milestone
payments, of any kind or nature that would be required or permitted by generally
accepted accounting principles applied in a consistent manner with the past
practice of the Company to be reflected as assets on a consolidated balance
sheet for the Company and its Subsidiaries as of the Closing Date; provided
revenues of the Company derived from the Company's contracts with Lilly will
only be included in Preclosing Company Revenues to the extent they relate to
amounts actually paid by the Company prior to the Effective Time or the extent
the $1.0 million milestone due upon regulatory approval of DAB389IL-2 in the
United States becomes due on or before the Closing Date and is not paid on or
before the Closing Date; and (ii) "Preclosing Company Payables" shall mean all
payables of the Company from the date of this Agreement through the time of the
Closing, including, without limitation, (A) the Company's severance obligations
to its employees terminated at or prior to the Closing (subject to Section 4.4),
including, without limitation, its executive officers; (B) premiums payable in
connection with an extension of the existing directors' and officers' liability
insurance of the Company for two years following the Closing Date at a cost to
the Company not to exceed $350,000; (C) fees payable to legal counsel and
accountants, but only upon delivery of a bill marked final from each such
counsel and accountant; and (D) other expenses incurred in connection with the
Merger, other than fees (but not the expenses of Shoreline and Lehman); provided
Preclosing Company Payables shall not include distributions to be made to BU and
Marathon pursuant to Section 1.7 (which are made in full and complete
satisfaction of BU and Marathon payables under the Service Agreement pursuant to
the Accord Agreement).
(b) Parent shall deposit all Preclosing Company Revenues with the
Escrow Agent to become part of the Escrowed Amount (as defined in the Escrow
Agreement) and to be held in escrow pursuant to the Escrow Agreement. The
Escrowed Amount (as defined in the Escrow Agreement) shall be applied to satisfy
any Preclosing Company Payables that become payable following the Closing Date.
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(c) On the 120th day following the Closing Date, any portion of
the Escrowed Amount that has not been applied to the payment of Preclosing
Company Payables shall be distributed as additional Distributable Closing
Consideration pursuant to the provisions of Sections 1.7(a)(i)(C)(5) through
(14) without regard to the provisos set forth in Sections 1.7(a)(i)(C)(7)
through (10). The distribution of the Escrowed Amount in accordance with this
provision of this Section 5.13(c) shall be without prejudice to any other rights
or remedies Parent may have pursuant to the terms of this Agreement.
(d) In the event of any dispute regarding the provisions of this
Section 5.13, such dispute may be submitted by the Surviving Corporation or any
person entitled to receive Distributable Closing Consideration to the Boston,
Massachusetts office of a nationally recognized accounting firm other than Ernst
& Young LLP or Arthur Andersen LLP for resolution in accordance with the
provisions of this Section 5.13 by notice given to, in the case of a dispute
resolution proceeding initiated by the Surviving Corporation, all persons
entitled to receive Distributable Closing Consideration or, in the case of a
dispute resolution proceeding initiated by a person entitled to receive
Distributable Closing Consideration, to the Surviving Corporation and all other
persons entitled to receive Distributable Closing Consideration. Such accounting
firm shall specify such procedures for the resolution of such dispute as may
think appropriate for the fair and prompt resolution of the dispute.
5.14 Marathon Service Agreement.
(a) The Company shall maintain its Service Agreement with
Marathon through January 31, 1999. The parties acknowledge and agree that the
obligations of the Company pursuant to this Section 5.14 do not require the
Company to pay its monetary obligations under the Service Agreement on a timely
basis. The Company further agrees that if Marathon considers the Company in
default or in breach other than for the failure to pay its monetary obligations
under the Service Agreement and gives notice to such effect, the Company shall
use its best efforts to cure any such breach or default.
(b) The Company shall not exercise its option to purchase the
assets of Marathon, as provided under the Service Agreement. The Company hereby
acknowledges (i) the grant to Parent of the Option under the Purchase Agreement
and (ii) the grant to Parent and the Company of the Option under the Extension
Option Agreement among Marathon, the members of Marathon, the Company and
Parent.
5.15 Obligations of Merger Sub. Parent shall take all action necessary
to cause Merger Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
Merger Sub shall not issue any shares of its capital stock, any securities
convertible into or exchangeable for its capital stock, or any option, warrant
or other right to acquire its capital stock to any person or entity other than
Parent or a wholly owned subsidiary of Parent. Merger Sub shall not incur any
indebtedness or liabilities of any kind except pursuant to this Agreement.
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5.16 Development Activities.
(a) After the Effective Time through the second anniversary of
the Closing Date, Parent shall undertake such tests, studies and other
activities as may be required pursuant to Section 1.6(c) hereof and shall make
commercially reasonable efforts (i) to perform, or cause to be performed, all
such other tests, studies and other activities and (ii) to take, or cause to be
taken, all such other actions, that are necessary or appropriate to obtain Final
FDA Approval by the second anniversary of the Closing Date (the "Development
Activities"). Parent shall perform all Development Activities in good scientific
manner, and in compliance in all material respects with all requirements of
applicable laws, rules and regulations, and shall proceed diligently to obtain
Final FDA Approval by allocating sufficient time, effort, equipment, and skilled
personnel to complete such activities successfully and promptly. Parent shall be
responsible for all costs and expenses incurred in connection with the
Development Activities without any reduction in the Merger Consideration. For
purposes of this Section 5.16, "commercially reasonable efforts" shall mean that
level of commitment, financial and otherwise, that Parent currently dedicates to
the development of and obtaining regulatory approval for its own products of
comparable commercial potential and risk profile.
(b) Parent shall maintain, or cause to be maintained, records of
all of the Development Activities in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes, which shall be complete
and accurate and shall fully and properly reflect all work done and results
achieved in the performance of the Development Activities, and which shall be
retained by Parent until the fifth anniversary of the Closing Date.
(c) In the event the Milestone Consideration is not paid, Parent
will deliver a report to all persons entitled to receive such Milestone
Consideration, certified by Parent's Chief Financial Officer, providing in
reasonable detail sufficient information to establish that the obligations set
forth in this Section and Section 1.6(c) have been fulfilled.
5.17 FDA Contacts. Prior to the Effective Time, neither Parent nor
Merger Sub shall, directly or indirectly, engage in any independent contact with
the FDA regarding the Company's pending BLA. Parent shall, however, be entitled
to designate, by notice given to the Company, one person to represent the Parent
in connection with communications, meetings and correspondence between the
Company and the FDA. Such designated representative shall be entitled to
participate in all of the Company's scheduled internal planning meetings and
post-FDA meeting reviews that cover substantive issues relating to the BLA and
shall be entitled to participate as a passive listener on all regularly
scheduled telephone conferences between the Company and the FDA that cover
substantive issues relating to the BLA. The Company shall provide such
designated representative with a copy of all correspondence between the Company
and the FDA relating to the BLA and all substantive internal reports and
memoranda generated by the Company to the extent the same relate to the BLA.
Following mailing by the Company of the Proxy Statement, the aforesaid
designated representative of the Parent shall be entitled to attend all meetings
between Company representatives and the FDA in person and to actively
participate in all regularly scheduled telephone conferences between Company
representatives and the FDA.
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5.18 Payables. From the date hereof through the Closing Date, the
Company shall provide to Parent, within ten (10) days of the end of a calendar
month, a summary of the outstanding Preclosing Company Payables as of the end of
such calendar month, including a summary of any potential or actual disputes
regarding such payables. Parent shall have the right to pay any Preclosing
Company Payable, in its sole discretion; provided any such payment by Parent
shall be deducted from the aggregate value of Stock Consideration included in
the Distributable Closing Consideration.
5.19 Certain Escrow Amounts. Promptly following the execution of this
Agreement, Mr. Prior, on behalf of himself and Dr. Nichols and Mr. Crane, and
Parent shall establish separate escrow accounts pursuant to which the Prior
Escrow Amount, the Nichols Escrow Amount and the Crane Escrow Amount,
respectively, will be deposited pursuant to Section 1.13 of this Agreement and
held in escrow. For purposes of this Agreement, the "Prior Escrow Amount" shall
mean $319,600, the "Nichols Escrow Amount" shall mean $66,900 and the "Crane
Escrow Amount" shall mean $20,000.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company by the
requisite vote under applicable law and the Company's Certificate of
Incorporation.
(b) Government Approvals. There shall have been obtained any and
all material governmental licenses, authorizations, consents and approvals of
all Government Entities, and permits, approvals and consents of securities or
"blue sky" commissions of any jurisdiction and of any other governmental body or
agency, that may reasonably be deemed necessary so that the consummation of the
Merger will be in compliance with applicable laws, the failure to comply with
which would be reasonably likely to have a Material Adverse Effect on Parent,
the Company or the Surviving Corporation or would be reasonably likely to
subject any of Parent, Merger Sub, the Company or any of their respective
directors or officers to substantial penalties or criminal liability.
(c) Registration Statement. Any shares of Parent Common Stock to
be issued in the Merger shall have been registered as required herein on a
Registration Statement that has been declared effective under the 1933 Act by
the SEC and the Registration Statement shall not be the subject of any stop
order or proceedings seeking a stop order, and the Proxy Statement shall at the
Effective Time not be subject to any proceedings commenced or threatened by the
SEC.
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(d) No Injunctions or Restraints; Illegality. No statute, rule,
regulation executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order shall have been enacted, promulgated or
enforced (and not repealed, superseded or otherwise made inapplicable) by any
court or governmental authority, which prohibits the consummation of the merger
(each party agreeing to use its best efforts to have such order decree or
injunction lifted).
(e) Nasdaq Listing. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement, if any, and such other
shares required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the Nasdaq National Market, subject to
official notice of issuance.
(f) HSR Act. The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(g) Approval of Office of the Attorney General of the
Commonwealth of Massachusetts, Public Charities Division. The approval of the
Office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, which approval is acceptable in form and substance to
Parent, shall be in full force and effect as of the Effective Time.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company.
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
(c) Third Party Consents. The Company shall have been furnished
with evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set
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forth in Schedule 6.2(c), other than those consents, approvals and waivers the
failure of which to obtain would not have a Material Adverse Effect on Parent.
(d) Legal Opinion. The Company shall have received a legal
opinion from Brobeck, Phleger & Harrison, LLP, counsel to Parent, in
substantially the form attached hereto as Exhibit 6.2(d).
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on the Company or Parent; and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be preformed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by the chief executive officer of the Company.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c), other than those consents,
approvals and waivers the failure of which to obtain would not have a Material
Adverse Effect on the Company.
(d) Legal Opinion. Parent shall have received a legal opinion
from Covington & Burling, counsel to the Company, in substantially the form
attached hereto as Exhibit 6.3(d).
(e) Satisfaction of Preclosing Company Payables. The Company
shall have received bills marked as final from each of its legal counsel and
accountants.
(f) General Adverse Development. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), liabilities, financial condition or results of operations of the
Company since the date of the Company Balance Sheet which could reasonably be
expected to result in a diminution of the value of
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the Company by Five Million Dollars ($5,000,000) or more; provided, however,
that any developments, or the absence of any developments, with respect to the
FDA's review of the Company's BLA for DAB389IL-2 for CTCL shall not be a
condition to the obligations of Parent and Merger Sub under this Agreement
whether pursuant to this clause (f), Section 6.3(a) or otherwise, and shall not
be included in the determination of any adverse change with respect to the
Company.
(g) Marathon Purchase Agreement. The representations and
warranties of Marathon contained in that certain Option and Asset Purchase
Agreement of even date herewith (the "Purchase Agreement") by and between
Marathon, its members and Parent shall be true and correct in all material
respects on and as of the Closing Date, except for changes contemplated by the
Purchase Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date), with the same force and effect as if made on and as of
the Closing Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on Marathon. In
addition, Marathon shall have performed or complied in all material respects
with all agreements and covenants required by the Purchase Agreement to be
performed or complied with by it on or prior to the Effective Time. Parent and
Merger Sub shall have received a certificate to such effect signed by the chief
executive officer of Marathon.
(h) Company Options and Company Warrants. Except as provided in
Section 1.8(c), all of the Company Options and Company Warrants shall have been
exercised or terminated immediately prior to the Closing.
(i) Resignation of Directors and Officers. The directors and
officers of the Company in office immediately prior to the Effective Time shall
have resigned as directors and officers of the Surviving Corporation effective
immediately following the Effective Time.
(j) Dissenters' Rights. Holders of not more than ten percent
(10%) of the outstanding shares of the Company Capital Stock shall have
exercised, and no other shareholder or the Company shall have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable law
with respect to their shares of the Company Capital Stock by virtue of the
Merger.
(k) License Agreements. All license agreements, royalty
agreements, service agreements, marketing and other agreements and assignments
set forth on Schedule 6.3(k) shall have been amended or terminated, as
applicable, in a manner satisfactory to Parent to ensure that (i) the
consummation of the transactions contemplated in this Agreement will not
constitute a breach by the Company of such agreements or assignment as of the
Effective Time and (ii) the existence of such agreements or assignments as of
the Effective Time will not constitute a breach by the Company of any of its
representations, warranties, covenants or obligations under this Agreement.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of the Boards of Directors of the
Company, Parent and Merger Sub;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Eastern Daylight Savings Time) on January 31, 1999
(provided that the right to terminate this Agreement under this clause 7.1(b)(i)
shall not be available to any party whose willful failure to fulfill any
obligation hereunder has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date); provided in the event that
Parent or the Company has exercised the Option under the Extension Option
Agreement such date shall be extended upon each exercise of such Option to the
then-effective termination of such Option; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any governmental entity, which would: (i) prohibit Parent's or
the Surviving Corporation's ownership or operation of all or any portion of the
business of the Company or (ii) compel Parent or the Surviving Corporation to
dispose of or hold separate all or a portion of the business or assets of the
Company or Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and (i) such breach has not been cured within five (5) business days
after written notice to the Company (provided that, no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a result
of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case
may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Parent or Merger Sub and (i) such breach has not been cured
within five (5) business days after written notice to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be cured),
and (ii) as a result of such breach the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, would not then be satisfied;
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(f) by Parent, if the Company suffers a Material Adverse Effect
which could reasonably be expected to result in a diminution of the value of the
Company by Five Million Dollars ($5,000,000) or more, provided, however, any
Material Adverse Effect shall not include effects arising from the FDA's review
of DAB389IL-2 for CTCL;
(g) by Parent or the Company, if, at the meeting of Company
stockholders (including any adjournment or postponement thereof) called pursuant
to Section 5 hereof, the requisite vote of the stockholders of the Company shall
not have been obtained (following a recommendation by the Company's Board of
Directors to vote in favor of the Merger);
(h) by Parent or the Company, if, at the meeting of Company
stockholders (including any adjournment or postponement thereof) called pursuant
to Section 5.1 hereof, the Company's stockholders approve an acquisition
proposal (other than an acquisition proposal with Parent or an affiliate of
Parent);
(i) (Reserved)
(j) by Parent, if it is not in material breach of its obligations
under this Agreement and if any Person other than Parent or any of Parent's
affiliates shall purchase a majority of the outstanding shares of Company Common
Stock;
(k) by either party, if the other becomes insolvent or seeks
protection under any bankruptcy, receivership, trust deed, creditors
arrangement, composition or comparable proceeding, or if any such proceeding is
instituted against such other party (and not dismissed within sixty (60) days);
provided, however, that the Company shall not be deemed to be insolvent as a
result of its failure to pay Marathon under the Service Agreement for so long as
Marathon and BU forebear from the receipt of such payments or for any period
that Marathon and BU are contractually obligated to so forebear.
(l) by Parent, if it is not in material breach of its obligations
under this Agreement and if the Board of Directors of Company shall have:
(i) withdrawn its recommendation of the Merger, or
(ii) adversely changed its recommendation of the Merger,
or
(iii) recommended or approved any acceptance by Company's
stockholders of any acquisition proposal (other than an
acquisition proposal made by Parent or an affiliate of
Parent); or
(m) by the Company, if the Company shall have received an
Acquisition Proposal (other than with respect to Parent or an affiliate of
Parent), which the Board of Directors of the Company determines, after
consultation with counsel, to recommend to the securityholders of the Company in
order to comply with the fiduciary duty of the Board of Directors of the
Company.
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When action is taken to terminate this Agreement pursuant to this
Section 7.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action. Either party
shall provide notice to the other party no less than five (5) days prior to any
termination under this Section 7.1. Each party acknowledges that failure to
provide such notice in a timely manner will have material, adverse consequences
on the other.
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further, that the provisions of Sections 5.3 and 5.4
of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
7.3 Amendment. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties and Agreements; Right of
Set-off.
(a) All representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger and shall (except to the extent that
survival is necessary to effectuate the intent of such provisions) terminate on
the third (3rd) anniversary of the Closing Date; provided, however, that (i) the
representations and warranties in Sections 2.1- 2.2, 2.4 and 3.1-3.3 shall
continue to survive indefinitely after the Closing Date and (ii) the
representations and warranties in Section 2.11 shall continue to survive after
the Closing Date until the expiration of all applicable Tax statutes of
limitations, plus one year. Notwithstanding the foregoing, in no event shall the
Company or any holder of Company Capital Stock other than the Identified Company
Stakeholders be liable for any Parent
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Damages (as defined below) under this Section 8.1 or otherwise. In no event
shall the Identified Company Stakeholders be liable for any Parent Damages
unless the aggregate amount of such Parent Damages exceeds Two Hundred Fifty
Thousand Dollars ($250,000), in which case each Identified Company Stakeholder
shall be liable for its Pro Rata Portion of all Parent Damages over an aggregate
amount for all Identified Company Stakeholders of Two Hundred Fifty Thousand
Dollars ($250,000) (the "Deductible Amount") up to, but not exceeding, an
aggregate amount for all Identified Company Stakeholders of Eight Million Seven
Hundred Thousand Dollars ($8,700,000) above the Deductible Amount. No claim may
be made by Parent, Merger Sub or the Surviving Corporation with respect to any
Parent Damages in accordance with this Section 8.1(a) or otherwise unless notice
thereof is delivered to each of the Identified Company Stakeholders on or prior
to the termination of the representation, warranty, covenant or agreement under
which such claim is made.
(b) In furtherance of the rights set forth in Section 8.1(a)
above, Parent shall have the right to reduce each Identified Company
Stakeholder's Milestone Consideration due under this Agreement by such
Identified Company Stakeholder's Pro Rata Portion of any amounts constituting
Parent Damages up to an aggregate amount for all Identified Company Stakeholders
of Two Million Nine Hundred Thousand Dollars ($2,900,000) above the Deductible
Amount. Nothing in this Section 8.1(b) shall be construed to limit the amount of
Parent Damages for which the Identified Company Stakeholders are liable under
this Section 8.1 to less than $8,950,000 (which includes the Deductible Amount).
Except as provided in this Section 8.1(b), neither Parent nor Merger Sub shall
have any right of reduce or otherwise set off with respect to the Merger
Consideration.
(c) Parent shall notify each Identified Company Stakeholder as
promptly as practicable upon its discovery of facts giving rise to a claim for
Parent Damages hereunder, including receipt by Parent, Merger Sub or the
Surviving Corporation of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise, with respect to any Parent Damages, together
with a summary statement of such information respecting any of the foregoing as
such party shall have, and Parent shall provide the Identified Company
Stakeholders with copies of all papers and official documents with respect
thereto. With respect to any Parent Damages arising in connection with or as a
result of the claims of third parties, the Identified Company Stakeholders shall
have the sole right to control the defense of such matter, provided that the
Identified Company Stakeholders shall obtain the written consent of the Parent,
which shall not be unreasonably withheld, prior to ceasing to defend, settling
or otherwise disposing of any Parent Damages if as a result thereof Parent party
would become subject to injunctive or other equitable relief or any remedy other
than the payment of money by the Identified Company Stakeholders.
(d) For purposes of this Section 8.1, "Parent Damages" shall mean
any and all losses, damages, liabilities, obligations, claims, demands,
judgments, settlements, governmental investigations, Taxes, costs and expenses
of any nature whatsoever, including the reasonable fees and expenses of
attorneys, accountants and consultants resulting from, arising out of or
attributable to a breach of the Company's representations, warranties,
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covenants and agreements under this Agreement. For purposes of this Section 8.1,
(i) "Pro Rata Portion" for an Identified Company Stakeholder shall be calculated
by taking such Identified Company Stakeholder's percentage of Stakeholder
Closing Consideration and dividing it by the sum of all Identified Company
Stakeholders' percentages of Stakeholder Closing Consideration; the amount
resulting from that calculation shall be multiplied by the amount of Parent
Damages hereunder to determine the Pro Rata Portion; and (ii) "Identified
Company Stakeholder(s)" shall mean the Variable Company Stakeholders identified
in Sections 1.7(a)(i)(C)(7) through (14).
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: William L. Respess, Esq.
General Counsel
Telephone No: (619) 550-7500
Facsimile No: (619) 550-7506
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: Faye H. Russell, Esq.
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
(b) if to the Company, to:
Seragen, Inc.
97 South Street
Hopkinton, MA 01748
Attention: Reed R. Prior
Chairman, Chief Executive Officer
and Treasurer
Telephone No: (508) 435-2331
Facsimile No: (508) 435-9024
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with a copy to:
Covington and Burling
P.O. Box 7566
1201 Pennsylvania Avenue, N.W.
Washington, DC 20044-7566
Attention: Edward Britton, Esq.
Telephone No: (202) 662-5248
Facsimile No: (202) 778-5248
(c) if to a Variable Company Stakeholder, to the address set
forth in the Accord Agreement.
8.3 Interpretation. Unless the context of this Agreement otherwise
requires: (a) words of any gender include each other gender; (b) words using the
singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (d) the terms "Article" or
"Section" refer to the specified Article or Section of this Agreement; (e) the
term "or" has, except where indicated, the inclusive meaning represented by the
phrase "and/or"; and (f) the term "including" means "including without
limitation." Whenever this Agreement refers to a number of days, such number
shall refer to calendar days unless business days are specified. All accounting
terms used herein and not expressly defined herein shall have the meanings given
to them under GAAP.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart. Executed counterparts delivered by
facsimile transmission shall have the same force and effect as originally
executed counterparts delivered personally.
8.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, that certain Confidentiality Agreement between Parent and the
Company dated March 17, 1998 and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided, except that Parent and Merger Sub may assign their respective rights
and delegate their respective obligations hereunder to their respective
affiliates.
8.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal,
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void or unenforceable, the remainder of this Agreement will continue in full
force and effect and the application of such provision to other Persons or
circumstances will be interpreted so as reasonable to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such Persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 Consent to Jurisdiction and Forum Selection. The parties hereto
agree that all actions or proceedings arising in connection with this Agreement
shall be initiated and tried exclusively in the State and Federal courts located
in the State of Delaware. The aforementioned choice of venue is intended by the
parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this Section
8.9. Each party hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the State and Federal courts located in the State of Delaware shall have in
personam jurisdiction and venue over each of them for the purposes of litigating
any dispute, controversy or proceeding arising out of or related to this
Agreement. Each party hereby authorizes and accepts service of process
sufficient for personal jurisdiction in any action against it as contemplated by
this Section 8.9 by registered or certified mail, return receipt requested,
postage prepaid, to its address for the giving of notices as set forth in this
Agreement, or in the manner set forth in Section 8.2 of this Agreement for the
giving of notice. Any final judgment rendered against a party in any action or
proceeding shall be conclusive as to the subject of such final judgment and may
be enforced in other jurisdictions in any manner provided by law.
8.10 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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8.11 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
8.12 Corporate Transaction involving Parent. If after the Effective Time
Parent is acquired by merger (including by reverse triangular merger), or is a
party to a consolidation, or liquidates, all references to "Parent Common Stock"
in this Agreement shall thereafter mean, on a per-share basis, the amount of
cash, securities and/or other property received by Parent stockholders for their
(pre-transaction) Parent Common Stock in such transaction.
8.13 Insurance.
(a) Parent shall cause to be maintained in effect for the
remainder of its term the current policy of directors' and officers' liability
insurance maintained by the Company. After the expiration of such policy and for
a period of one year thereafter, Parent shall use its Reasonable Efforts to
either extend the current policy or cause the directors and officers of the
Company as of the date hereof to be covered by directors' and officers'
liability insurance comparable to that maintained from time to time for the
benefit of the directors of Parent.
(b) Parent shall cause the Surviving Corporation to maintain
without any reduction in scope or coverage the indemnification provisions for
present and former officers and directors contained in the Company's Restated
Bylaws in effect on the date hereof.
(c) The provisions of this Section 8.13 shall survive the
Effective Time and are intended to be for the benefit of, and shall be
enforceable by, each present or former director or officer of the Company and
his or her heirs and representatives.
8.14 Third Party Beneficiaries. Each of the Third Parties (as such term
is defined in the Accord Agreement), their successors and assigns are intended
beneficiaries of the terms and provisions of this Agreement, and each Third
Party shall have the right independently to enforce its rights in respect
thereof without the need to join the Company, the Surviving Corporation or any
other person in any action, whether at law or in equity, for such purpose.
8.15 Termination Fee. If the Merger is not consummated because (A)
Parent elects to terminate this Agreement pursuant to Section 7.1(k) or (B) the
Company has terminated this Agreement in accordance with Section 7.1(m), then
the Company shall pay Parent (X) a termination fee of $5,000,000 (the
"Termination Fee") and (Y) an additional fee (the "Enhanced Value Fee") equal to
five percent (5%) of the Enhanced Value Realized (as defined below) by persons
entitled to receive Merger Consideration hereunder with respect to
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<PAGE> 73
any Acquisition Proposal which results in an aggregate amount paid to such
persons of greater than Sixty Seven Million Dollars ($67,000,000) (the "Enhanced
Acquisition Proposal") and (Z) in the event that Parent has exercised its option
to extend the Agreement Term (as defined in the Extension Option Agreement) or
any Extension Term (as defined in the Extension Option Agreement) and has
remitted amounts pursuant to the exercise of such option, the additional amounts
remitted thereunder (the "Option Fee"). If this Agreement shall be terminated in
the circumstances specified in this Section 8.15, the Termination Fee, the
Enhanced Value Fee, if any, and the Option Fee, if any, shall be liquidated
damages to Parent for loss of its bargain hereunder. The Termination Fee and the
Option Fee shall each be due and payable to Parent within thirty (30) days of
termination of this Agreement; the Enhanced Value Fee shall be due and payable
to Parent on the closing of a transaction in connection with the Enhanced
Acquisition Proposal. For purposes of this Section 8.15, "Enhanced Value
Realized" shall mean the aggregate value realized by the persons entitled to
receive Merger Consideration hereunder as a result of an Enhanced Acquisition
Proposal (determined as set forth below) minus Sixty Seven Million Dollars
($67,000,000). A determination of the aggregate value realized by the persons
entitled to receive Merger Consideration hereunder in connection with an
Enhanced Acquisition Proposal shall be the aggregate amount of cash plus, if
applicable, the product of (i) the average closing sales price of any securities
received in the Enhanced Acquisition Proposal for the five (5) trading days
immediately preceding the date of the closing of the Enhanced Acquisition
Proposal, or if there is no such average price, the value of such securities
shall be determined in good faith by the Company's Board of Directors in
consultation with the Company's financial advisors for the Enhanced Acquisition
Proposal, subject to the reasonable approval of Parent's Board of Directors, and
(ii) the total number of shares of such securities issued, or to be issued, in
connection with the Acquisition Proposal. Notwithstanding the foregoing, nothing
contained herein (including Section 7.2) shall relieve any party from liability
for any breach of this Agreement.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
LIGAND PHARMACEUTICALS SERAGEN, INC.:
INCORPORATED:
By: /s/ DAVID E. ROBINSON By:
-------------------------- --------------------------
Name: David E. Robinson Name:
----------------------- ------------------------
Title: President and Chief Title:
Executive Officer ------------------------
------------------------
KNIGHT ACQUISITION CORPORATION:
By: /s/ DAVID E. ROBINSON
-------------------------
Name: David E. Robinson
-----------------------
Title: President
----------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 75
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
LIGAND PHARMACEUTICALS SERAGEN, INC.:
INCORPORATED:
By: By: /s/ REED R. PRIOR
-------------------------- --------------------------
Name: Name: Reed R. Prior
----------------------- ------------------------
Title: Title: Chairman & CEO
----------------------- -----------------------
KNIGHT ACQUISITION CORPORATION:
By:
-------------------------
Name:
-----------------------
Title:
----------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
Ligand Pharmaceuticals Incorporated, a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Ligand Pharmaceuticals Incorporated.
Ligand Pharmaceuticals Incorporated was originally incorporated under the name
Progenx, Inc. The original Certificate of Incorporation of the corporation was
filed with the Secretary of State of the State of Delaware on September 28,
1987; was amended and restated in its entirety pursuant to a Restated
Certificate of Incorporation of the corporation filed with the Secretary of
State of the State of Delaware on December 10, 1987; was further amended
pursuant to two Certificates of Amendment of Certificate of Incorporation of the
corporation filed with the Secretary of State of the State of Delaware on June
10, 1988 and February 1, 1989, respectively; was amended and restated in its
entirety pursuant to a Restated Certificate of Incorporation of the corporation
filed with the Secretary of State of the State of Delaware on April 19, 1989;
was further amended pursuant to two Certificates of Amendment of Certificate of
Incorporation of the corporation filed with the Secretary of State of the State
of Delaware on July 31, 1989 and December 7, 1989, respectively; was further
amended and restated in its entirety pursuant to two Restated Certificates of
Incorporation of the corporation filed with the Secretary of State of the State
of Delaware on March 28, 1991 and May 1, 1991, respectively; was further amended
pursuant to two Certificates of Amendment of Certificate of Incorporation of the
corporation filed with the Secretary of State of the State of Delaware on
November 18, 1991 and June 17, 1992, respectively; and was amended and restated
in its entirety pursuant to a Restated Certificate of Incorporation of the
corporation filed with the Secretary of State of the State of Delaware on June
30, 1992; and was further amended and restated in its entirety pursuant to a
Restated Certificate of Incorporation filed with the Secretary of State of
Delaware on September 9, 1992; and was further amended in its entirety pursuant
to a Restated Certificate of Incorporation filed with the Secretary of State of
Delaware on October 6, 1992. A Certificate of Designation of Class A Common
Stock and a Certificate of Designation of Series G Preferred Stock were filed
with the Secretary of the State of Delaware on October 6, 1992. A Certificate of
Amendment of Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on November 17, 1992. An Amended and
Restated Certificate of Designation of Class A Common Stock was filed with the
Secretary of State of the State of Delaware on November 18, 1992. An Amended and
Restated Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on November 25, 1992. A Certificate
of Retirement was filed with the Secretary of State of
the State of Delaware on April 12, 1995.
<PAGE> 2
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
was adopted by the corporation's Board of Directors and stockholders.
3. The text of the Restated Certificate of Incorporation is heretofore
amended or supplemented and is hereby restated and further amended to read in
its entirety as follows:
ARTICLE I
The name of this corporation is Ligand Pharmaceuticals Incorporated.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, Delaware 19901.
The name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
Delaware General Corporation Law.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares of all classes of capital stock which this
corporation shall have authority to issue is eighty-five million (85,000,000) of
which eighty million (80,000,000) shares of the par value of one-tenth of one
cent ($.001) each shall be Common Stock and five million (5,000,000) shares of
the par value of one-tenth of one cent ($.001) each shall be Preferred Stock.
The number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of the majority of the shares of stock of this corporation
entitled to vote in the election of directors.
(B) Powers, Preferences and Rights and Qualifications, Limitations and
Restrictions of Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized, by
filing a certificate pursuant to the Delaware General Corporation Law, to fix or
alter from time to time the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them (a "Preferred Stock Designation"); and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the
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number of shares of any series shall be decreased in accordance with the
foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(C) Rights, Preferences, Privileges and Restrictions of Common Stock.
1. Dividend Rights. Subject to the prior or parity rights of
holders of all classes of stock at the time outstanding having prior or parity
rights as to dividends, the holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
this corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. Redemption. The Common Stock is not redeemable upon demand of
any holder thereof or upon demand of this corporation.
3. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
Prior to the date upon which the corporation is no longer subject to
Section 2115 of the California Corporations Code (the "Record Date"), every
stockholder entitled to vote in any election of directors of the corporation may
cumulate such stockholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which the stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, may cumulate such stockholder's
votes for one or more candidates unless (i) the names of such candidates have
been properly placed in nomination, in accordance with the bylaws of the
corporation, prior to the voting, (ii) the stockholder has given advance notice
to the corporation of the intention to cumulate votes in accordance with the
bylaws, and (iii) the stockholder has given proper notice to the other
stockholders at the meeting, prior to voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper notice,
all stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. The candidates receiving the highest number of
votes of the shares entitled to be voted for them up to the number of directors
to be elected by such shares shall be declared elected.
On and after the Record Date, cumulative voting shall no longer be
available to the stockholders of the corporation.
ARTICLE VI
(A) Exculpation.
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1. California. Prior to the Record Date and to the extent
California law applies, the liability of each and every director of this
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Delaware. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived any improper personal benefit.
(B) Indemnification.
1. California. Prior to the Record Date and to the extent
California law applies, this corporation is authorized to indemnify the
directors and officers of this corporation to the fullest extent permissible
under California law. Moreover, this corporation is authorized to provide
indemnification of (and advancement of expenses to) agents (as defined in
Section 317 of the California Corporations Code) through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code, with
respect to actions for breach of duty to the corporation and its shareholders.
2. Delaware. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) Effect of Repeal or Modification. Any repeal or modification of any
of the foregoing provisions of this Article VI shall be prospective and shall
not adversely affect any right or protection of a director, officer, agent or
other person existing at the time of, or increase the liability of any director
of the corporation with respect to any acts or omissions of such director
occurring prior to, such repeal or modification.
ARTICLE VII
Section 1. Stockholder Vote Required for Business Combinations.
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a. Stockholder Votes. In addition to any affirmative vote
required by law or by this Certificate of Incorporation or by any Preferred
Stock Designation, and except as otherwise expressly provided in Section 2 of
this Article VII:
(i) any merger or consolidation of the corporation or
any subsidiary (as hereinafter defined) with (A) any Interested Stockholder (as
hereinafter defined) or (B) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the corporation or any subsidiary having an
aggregate Fair Market Value (as hereinafter defined) equal to or greater than
15% of the corporation's assets as set forth on the corporation's most recent
audit consolidated financial statements; or
(iii) the issuance or transfer by the corporation or any
subsidiary (in one transaction or a series of transactions) of any securities of
the corporation or any subsidiary to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value equal to or
greater than 15% of the corporation's assets as set forth on the corporation's
most recent audited consolidated financial statements; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the corporation or any subsidiary which is
Beneficially Owned (as hereinafter defined) by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 66-2/3% of the
voting power of all of the then outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class. Such affirmative vote shall be
required notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law or of any agreement with any national
securities exchange or otherwise which might otherwise permit a lesser vote or
no vote.
b. Definition of Business Combination. The term "Business
Combination" as used in this Article VII shall mean any transaction which is
referred to in any one or more of subparagraphs (i) through (v) of paragraph (a)
of this Section 1.
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Section 2. Exceptions to Stockholder Vote Requirement.
The provisions of Section 1 of this Article VII shall not be
applicable to any particular Business Combination, and such business combination
shall require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation and any Preferred Stock
Designation, if, in the case of a Business Combination that does not involve any
cash or other consideration being received by the stockholders of the
corporation, solely in their respective capacities as stockholders of the
corporation, the condition specified in the following paragraph (a) is met, or,
in the case of any other Business Combination, the conditions specified in
either of the following paragraph (a) or paragraph (b) are met:
a. The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined); provided,
however, that this condition shall not be capable of satisfaction unless there
are at least two Continuing Directors.
b. All of the following conditions shall have been met:
(i) The consideration to be received by holders of
shares of a particular class (or series) of outstanding capital stock of the
corporation (including Common Stock and other than Excluded Preferred Stock (as
hereinafter defined)) shall be in cash or in the same form as the Interested
Stockholder or any of its Affiliates has previously paid for shares of such
class (or series) of capital stock. If the Interested Stockholder or any of its
Affiliates have paid for shares of any class (or series) of capital stock with
varying forms of consideration, the form of consideration to be received per
share by holders of shares of such class (or series) of capital stock shall be
either cash or the form used to acquire the largest number of shares of such
class (or series) of capital stock previously acquired by the Interested
Stockholder.
(ii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the date (the "Consummation Date") of the consummation
of the Business Combination, of the consideration other than cash to be received
per share by holders of Common Stock in such Business Combination shall be at
least equal to the higher of the following (in each case appropriately adjusted
in the event of any stock dividend, stock split, combination of shares of
similar event):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder or
any of its Affiliates for any shares of Common Stock acquired by
them within the two-year period immediately prior to the date of
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Stockholder became an Interested
Stockholder, whichever is higher, plus interest compounded
annually from the first date on which the Interested Stockholder
became an Interested Stockholder (the "Determination Date")
through the
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Consummation Date at the publicly announced reference rate of
interest of Bank of America, N.T. & S.A. (or such other major
bank headquartered in the State of California as may be selected
by the Continuing Directors) from time to time in effect in the
City of San Francisco less the aggregate amount of any cash
dividends paid, and the Fair Market Value of any dividends paid
in other than cash, on each share of Common Stock from the
Determination Date through the Consummation Date in an amount up
to but not exceeding the amount of interest so payable per share
of Common Stock; and
(B) the Fair Market Value per share of Common
Stock on the Announcement Date or the Determination Date,
whichever is higher.
(iii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the Consummation Date, of the consideration other than
cash to be received per share by holders of shares of any class (or series),
other than Common Stock or Excluded Preferred Stock, of outstanding Voting Stock
shall be at least equal to the highest of the following (in each case
appropriately adjusted in the event of any stock dividend, stock split,
combination of shares or similar event), it being intended that the requirements
of this paragraph (b)(iii) shall be required to be met with respect to every
such class (or series) of outstanding Voting Stock whether or not the Interested
Stockholder or any of its Affiliates has previously acquired any shares of a
particular class (or series) of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder or
any of its Affiliates for any shares of such class (or series) of
Voting Stock acquired by them within the two-year period
immediately prior to the Announcement Date or in any transaction
in which it became an Interested Stockholder, whichever is
higher, plus interest compounded annually from the Determination
Date through the Consummation Date at the publicly announced
reference rate of interest of Bank of America, N.T. & S.A. (or
such other major bank headquartered in the State of California
as may be selected by the Continuing Directors) from time to
time in effect in the City of San Francisco less the aggregate
amount of any cash dividends paid, and the Fair Market Value of
any dividends paid in other than cash, on each share of such
class (or series) of Voting Stock from the Determination Date
through the Consummation Date in an amount up to but not
exceeding the amount of interest so payable per share of such
class (or series) of Voting Stock;
(B) the Fair Market value per share of such class
(or series) of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
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(C) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series) of
Voting Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
corporation.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (x) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date therefor
any full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock; (y) there shall have been (A) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Continuing Directors, and (B) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Continuing Directors; and (z) neither such Interested Stockholder nor any of its
Affiliates shall have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder; provided, however, that no
approval by Continuing Directors shall satisfy the requirements of this
subparagraph (iv) unless at the time of such approval there are at least two
Continuing Directors.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder and any of its Affiliates
shall not have received the benefit, directly or indirectly (except
proportionately, solely in such Interested Stockholder's or Affiliate's capacity
as a stockholder of the corporation), of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantages provided by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended (The "1934 Act") and the rules and
regulations thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to all stockholders of the corporation at least
30 days prior to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
(vii) Such Interested Stockholder shall have supplied the
corporation with such information as shall have been requested pursuant to
Section 5 of this Article VII within the time period set forth therein.
Section 4. Definitions.
For the purposes of this Article VII:
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(a) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(b) "Interested Stockholder" means any person (other than the
corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner (as hereinafter defined),
directly or indirectly, of 15% or more of the voting power of the then
outstanding Voting Stock; or
(ii) is an Affiliate of the corporation and at any time
within the two-year period immediately prior to the date in question was the
Beneficial Owner, directly or indirectly, of 15% or more of the voting power of
the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting stock which were at any time within the two-year period
immediately prior to the date in question Beneficially Owned by an Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the 1933 Act.
(c) A person shall be a "Beneficial Owner" of or shall
"Beneficially Own" any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly or indirectly,
within the meaning of Rule 13d-3 under the 1934 Act as in effect on the adoption
date of this Certificate of Incorporation; or
(ii) which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote pursuant to
any agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any shares of Voting Stock solely by reason of a revocable
proxy granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which shares
neither such person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner); or
(iii) which is beneficially owned, directly or indirectly,
within the meaning of Rule 13d-3 under the 1934 Act as in effect on the adoption
date of this Certificate of Incorporation, by any other person with which such
person or any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (other than solely
by reason of a revocable proxy as described in subparagraph (ii) of this
paragraph (c)) or disposing of any shares of Voting Stock;
provided, however, that in case of any employee stock ownership or similar plan
of the corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect
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thereto (nor any Affiliate of such trustee), solely by reason of such capacity
of such trustee, shall be deemed, for any purposes hereof, to Beneficially Own
any shares of Voting Stock held under any such plan.
(d) For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph (b) of this Section 3, the number
of shares of Voting Stock deemed to be outstanding shall include shares deemed
Beneficially Owned through application of paragraph (c) of this Section 3 but
shall not include any other unissued shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the 1934 Act as in effect on the
adoption date of this Certificate of Incorporation.
(f) "Subsidiary" means any corporation of which a majority of the
outstanding shares of any class of equity security is owned, directly or
indirectly, by the corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph (b) of this Section
3, the term "Subsidiary" shall mean only a corporation of which a majority of
the outstanding shares of each class of equity security is owned, directly or
indirectly, by the corporation.
(g) "Continuing Director" means a member of the Board of
Directors of the corporation who is originally elected upon the incorporation of
the corporation or who is not an Interested Stockholder or affiliated with an
Interested Stockholder or in connection with his or her initial assumption of
office is recommended and approved for an appointment or election by a majority
of Continuing Directors then on the Board of Directors.
(h) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the 1934 Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing sale price quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations System
or any system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board of Directors in accordance with Section 4 of this Article VII; and
(ii) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board of Directors in
accordance with Section 4 of this Article VII.
(i) In the event of any Business Combination in which the
corporation survives, the phrase "consideration other than cash to be received"
as used in paragraphs (b)(ii) and (b)(iii) of Section 2 of this Article VII
shall include the shares of Common Stock
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and/or the shares of any other class (or series) of outstanding Voting Stock
retained by the holders of such shares.
(j) "Whole Board" means the total number of directors which this
corporation would have if there were no vacancies.
(k) "Excluded Preferred Stock" means any series of Preferred
Stock with respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article VII shall not apply.
Section 5. Board Enforcement.
(a) Compliance. A majority of the Whole Board but only if a
majority of the Whole Board shall then consist of Continuing Directors or, if a
majority of the Whole Board shall not then consist of Continuing Directors, a
majority of the then Continuing Directors, shall have the power and duty to
determine, on the basis of information known to them after reasonable inquiry,
all facts necessary to determine compliance with this Article VII, including,
without limitation, (i) whether a person is an Interested Stockholder, (ii) the
number of shares of Voting Stock beneficially owned by any person, (iii) whether
a person is an Affiliate or Associate of another, (iv) whether the applicable
conditions set forth in paragraph (b) of Section 2 have been met with respect to
any Business Combination, (v) the Fair Market Value of stock or other property
in accordance with paragraph (h) of Section 3, and (vi) whether the assets which
are the subject of any Business Combination referred to in paragraph (a)(ii) of
Section 1 have or the consideration to be received for the issuance or transfer
of securities by the corporation or any Subsidiary in any Business Combination
referred to in paragraph (a)(iii) of Section 1 has, an aggregate Fair Market
Value equal to or greater than 15% of the corporation's assets as set forth on
the corporation's most recent audited consolidated financial statements.
(b) Demand as to Interested Stockholder. A majority of the Whole
Board shall have the right to demand, but only if a majority of the Whole Board
shall then consist of Continuing Directors, or, if a majority of the Whole Board
shall not then consist of Continuing Directors, a majority of the then
Continuing Directors shall have the right to demand, that any person who it is
reasonably believed is an Interested Stockholder (or holds of record shares of
Voting Stock Beneficially Owned by any Interested Stockholder) supply this
corporation with complete information as to (vii) the record owner(s) of all
shares Beneficially Owned by such person who it is reasonably believed is an
Interested Stockholder, (viii) the number of, and class or series of, shares
Beneficially Owned by such person who it is reasonably believed is an Interested
Stockholder and held of record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (ix) any other factual
matter relating to the applicability or effect of this Article VII, as may be
reasonably requested of such person, and such person shall furnish such
information within 10 days after receipt of such demand.
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(c) Fiduciary Obligation of Interested Stockholder. Nothing
contained in this Article VII shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
ARTICLE VIII
Elections of directors need not be by written ballot except and to the
extent provided in the bylaws of the corporation.
ARTICLE IX
No holder of shares of stock of the corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any share
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration
as in its discretion it shall deem advisable or as the corporation shall have by
contract agreed.
ARTICLE X
The corporation is to have a perpetual existence.
ARTICLE XI
(A) The corporation reserves the right to repeal, alter, amend or
rescind any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
(B) of this Article XI, and all rights conferred on stockholders herein are
granted subject to this reservation.
(B) Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 66-2/3% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal Article V, Article VII, Article XI, Article XII,
Article XIII or Article XIV.
ARTICLE XII
The Board of Directors may from time to time make, amend, supplement or
repeal the bylaws; provided, however, that the stockholders may change or repeal
any bylaw adopted by
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the Board of Directors by the requisite affirmative vote of stockholders as set
forth in the bylaws; and, provided further, that no amendment or supplement to
the bylaws adopted by the Board of Directors shall vary or conflict with any
amendment or supplement thus adopted by the stockholders.
ARTICLE XIII
No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XIV
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
bylaws of the corporation.
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IN WITNESS WHEREOF, the Amended and Restated Certificate of
Incorporation has been signed under the seal of the corporation as of this 17th
day of May, 1995.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ DAVID E. ROBINSON
---------------------------------------
David E. Robinson, President
ATTEST:
/s/ WILLIAM L. RESPESS
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William L. Respess, Secretary
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EXHIBIT 3.2
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF LIGAND PHARMACEUTICALS INCORPORATED
The undersigned, David E. Robinson and William L. Respess, do hereby
certify:
1. That they are the duly elected and acting President and Secretary,
respectively, of Ligand Pharmaceuticals Incorporated, a Delaware corporation
(the "Corporation").
2. That pursuant to the authority conferred upon the Board of Directors
by the Amended and Restated Certificate of Incorporation of the said
Corporation, the said Board of Directors adopted the following resolution
creating a series of 80,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Amended and Restated Certificate of
Incorporation, the Board of Directors does hereby provide for the issue
of a series of Preferred Stock, par value $.001 per share, of the
Corporation, to be designated "Series A Participating Preferred Stock,"
initially consisting of 80,000 shares and to the extent that the
designations, powers, preferences and relative and other special rights
and the qualifications, limitations and restrictions of the Series A
Participating Preferred Stock are not stated and expressed in the
Amended and Restated Certificate of Incorporation, does hereby fix and
herein state and express such designations, powers, preferences and
relative and other special rights and the qualifications, limitations
and restrictions thereof, as follows (all terms used herein which are
defined in the Amended and Restated Certificate of Incorporation shall
be deemed to have the meanings provided therein)"
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Participating Preferred Stock," par value $.001 per
share, and the number of shares constituting such series shall be 80,000.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of September, December, March and June in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to, subject to the
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<PAGE> 2
provision for adjustment hereinafter set forth, 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock. In the event the
Corporation shall at any time after September 13, 1996 (the "Rights Declaration
Date") (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Participating Preferred Stock
were entitled immediately prior to such event under the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the
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Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of votes per share
to which holders of shares of Series A Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or
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winding up) with the Series A Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received $1,000.00 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
1,000 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalization with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Participating Preferred Stock and Common Stock, respectively, holders
of Series A Participating Preferred Stock and holders of shares of Common Stock
shall receive their ratable and proportionate share of the remaining
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assets to be distributed in the ratio of the Adjustment Number to 1 with respect
to such Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Series A Participating Preferred
Stock shall not be redeemable.
SECTION 9. RANKING. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
SECTION 10. AMENDMENT. The Amended and Restated Certificate of
Incorporation
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of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Participating Preferred Stock, voting separately as a class.
SECTION 11. FRACTIONAL SHARES. Series A Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
3. That the authorized number of shares of Preferred Stock of the
Corporation is 5,000,000 and that no such Preferred Stock has been issued.
[The remainder of this page is intentionally left blank.]
6
<PAGE> 7
We further declare under penalty of perjury that the matters set forth
in the foregoing Certificate of Designation are true and correct of our own
knowledge.
Executed at San Diego, California on September 30, 1996.
/s/ DAVID E. ROBINSON
----------------------------------------------
David E. Robinson, Chairman, President and CEO
/s/ WILLIAM L. RESPESS
----------------------------------------------
William L. Respess, Secretary
7
<PAGE> 1
EXHIBIT 3.3
AMENDMENT OF BYLAWS OF
LIGAND PHARMACEUTICALS INCORPORATED
December 11, 1997
Article III, Section 7 of the Bylaws of the Corporation is amended in
its entirety to provide as follows:
"Section 7. Notice of Special Meetings. Special meetings of
the Board may be called by the Chief Executive Officer or President on
no less than twenty-four (24) hours notice to each Director either
personally, or by telephone, mail, telegram or facsimile; special
meetings shall be called by the Chief Executive Officer, President or
Secretary in like manner and on like notice on the written request of
two Directors unless the Board consists of only one Director, in which
case special meetings shall be called by the Chief Executive Officer,
President or Secretary in like manner and on like notice on the
written request of the sole Director. A written waiver of notice,
signed by the person entitled thereto, whether before or after the
time of the meeting stated therein, shall be deemed equivalent to
notice."
<PAGE> 2
CERTIFICATE OF AMENDMENT OF BYLAWS
OF
LIGAND PHARMACEUTICALS INCORPORATED
I, William L. Respess, hereby certify:
1. That I am the duly elected and acting Secretary of Ligand
Pharmaceuticals Incorporated, a Delaware corporation (the "Corporation"); and
2. That the attached amendment to Article III, Section 7 of the Bylaws
is a true and correct copy of the amendment to the Bylaws of the Corporation
duly adopted by the Board of Directors of the Corporation at a meeting on
December 11,1997.
IN WITNESS WHEREOF, I have executed this Certificate on December 11,
1997.
/s/ WILLIAM L. RESPESS
-----------------------------
William L. Respess, Secretary
<PAGE> 3
AMENDED AND RESTATED BYLAWS
OF
LIGAND PHARMACEUTICALS INCORPORATED
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the City
of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
election of Directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
<PAGE> 4
Section 2. Annual Meeting.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date specified in the corporation's
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy
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statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such
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business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2. Timely notice shall also be
given of any stockholder's intention to cumulate votes in the election of
Directors at a meeting if cumulative voting is available. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a Director: (A) the name,
age, business address and residence address of such person, (B) the principal,
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nominations are to be made by the stockholder, and (E) any other
information relating to such
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person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 2
and, if cumulative voting is available to such stockholder, whether such
stockholder intends to request cumulative voting in the election of Directors at
the meeting. At the request of the Board of Directors, any person nominated by a
stockholder for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such
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meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting.
Section 4. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning at least
ten percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed
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meeting. The place, date and time of any special meeting shall be determined by
the Board of Directors. Such determination shall include the record date for
determining the stockholders having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Action at Special Meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at
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the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 9. Voting Rights.
(a) Unless otherwise provided in the Certificate of
Incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
(b) At all elections of Directors of the corporation each
stockholder having voting power shall be entitled to exercise the right of
cumulative voting as provided in the Certificate of Incorporation.
(c) On and after the date upon which this corporation is no
longer subject to Section 2115 of the
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California Corporations Code (the "Record Date"), cumulative voting shall no
longer be available to the stockholders and Section 9(b) shall no longer be
applicable.
Section 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
DIRECTORS
Section 1. Number, Term of Office and Qualification. The number of
Directors which shall constitute the whole Board shall not be less than seven
nor more than eleven. Within the limits above specified, the number of Directors
shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each Director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created Directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office, though less than a quorum, or by
a sole remaining Director, and the Directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no
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Directors in office, then an election of Directors may be held in the manner
provided by statute. If, at the time of filling any vacancy or any newly created
Directorship, the Directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such Directors, summarily order an
election to be held to fill any such vacancies or newly created Directorships,
or to replace the Directors chosen by the Directors then in office.
Section 3. Powers. The business of the corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 4. Regular and Special Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Annual Meeting. The first meeting of each newly elected Board
of Directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected Directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such
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first meeting of the newly elected Board of Directors, or in the event such
meeting nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such is not held at the time and place so fixed by
the stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the Directors.
Section 6. Notice of Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 7. Notice of Special Meetings. Special meetings of the Board may
be called by the president on four (4) days' notice to each Director by mail or
48 hours' notice to each Director either personally or by telegram; special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of two Directors unless the Board consists of
only one Director, in which case special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of the sole Director.
Section 8. Quorum. At all meetings of the Board a majority of the
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting
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from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
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In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
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Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
Section 12. Fees and Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Director. No such payment shall preclude any
Director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 13. Removal. Subject to any limitations imposed by law or the
Certificate of Incorporation, the Board of Directors, or any individual
Director, may be removed from office at any time, with or without cause, by the
affirmative vote of the holders of at least a majority of shares entitled to
vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any Director or stockholder, it shall not be construed to mean personal
notice,
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but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to Directors may also be given by telegram.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the Board of Directors and shall be a president and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose a treasurer and/or
one or more vice presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
The salaries of all officers and agents of the corporation shall be
fixed by the Board of Directors.
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Section 2. Election or Appointment. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a president and a
secretary and may choose a vice president and a treasurer.
The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. He shall have and may exercise such powers as are,
from time to time, assigned to him by the Board and as may be provided by law.
Section 5. Vice Chairman of the Board. In the absence of the Chairman of
the Board, the Vice Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be present.
He shall have and may exercise such powers as are, from time to time, assigned
to him by the Board and as may be provided by law.
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Section 6. President. The president shall be the chief executive officer
of the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
He shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 7. Vice President. In the absence of the president or in the
event of his inability or refusal to act, the vice president, if any, (or in the
event there be more than one vice president, the vice presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 8. Secretary. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be
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kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 9. Assistant Secretary. The assistant secretary, or, if there be
more than one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 10. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the
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corporation in such depositories as may be designated by the Board of
Directors.
He shall disburse the funds of the corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the president and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation.
If required by the Board of Directors, he shall give the corporation a
bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 11. Assistant Treasurer. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
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ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice chairman of the Board of Directors,
or the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the
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corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Execution of Certificates. Any of or all the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made
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against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 6. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
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for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its Directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its Directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any Director or
executive officer in connection with any proceeding or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
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Section 2. Indemnification of Other Officers, Employees and Other
Agents. The corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation Law.
Section 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the
corporation whom the Director or executive officer believed
to be reliable and competent in the matters presented,
(2) counsel, independent accountants or other
persons as to matters which the Director or executive officer
believed to be within such person's professional competence;
and
(3) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to matters
within such Committee's designated authority, which
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committee the Director believes to merit confidence; so long
as, in each case, the Director or executive officer acts
without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 4 of this Bylaw, no advance shall
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be made by the corporation if a determination is reasonably and promptly made
(i) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
Section 5. Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
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conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 6. Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
Section 7. Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased
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to be a Director, officer, employee or other agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 8. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 9. Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
Section 10. Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
Section 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
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(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its Directors, officers, and employees or agents, so that any person
who is or was a Director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(d) References to a "Director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a Director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(e) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any
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excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a Director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such Director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Bylaw.
Section 12. Indemnification under California Law. Prior to the Record
Date, the corporation shall indemnify its officers, Directors, employees and
agents to the full extent permitted by the California General Corporation Law.
ARTICLE VIII
Section 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the Corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge
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of shares of stock of the corporation. Nothing in this bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the Directors shall think conducive to the interest
of the corporation, and the Directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
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Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 6. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities registered under Section 12 of the 1934 Act, that Act shall
take precedence. Such report shall be sent
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to stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of Article VII
of these Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by
the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, to adopt, amend or repeal
Bylaws.
(b) Notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation or
any Preferred Stock Designation (as the term is defined in the Certificate of
Incorporation), the affirmative vote of the
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holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal this paragraph
(b) or Section 2 or Section 10 of Article II or Section 1 of Article III of
these Bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of Ligand Pharmaceuticals
Incorporated, a Delaware corporation, does hereby certify the foregoing to be
the Bylaws of said Corporation, as adopted by the incorporator and Directors of
the Corporation and which remain in full force and effect as of the date hereof.
Executed at San Diego, California effective as of November 25, 1992.
/s/ WILLIAM L. RESPESS
---------------------------------
William L. Respess, Secretary
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<PAGE> 1
Exhibit 5.1
[BROBECK, PHLEGER & HARRISON LETTERHEAD]
July 9, 1998
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Re: Ligand Pharmaceuticals Incorporated Registration Statement
on Form S-4 for Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Ligand Pharmaceuticals Incorporated,
a Delaware corporation (the "Company"), in connection with the proposed issuance
by the Company of shares of the Company's Common Stock (the "Shares") pursuant
to the Company's Registration Statement on Form S-4 (the "Registration
Statement") filed on July 9, 1998 with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 21(a) of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
Ligand Pharmaceuticals Incorporated July 9, 1998
Page 2
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
OPTION AND ASSET PURCHASE AGREEMENT
by and among
LIGAND PHARMACEUTICALS INCORPORATED,
MARATHON BIOPHARMACEUTICALS, LLC,
520 COMMONWEALTH AVENUE REAL ESTATE CORP.,
and
660 CORPORATION
dated as of May 11, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS.........................................................................2
1.1 Defined Terms.....................................................................2
1.2 Construction of Certain Terms and Phrases.........................................5
ARTICLE 2 OPTION TO PURCHASE ASSETS PRIOR TO CLOSING DATE.....................................6
2.1 Grant of Option...................................................................6
2.2 Exercise of Option, Due Diligence and Closing.....................................6
ARTICLE 3 PURCHASE AND SALE OF ASSETS.........................................................6
3.1 Purchase and Sale of the Company Assets...........................................6
3.2 Excluded Assets...................................................................7
3.3 Assumed Liabilities...............................................................8
3.4 Option Consideration and Purchase Price...........................................8
3.5 Allocation of Aggregate Purchase Price............................................8
3.6 Sales, Use and Other Taxes........................................................9
3.7 Title.............................................................................9
3.8 Closing by Buyer..................................................................9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLERS..........................................11
4.1 Representations and Warranties of Sellers as of the Date of this
Agreement and as of the Effective Time.........................................11
4.2 Representations and Warranties of Sellers as of the Closing......................19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER............................................22
5.1 Organization of Buyer............................................................22
5.2 Authority of Buyer...............................................................23
5.3 Capital Structure................................................................23
5.4 SEC Documents; Parent Financial Statements.......................................23
5.5 Litigation.......................................................................24
ARTICLE 6 COVENANTS OF THE PARTIES...........................................................24
6.1 Covenants of the Company (and the Members) from the Date of this
Agreement to the Closing Date................. ...............................24
6.2 Covenants of the Company (and the Members) from the Merger Closing
to the Closing Date............................................................25
6.3 Additional Covenants of the Parties..............................................26
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF SELLERS...........................................29
7.1 Representations, Warranties and Covenants........................................29
7.2 No Actions or Proceedings........................................................29
7.3 Consents.........................................................................29
7.4 Closing Deliveries...............................................................29
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF BUYER.............................................29
8.1 Representations, Warranties and Covenants........................................29
8.2 No Actions or Proceedings........................................................30
8.3 Consents.........................................................................30
8.4 Closing Deliveries...............................................................30
ARTICLE 9 ACTIONS BY THE PARTIES AFTER THE CLOSING...........................................30
9.1 Survival of Representations, Warranties, Etc.....................................30
9.2 Indemnification..................................................................30
ARTICLE 10 MISCELLANEOUS.....................................................................33
10.1 Termination......................................................................33
10.2 Notices..........................................................................34
10.3 Entire Agreement.................................................................35
10.4 Waiver...........................................................................35
10.5 Amendment........................................................................36
10.6 No Third Party Beneficiary.......................................................36
10.7 Assignment; Binding Effect.......................................................36
10.8 Headings.........................................................................36
10.9 Severability.....................................................................36
10.10 Governing Law....................................................................36
10.11 Consent to Jurisdiction and Forum Selection......................................36
10.12 Confidentiality..................................................................37
10.13 Expense..........................................................................37
10.14 Counterparts.....................................................................37
</TABLE>
ii
<PAGE> 4
EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Certificate of Officer of Buyer
Exhibit B Bill of Sale
Exhibit C General Assignment
Exhibit D Intellectual Property Assignment
Exhibit E Certificate of Officer of the Company
Exhibit F Certificate of each of the Members
Exhibit G Certificate of the Secretary of the Company
SCHEDULES
Schedule 3.1 (i) Equipment, etc...
Schedule 3.1(ii) Customer Lists and Accounts
Schedule 3.1(iii) Assumed Contracts
Schedule 3.1(iv) Permits
Schedule 3.1(vii) Accounts Receivable
Schedule 3.3 Assumed Liabilities
Schedule 3.5 Purchase Price Allocation
Schedule 6.13 Selected Employees
Disclosure Schedules
i
<PAGE> 5
OPTION AND ASSET PURCHASE AGREEMENT
This Option and Asset Purchase Agreement (this "AGREEMENT") is made and
entered into as of May 11, 1998, by and among LIGAND PHARMACEUTICALS
INCORPORATED, a Delaware corporation ("Buyer"), MARATHON BIOPHARMACEUTICALS,
LLC, a Massachusetts limited liability company (the "Company"), 520 COMMONWEALTH
AVENUE REAL ESTATE CORP., a Massachusetts corporation ("520 Commonwealth"), and
660 CORPORATION, a Massachusetts corporation ("660 Corporation," and together
with 520 Commonwealth and the Company, "Sellers").
RECITALS
WHEREAS, the Company is in the business of biotechnical research,
development and manufacture of pharmaceutical and healthcare related products
(the "Business");
WHEREAS, 660 Corporation and 520 Commonwealth are the sole members of
the Company (collectively, the "Members");
WHEREAS, the Company conducts the Business in leased premises located in
Hopkinton, Massachusetts (the "Facility");
WHEREAS, the Company is a party to that certain Service Agreement, dated
as of February 14, 1997 (the "Service Agreement"), by and between Seragen, Inc.,
a Delaware corporation ("Seragen"), and BU, of which the Company is an assignee,
whereby the Company provides certain services at the Facility to Seragen as
described in the Service Agreement;
WHEREAS, concurrently with the execution of this Agreement, Buyer,
Seragen and Knight Acquisition Corporation, a Delaware corporation ("Knight"),
are entering into an Agreement and Plan of Reorganization (the "Merger
Agreement") and other transactions contemplated therein, whereby, among other
things, Seragen will become a wholly owned subsidiary of Buyer;
WHEREAS, concurrently with the execution of this Agreement, Buyer,
Seragen, the Company and the Members are entering into an Extension Option
Agreement (the "Option Agreement") whereby the Company and the Members will
grant to Buyer and Seragen an option to extend the closing under this Agreement,
subject to certain terms and conditions;
WHEREAS, Buyer desires to purchase, and Sellers desire to sell,
substantially all the assets of the Company used in the Business; and
WHEREAS, as a condition to Buyer's execution of the Merger Agreement and
consummation of the transaction contemplated therein, Sellers have agreed to
sell to Buyer substantially all of the assets of the Business pursuant to the
terms and conditions of this Agreement.
1.
<PAGE> 6
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following defined terms
have the meanings indicated below:
"ACTIONS OR PROCEEDINGS" means any action, suit,
proceeding, arbitration, Order, inquiry, hearing, assessment with respect to
fines or penalties or litigation (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental or Regulatory Authority.
"ADVERSE CONSEQUENCE" means all Actions or Proceedings,
hearings, investigations, charges, complaints, claims, demands, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlements,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses that would have an
Adverse Affect on the Company.
"ADVERSE EFFECT" means, for any Person, a material
adverse effect whether individually or in the aggregate (i) on the business,
operations, financial condition, Assets and Properties, Liabilities or prospects
of such Person, or (ii) on the ability of such Person to consummate the
transactions contemplated hereby.
"AFFILIATE" means, with respect to any Person (as
defined below), another Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with such
Person.
"ASSETS AND PROPERTIES" and "ASSETS OR PROPERTIES"
of any Person each means all assets and properties of every kind, nature,
character and description (whether real, personal or mixed, whether tangible or
intangible, whether absolute, accrued, contingent, fixed or otherwise and
wherever situated), including the goodwill related thereto, operated, owned or
leased by such Person, including, without limitation, cash, cash equivalents,
accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual Property.
"BENEFIT PLAN" means any Plan (as defined below)
established, arranged or maintained by the Company or any group of which the
Company is or was a member, existing at the Closing Date or prior thereto, to
which the Company contributes or has contributed, or under which any employee,
manager, officer, director or former employee, officer or director of the
Company or any beneficiary thereof is covered, is eligible for coverage or has
benefit rights.
2.
<PAGE> 7
"BOOKS AND RECORDS" of any Person means all files,
documents, instruments, papers, books and records relating to the business,
operations or condition of such Person.
"BUSINESS DAY" means a day other than Saturday,
Sunday or any day on which banks located in the State of California or the
Commonwealth of Massachusetts are authorized or obligated to close.
"CLOSING" has the meaning described in Section 3.8 of
this Agreement.
"CLOSING DATE" means the date described in Section 3.8
of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as
amended.
"COMPANY INTELLECTUAL PROPERTY" shall mean any
Intellectual Property (as hereinafter defined) that is owned by, or licensed to,
the Company.
"DEFINED BENEFIT PLAN" means each Benefit Plan which is
subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of
ERISA.
"DISCLOSURE SCHEDULE" means the disclosure schedule
attached hereto which sets forth the exceptions to the representations and
warranties contained in Article 3 hereof and certain other information called
for by this Agreement.
"ENCUMBRANCE" means any mortgage, pledge, assessment,
security interest, deed of trust, lease, lien, adverse claim, levy, charge or
other encumbrance of any kind, or any conditional sale or title retention
agreement or other agreement to give any of the foregoing in the future.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any entity which is a member
of a "controlled group of corporations" or which is or was under "common
control" with the Company as defined in Section 414 of the Code.
"FINANCIAL STATEMENTS" means the unaudited balance
sheet of the Company as of March 31, 1998, and the related unaudited statement
of income and retained earnings for the Company for the three-month period ended
March 31, 1998.
"GAAP" means generally accepted accounting principles,
applied in a manner consistent with the past practices of the Company.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States or other country, any state, county, city
or other political subdivision.
"INTELLECTUAL PROPERTY" means any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States, international and foreign patents and
3.
<PAGE> 8
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof; (ii) all
inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing; (iii)
all copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) all industrial
designs and any registrations and applications therefor throughout the world;
(v) all trade names, logos, common law trademarks and service marks, trademark
and service mark registrations and applications therefor throughout the world;
(vi) all databases and data collections and all rights therein throughout the
world; and (vii) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"KNOWLEDGE OF SELLERS" or "KNOWN TO SELLERS" means (i)
the knowledge of Ms. Elizabeth Chen, after due inquiry and comprehensive
investigation, and (ii) the actual knowledge of each of the Members or any other
executive officer or manager of the Company.
"LIABILITIES" means any liability (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 but not limited to any liability for Taxes.
"ORDER" means any writ, judgment, decree, injunction
or similar order of any Governmental or Regulatory Authority (in each such case
whether preliminary or final).
"ORDINARY COURSE OF BUSINESS" means such action that
is consistent with the past practices of the Company and is taken in the
ordinary course of the normal day-to-day operations of the Company.
"PERMITS" means all licenses, permits, certificates
of authority, authorizations, approvals, registrations and similar consents
granted or issued by any Governmental or Regulatory Authority.
"PERMITTED ENCUMBRANCE" means (i) any Encumbrance
for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established and
(ii) any minor imperfection of title or similar Encumbrance which individually
or in the aggregate with other such Encumbrances does not impair the value of
the property subject to such Encumbrance or the use of such property in the
conduct of the Business.
"PERSON" means any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock
option, stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement
4.
<PAGE> 9
of any kind, whether written or oral, including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"QUALIFIED PLAN" means each Benefit Plan which is
intended to qualify under Section 401 of the Code.
"REGISTERED INTELLECTUAL PROPERTY" means all United
States, international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks, applications
to register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; and (iii) registered copyrights and
applications for copyright registration.
"RETURNS" means all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes, and the
term "Return" means any one of the foregoing Returns.
"TAX" (and, with correlative meaning, "Taxes," "Taxable"
and "Taxing") means (A) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental, regulatory or administrative
entity or agency responsible for the imposition of any such tax (domestic or
foreign), (B) any Liability for the payment of any amounts of the type described
in (A) as a result of being a member of an affiliated, consolidated, combined,
unitary or other group for any Taxable period and (C) any Liability for the
payment of any amounts of the type described in (A) or (B) as a result of any
express or implied obligation to indemnify any other person. Notwithstanding the
foregoing, solely for purposes of Section 4.25 below, Tax (and the correlative
meanings, "Taxes," "Taxable" and "Taxing") shall not include any amount to the
extent that (A) an Encumbrance cannot be placed upon any of the Purchased Assets
with respect to such amount and the Purchased Assets cannot otherwise be used to
satisfy such amount without the consent of Buyer and (ii) neither Buyer nor any
of its affiliates can be made directly or indirectly liable with respect to such
amount.
1.2 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context of
this Agreement otherwise requires, (a) words of any gender include each other
gender; (b) words using the singular or plural number also include the plural or
singular number, respectively; (c) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (d) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; (e) the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or"; and (f) the term
"including" means "including without limitation." Whenever this Agreement refers
to a number of days, such number shall refer to calendar days unless Business
Days are specified. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them under GAAP.
5.
<PAGE> 10
ARTICLE 2
OPTION TO PURCHASE ASSETS PRIOR TO CLOSING DATE
2.1 GRANT OF OPTION. The Company and each Member hereby grant Buyer an
irrevocable option to purchase, as a going concern, all of the right, title and
interest in and to the Purchased Assets (as defined below), at a date prior to
the Closing Date (as defined in Section 3.8 below) which such date shall be
determined in Buyer's sole discretion, upon the terms and conditions set forth
in this Agreement (the "Option"). The term of the Option shall commence on the
date of the closing under the Merger Agreement (the "Merger Closing") shall
expire on the earlier of: (i) December 24, 1998 or (ii) the early termination of
this Agreement pursuant to Section 10.1 below (the "Option Term").
2.2 EXERCISE OF OPTION, DUE DILIGENCE AND CLOSING.
(a) The Option may be exercised by Buyer (or its permitted
assignee), in its sole discretion, by delivering written notice (the "Option
Notice") to the Company at any time prior to the expiration of the Option Term.
Such Option Notice shall specify the proposed time and date of the Closing (as
defined in Section 3.8 below) under this Agreement (which shall be not less than
thirty (30) nor more than forty (40) days from the date of delivery of the
Option Notice and which may be after the expiration of the Option Term (the
"Option Closing Date)). The Closing occurring on the Option Closing Date shall
be conducted as set forth in Section 3.8 of this Agreement.
(b) In the event the Closing occurring on the Option Closing
Date does not occur, for any reason within forty (40) days from the date of
Buyer's delivery of an Option Notice to the Company, this Agreement shall
continue in full force and effect until the earlier of: (i) January 31, 1999
(subject to extension pursuant to the Option Agreement) or such other date
mutually agreed to; (ii) a successful Closing pursuant to Buyer's delivery of an
Option Notice to the Company; or (iii) the early termination of this Agreement
pursuant to Section 10.1 below.
ARTICLE 3
PURCHASE AND SALE OF ASSETS
3.1 PURCHASE AND SALE OF THE COMPANY ASSETS. Subject to the terms and
conditions of this Agreement, at the Closing, the Company and the Members agree
to grant, sell, convey, assign, transfer and deliver to Buyer, and Buyer agrees
to purchase and acquire from the Company and the Members, free and clear of any
Encumbrance or adverse claim of any kind whatsoever other than any Permitted
Encumbrance, all of the Company's right, title, and interest in and to all
assets, properties, rights, leases, fixtures, accessions, claims, contracts and
interests of the Company of every kind, type or description, real, personal and
mixed, tangible and intangible, wherever located and whether or not specifically
referred to in this Agreement, that are used in or pertain to the Business and
operations of the Company (the "Purchased Assets"), including without
limitation:
6.
<PAGE> 11
(a) The equipment, leasehold improvements, furniture and
fixtures, vehicles and other operating assets owned or leased by the Company and
used in the Business as set forth in Schedule 3.1(a) attached hereto;
(b) all customer lists and customer accounts owned by the
Company as set forth in Schedule 3.1(b) attached hereto (the "Customer Lists
and Accounts");
(c) all of the Company's right, title and interest in and to
the contracts and agreements set forth in Schedule 3.1(c) attached hereto (the
"Assumed Contracts");
(d) all Permits issued to or held by the Company necessary or
incidental to the conduct of the Business set forth in Schedule 3.1(d) attached
hereto (the "Permits");
(e) all the operating data, books, fles, documents and records
of the Company relating to the Business (the "Company Records");
(f) all prepaid expenses, deposits (other than lease security
deposits, if any) and deferred items in effect as of the Closing Date and from
which Buyer may derive future benefit;
(g) all of the Company's rights to the name "Marathon
Biopharmaceuticals", all variations thereof and all trademarks, trade names,
service marks and goodwill associated therewith (collectively, the
"Trademarks"); and
(h) the goodwill and going concern value of the Business.
The Purchased Assets shall include, without limitation, all of 520
Commonwealth's leasehold interest in the Facility and 520 Commonwealth hereby
agrees to assign to Buyer all of its right title and interest in such leasehold
interest.
3.2 EXCLUDED ASSETS.
Notwithstanding Section 3.1 hereof, the Purchased Assets
do not include:
(a) all accounts, accounts receivable, notes and notes
receivable of the Business (collectively the "Account Receivables") as of the
Closing Date, including without limitation (i) those Accounts Receivables which
are not evidenced by instruments or invoices, whether or not they have been
earned by performance or have been written off or reserved against as a bad debt
or doubtful account, together with all instruments and (ii) all documents of
title representing any of the foregoing and all right, title, security and
guaranties in favor of the Company with respect to any of the foregoing;
(b) all cash and cash equivalents of the Company as of the
Closing Date; and
(c) any minute books, partnership records and other records of
the Company which are not Company Records; provided, however, the Company shall
provide Buyer with access to the Books and Records of the Company upon request
as necessary to conduct the Business after the Closing Date.
7.
<PAGE> 12
3.3 ASSUMED LIABILITIES. As of the Closing Date, Buyer agrees to assume,
satisfy or perform when due only those liabilities and obligations of the
Company listed in Schedule 3.3 attached hereto (the "Assumed Liabilities").
Other than the Assumed Liabilities, Buyer shall not assume, or be deemed to have
assumed or guaranteed, or otherwise be responsible for any liability, obligation
or claims of any nature of the Company, whether matured or unmatured, liquidated
or unliquidated, fixed or contingent, known or unknown, or whether arising out
of acts or occurrences prior to, at or after the date hereof. Sellers shall
remain liable for the payment of Liabilities and obligations to personnel of the
Company up to an amount of $250,000 with respect to the notice and continuation
coverage requirement of Section 4980B(e) of the Code and regulations thereunder,
payroll, overtime, accrued vacation time, holiday time, severance arrangements
or worker's compensation of any nature which are accrued but unpaid as of the
Closing Date or which accrued as a result of the consummation of the
transactions contemplated herein, except for employees who are Selected
Employees (as defined below).
3.4 OPTION CONSIDERATION AND PURCHASE PRICE. As consideration for the
grant of the Option, Buyer agrees to pay or cause to be paid to the Company an
aggregate of Three Million Dollars ($3,000,000) (the "Option Consideration"), in
cash or voting common stock, par value $.001 per share, of Buyer ("Buyer Common
Stock"), such form of consideration to be at Buyer's sole option, when the
Milestone Consideration is paid pursuant to the Merger Agreement.
(b) As consideration for the Purchased Assets, Buyer agrees to
(i) assume the Assumed Liabilities and (ii) pay, or cause to be paid, to the
Company an aggregate purchase price of Five Million Dollars ($5,000,000) (the
"Purchase Price"), in cash or Buyer Common Stock, such form of consideration to
be at Buyer's sole option, at the Closing.
(c) For purposes of determining the value of the shares of
Buyer Common Stock, if any, distributed pursuant to this Section 3.4, Buyer
Common Stock, shall be valued as follows:
(i) The value of Buyer Common Stock issued as part of the
Option Consideration shall be valued at the average of the closing prices of
Buyer Common Stock on the Nasdaq National Market for the ten (10) consecutive
trading days immediately preceding the date of issuance of such Buyer Common
Stock.
(ii) The value of Buyer Common Stock issued as part of the
Purchase Price shall be valued at the average of the closing prices of Buyer
Common Stock on the Nasdaq National Market for the five (5) consecutive trading
days immediately preceding the date of issuance of such Buyer Common Stock.
3.5 ALLOCATION OF AGGREGATE PURCHASE PRICE. The Purchase Price shall
be allocated among the Purchased Assets as mutually agreed upon by Buyer and
Sellers prior to the Closing. Buyer and Sellers agree (i) to report the sale of
the Purchased Assets for federal and state Tax purposes in accordance with the
mutually agreed-upon allocations and (ii) not to take any position inconsistent
with such allocations on any of their respective tax returns.
3.6 SALES, USE AND OTHER TAXES. Sellers shall be responsible for all
sales and use taxes, if any, arising out of the sale of the Purchased Assets to
Buyer pursuant to this Agreement.
8.
<PAGE> 13
3.7 TITLE. Title to the Purchased Assets shall pass to Buyer at
the Closing and the Purchased Assets shall be at the risk of the Company
prior to the Closing.
3.8 CLOSING BY BUYER.
(a) Time and Place. The closing of the transactions contemplated
by this Agreement and the related agreements referred to herein (the "Closing")
shall occur on the earlier of (i) the Option Closing Date if Buyer exercises the
Option pursuant to Article II of this Agreement or (ii) January 31, 1999 (or
such later date determined pursuant to the Option Agreement) at 10:00 a.m., at
the offices of Mintz Levin Cohn Ferris Glovsky and Popeo PC ("Mintz Levin"), One
Financial Center, Boston, Massachusetts 02111, at 10:00 a.m., or such other time
and place as the parties may mutually agree (collectively with the Option
Closing Date, the "Closing Date").
(b) Closing Deliveries. At the Closing, Buyer shall have
delivered or caused to be delivered:
(i) the Purchase Price to the Company by wire transfer in
immediately available funds to the account designated by the Company or, if in
the form of Buyer Common Stock, by transfer of such stock certificates to be
delivered to Seller by Buyer's transfer agent pursuant to the written
instructions of Buyer;
(ii) a certificate of an officer of Buyer substantially in
the form of Exhibit A attached hereto to evidence compliance with Sections 7.1,
7.2 and 7.3 hereof;
(iii) a certified copy of the resolutions of the Board of
Directors of Buyer approving the transactions contemplated herein;
(iv) the Employment Agreements (including a form of release
reasonably acceptable to the Company and the Buyer), executed by Buyer (or its
designee), as of the Closing Date;
(v) an opinion from Brobeck, Phleger & Harrison LLP, Buyer's
counsel, in form reasonably acceptable to Sellers and Sellers' counsel; and
(vi) such other documents as Sellers may reasonably request
for the purpose of facilitating the consummation of the transactions
contemplated herein.
(c) Closing Deliveries by Sellers. At the Closing, Sellers shall
have delivered or caused to be delivered to Buyer:
(i) possession of all of the Purchased Assets, together
will all files, Books and Records relating to the Purchased Assets;
(ii) an original Bill of Sale substantially in the form of
Exhibit B attached hereto, conveying good and marketable title in all of the
Purchased Assets duly executed by the Company;
9.
<PAGE> 14
(iii) an original Assumption and Assignment Agreement
substantially in the form of Exhibit C attached hereto (the "General
Assignment") of all of the Purchased Assets, duly executed by the Company;
(iv) if there is Intellectual Property of the Company, an
original Intellectual Property Assignment of all Intellectual Property of the
Company, including without limitation that set forth in the Disclosure Schedule
of Sellers (the "Intellectual Property Assignment"), substantially in the form
of Exhibit D attached hereto, duly executed by the Company;
(v) a certificate of the Manager of the Company substantially
in the form of Exhibit E attached hereto to evidence compliance with Sections
8.1 and 8.2 hereof;
(vi) a certificate of each of the Members, respectively,
substantially in the form of Exhibit F attached hereto to evidence compliance
with Sections 8.1 and 8.2 hereof;
(vii) a certificate of the Manager of the Company substantially
in the form of Exhibit G attached hereto;
(viii) the Employment Agreements (including a form of release
acceptable to Buyer), executed by each employee designated by Buyer, as of the
Closing Date;
(ix) all clearance certificates or similar documents which may be
required by a Taxing authority in order to relieve Buyer of any obligation to
withhold any portion of the Purchase Price to satisfy or be applied to any Tax
obligation of Sellers;
(x) an opinion from Dionne & Gass, Sellers' counsel, in form
reasonably acceptable to Buyer and Buyer's counsel; and
(xi) such other documents as Buyer may reasonably request for
the purpose of facilitating the consummation of the transactions contemplated
herein, including without limitation, the Due Diligence Information.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLERS AS OF THE DATE OF THIS
AGREEMENT AND AS OF THE EFFECTIVE TIME.
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, each of the Sellers jointly and
severally represents and warrants to the Buyer as of the date of this Agreement
and as of the Closing Date under the Merger Agreement, except as set forth in
the Disclosure Schedule furnished to Buyer, specifically identifying the
relevant subsection of this Section 4.1, as follows:
(a) Organization; Qualification and Ownership. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the
10.
<PAGE> 15
Commonwealth of Massachusetts. The Company currently conducts its business
exclusively within the Commonwealth of Massachusetts. The Company has the
corporate power and authority to own and hold its Assets and Properties and to
carry on the Business as currently conducted. Kenneth G. Condon is the Manager
of the Company. The Company has the following named officers, each duly elected
and qualified by the Manager of the Company as of the date hereof: Elizabeth
Chen, President, Ted Owens, Vice President, John Laughlin, Vice President, and
Kenneth G. Condon, Treasurer. The Company has delivered to Buyer correct and
complete copies of the Company's Certificate of Organization and Operating
Agreement, each as amended to date. The Members of the Company are 520
Commonwealth Avenue Real Estate Corp., a Massachusetts corporation, and 660
Corporation, a Massachusetts corporation (collectively, the "Members").
(b) Limited Liability Company Power and Authority. The Company
has the limited liability company power and authority to execute, deliver and
perform this Agreement and the other documents and instruments contemplated
hereby. The execution, delivery and performance of this Agreement and the other
agreements, documents and instruments contemplated hereby and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
and approved by the Company's Manager and the Company's Members. This Agreement,
and each of the other agreements, documents and instruments to be executed and
delivered by the Sellers have been duly executed and delivered by, and
constitute the valid and binding obligation of the Sellers, enforceable against
the Sellers in accordance with their terms, subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium and other similar laws now
or hereafter in effect, as well as limitations imposed by general principles of
equity upon the specific enforceability of any of the remedies, covenants or
other provisions and the availability of injunctive relief or other equitable
remedies.
(c) Validity, Etc. Neither the execution and delivery of this
Agreement and the other agreements, documents and instruments contemplated
hereby, the consummation of the transactions contemplated hereby or thereby, nor
the performance of this Agreement and such other agreements, documents and
instruments in compliance with the terms and conditions hereof and thereof will,
except as set forth in Section 4.1(c) of the Disclosure Schedule, (i) conflict
with or result in any breach of any trust agreement, certificate of organization
or operating agreement of any of the Company, (ii) except for approval of the
transactions contemplated hereby by the Office of the Attorney General of the
Commonwealth of Massachusetts, Public Charities Division, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental or Regulatory Authority or any third party, (iii) result in a
breach of or default (or give rise to any right of termination, cancellation or
acceleration) under any law, rule or regulation or any judgment, decree, order,
governmental permit (other than permits set forth in a Schedule hereto which are
not transferable), license or order or any of the terms, conditions or
provisions of any mortgage, indenture or note or any material license, agreement
or other instrument or obligation to which the Company is a party or by which
the Company or its Assets and Properties (including the Purchased Assets) are
bound, or (iv) result in the creation of any Encumbrance upon the Purchased
Assets.
(d) Capital Structure. The Members own, beneficially and of
record, one hundred percent (100%) of the ownership interests of the Company
(the "Membership Interests") in the following percentages: 520 Commonwealth-99%;
660 Corporation-1%. All of the
11.
<PAGE> 16
Membership Interests are duly authorized, validly issued, fully paid and
nonassessable. There are no options, warrants, conversion rights, rights of
exchange or other rights, plans, agreements or commitments of any nature
whatsoever (including, without limitation, conversion or preemptive rights)
providing for the purchase, issuance or sale of any Membership Interests or any
securities convertible into or exchangeable for any Membership Interests. The
Members own the Memberships Interests free and clear of all Encumbrances, and
have, and on the Closing Date will have, good and valid title to such.
(e) Authority of the Members. Each Member has all necessary power
and authority and has taken all action necessary to enter into this Agreement,
to consummate the transactions contemplated hereby and to perform its
obligations hereunder and no other proceedings on the part of such Member is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. Each Member is a corporation duly authorized to conduct
business and is in good standing under the laws of the Commonwealth of
Massachusetts. This Agreement has been duly and validly executed and delivered
by each Member and constitutes a legal, valid and binding obligation of each
Member, enforceable against each Member in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws now or hereafter in effect, as well as limitations
imposed by general principles of equity upon the specific enforceability of any
of the remedies, covenants or other provisions and the availability of
injunctive relief or other equitable remedies.
(f) No Affiliates. Other than its Members and Trustees of
Boston University, the Company does not have any Affiliates; the Company is not
a partner in any partnership or a party to a joint venture.
(g) Consents and Approvals. Except for the approval of the
office of the Attorney General of the Commonwealth of Massachusetts, Public
Charities Division, and as set forth in Section 4.1(c) or Section 4.1(g) of the
Disclosure Schedule, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental or Regulatory
Authority or third party is required by or with respect to the Sellers in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(h) Financial Statements; Absence of Undisclosed Liabilities.
The Company has previously delivered to Buyer the Financial Statements. The
Financial Statements fairly present the financial condition and results of
operations of the Company as of the dates thereof and for the periods covered
thereby; provided, however, that the Financial Statements lack footnotes and
certain other presentation items. Except as disclosed in the Financial
Statements, there are no Liabilities or claims, nor to Sellers' knowledge, any
basis for any Liabilities or claims against the Company, relating to or
affecting the Company or the Purchased Assets, other than (i) Liabilities
incurred in the Ordinary Course of Business which have not had, and could not be
expected to result, individually or in the aggregate, in an Adverse Effect on
the Purchased Assets; or (ii) Liabilities incurred under the Contracts (as set
forth in Section 4.1(q) of the Disclosure Schedule) as specifically set forth on
the face thereof.
12.
<PAGE> 17
(i) Litigation. Except as set forth in Section 4.1(i) of the
Disclosure Schedule, there are no Actions or Proceedings with
respect to which the Company has received notice pending or, to the Sellers'
knowledge, threatened against or materially affecting the Company (whether or
not the Company is a party or a prospective party), at law or in equity, or
before or by any Governmental or Regulatory Authority. There are no outstanding
Orders against, or materially affecting, the Company of which the Company has
received notice, and to the Sellers' knowledge, there are no facts or
circumstances which could reasonably be expected to result in institution of any
Actions or Proceedings against, involving or affecting the Company or the
transactions contemplated hereby. The Company is not in default with respect to
any Orders known to or served upon it from any court or of any Governmental or
Regulatory Authority.
(j) Compliance with Law; Current Legislation. The Company is
not subject to any Order that adversely affects, individually or in the
aggregate, the Purchased Assets or the Business. To Sellers' knowledge, the
Company has complied with all laws, rules, regulations and Orders applicable to
it in relation to its ownership and operation of the Purchased Assets and the
Business. The Sellers are not aware of any existing law, rule, regulation or
Order, or of any proposed law, rule, regulation or Order currently pending
before any governmental body or agency, whether Federal or state, which would
prohibit or restrict the Buyer from, or otherwise adversely affect the Buyer in,
owning and operating the Purchased Assets or the Business as presently owned and
operated by the Company. The Company has not received any written notice to the
effect that, or otherwise have been advised that it is not in compliance with
any of such laws, rules, regulations and Orders, where the failure to comply
could be expected to result in an Adverse Effect on the Company, its Business or
the Purchased Assets.
(k) Licenses and Permits. Section 4.1(k) of the Disclosure
Schedule lists all licenses, permits, pending applications, consents, approvals
and authorizations held by the Company of or from any public or governmental
agency, used or useable in or otherwise necessary to the operation of the
Business or the Purchased Assets (collectively, the "Permits"). Except as noted
in Sections 4.1(k) and 4.1(u) of the Disclosure Schedule and as set forth in
Section 4.1(u), the Permits will be duly and validly transferred to the Buyer as
of the Closing Date. The Company has complied with all conditions and
requirements imposed by the Permits and the Company has not received any notice,
and has no reason to believe, that any appropriate authority intends to cancel
or terminate any of the Permits or that valid grounds for such cancellation or
termination exist. Except as set forth in Sections 4.1(k) and 4.1(u) of the
Disclosure Schedule, to the Sellers' knowledge no other Permits are necessary to
operate the Business. The Company owns or has the right to use the Permits in
accordance with the terms thereof without any conflict or alleged conflict or
infringement with the rights of others and subject to no Claim, and each Permit
is in full force and effect. Except as noted in Sections 4.1(k) and 4.1(u) of
the Disclosure Schedule and as set forth in Section 4.1(u), no Permit will be
terminated or adversely affected by the transactions contemplated hereby.
(l) Labor and Employee Relations. The Company is not a party
to or bound by any collective bargaining agreement with any labor organization,
group or association covering any of its employees, and the Sellers have no
knowledge of any attempt to organize any of the Company's employees by any
person, unit or group seeking to act as their bargaining agent. Except as set
forth in Section 4.1(l) of the Disclosure Schedule, there are no pending or,
13.
<PAGE> 18
to the Sellers' knowledge, threatened charges (by employees, their
representatives or governmental authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by the Company.
No union representation elections relating to employees of the Company have been
scheduled by any Governmental or Regulatory Authority, no organizational effort
is being made with respect to any of such employees, and to Sellers' knowledge
there is no investigation of the Company's employment policies or practices by
any governmental agency or authority pending or threatened. The Company is not
currently, and since January 1, 1998, has not been, involved in labor
negotiations with any unit or group seeking to become the bargaining unit for
any employees of the Company's employees. The Company has not experienced any
work stoppages since January 1, 1998 and to the Sellers' knowledge, no work
stoppage has been threatened or is planned.
(m) Certain Employees. Set forth in Section 4.1(m) of the
Disclosure Schedule is a list of the names of the Company's employees and
consultants as of the date hereof involved in the management and operation of
the Business, together with the title or job classification of each such person
and the total compensation (with wages and bonuses, if any, separately detailed)
paid in 1997 (if applicable) and the current rate of pay for each such person on
the date of this Agreement. Except as set forth in Section 4.1(m) of the
Disclosure Schedule, none of such persons has an employment agreement or
understanding, whether oral or written, with the Company which is not terminable
on notice by the Company without cost or other liability to the Company.
(n) Employee Benefits. Set forth in Section 4.1(n) of the
Disclosure Schedule is a list of all pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive, vacation,
severance, disability, hospitalization, medical insurance, life insurance,
fringe benefit, welfare and other employee benefit plans, programs or
arrangements provided by the Company to which employees of the Company may be
entitled. Each "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
covering any present or former employee of the Company subject to the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") complies with all requirements for continuation coverage under group
health benefit plans under COBRA and there are no claims against the Company for
a failure or alleged failure to comply with the COBRA continuation requirements.
Each employee plan which is subject to ERISA conforms to, and its operation and
administration are in compliance with, all applicable requirements of ERISA.
There are no actions, suits or claims pending (other than routine claims for
benefits) or threatened against any employee plan or against the assets of any
employee plan. None of the Company employee plans promises or provides retiree
medical or other retiree welfare benefits to any person. The Company does not
currently maintain, sponsor, participate in or contribute to, nor has it ever
maintained, established, sponsored, participated in or contributed to, any
pension plan (within the meaning of Section 3(2) of ERISA) which is subject to
Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 4.12 of
the Code.
14.
<PAGE> 19
(o) Purchased Assets.
(i) Section 4.1(o) of the Disclosure Schedule sets forth
a true and complete list of all tangible personal property owned by the Company
with an original purchase price in excess of $25,000 and used or useable in the
Business. The tangible personal property included in the Purchased Assets will
be, at the Closing, all of the tangible personal property currently owned by the
Company and used or useable in the Business. The Company is the owner of all of
the right, title and interest in and to, and has good and marketable title, free
and clear of all Encumbrances other than Permitted Encumbrances, to the
Purchased Assets listed in Section 4.1(o) of the Disclosure Schedule, except as
specifically set forth therein. With respect to equipment leased by the Company,
all leases, conditional sale contracts, franchises or licenses pursuant to which
the Company may hold or use (or permit others to hold or use) such equipment or
property are valid and in full force and effect, and to Sellers' knowledge there
is not, under any of such instruments, any existing default or event of default
or event which with notice or lapse of time or both would constitute such a
default. The Company's possession and use of such leased property has not been
disturbed and no claim has been asserted against the Company adverse to its
rights in such leasehold interests. All Purchased Assets, equipment and property
being sold, transferred or assigned hereunder is adequate and usable for the
purposes for which it is currently used and is in good operating condition and
repair, ordinary wear and tear excepted.
(ii) Each of the Assumed Contracts is in full force and
effect and constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, of each party thereto; and the Company has performed
all of its required obligations under, and is not, in any respect, in violation
or breach of or default under, any such contract. To the Company's knowledge,
the other parties to the Assumed Contracts are not in violation or breach of or
default under any such contract.
(p) Real Property. The Company does not own or hold title to
any real property. Section 4.1(p) of the Disclosure Schedule sets forth a true
and complete list and description of each parcel of real property leased by the
Company and/or 520 Commonwealth and used by the Company in the Business (the
"Leased Premises"). Each lease covering a Leased Premises is in full force and
effect (there existing no default under any such lease which, with the lapse of
time or notice or otherwise, would entitle the lessor to terminate the same),
conveys the leased real estate purported to be conveyed thereunder and is
enforceable by the Company. The Company has the right to use the Leased Premises
in accordance with the terms of such leases free and clear of all Encumbrances,
claims or other interests or rights of third parties, except those which do not
or would not have an adverse effect on the Leased Premises as used in the
operation of the Business. The Company has not received notice of any pending or
threatened condemnation or similar proceedings or assessments affecting any of
the Leased Premises, nor to the Sellers' knowledge is any such condemnation or
assessment contemplated by any governmental authority.
(q) Outstanding Commitments. Section 4.1(q) of the Disclosure
Schedule sets forth a description of all existing material contracts,
agreements, commitments, licenses and franchises (other than those which can be
canceled upon not more than 30 days notice without penalty to the Company),
whether written or oral, relating to the ownership or operation of the
15.
<PAGE> 20
Purchased Assets or the Business (collectively "Contracts"). The Seller has
delivered or made available to the Buyer true, correct and complete copies of
all of the Contracts which are in writing, and Section 4.1(q) of the Disclosure
Schedule contains an accurate and complete description of all Contracts which
are not in writing. Except as otherwise disclosed in Section 4.1(q) of the
Disclosure Schedule, the Company has paid in full all amounts due as of the date
hereof under each Contract requiring payment. All of the Contracts described in
Schedule 4.1(q) are in full force and effect. To Sellers' knowledge, the Company
and each other party thereto have substantially performed all the obligations
required to be performed by them under such Contracts to date, performance by
the Company of any such Contract has not been waived, and the Company has
received no notice of default and is not in default (with due notice or lapse of
time or both) under any such Contract. The Company has no present expectation or
intention of not fully performing all its obligations under each Contract, and
the Sellers have no knowledge of any breach or anticipated breach by any party
other than the Company to any Contract to which the Company is a party. None of
such Contracts has been terminated, no notice has been given by any party
thereto of any alleged default by any party thereunder, and the Company is not
aware of any intention or right of any party to default another party to any
such Contract.
(r) Intellectual Property Rights. Except for the trademarks,
servicemarks or copyrights or the applications for same listed in Section 4.1(r)
of the Disclosure Schedule, the Company does not own any Registered Intellectual
Property or has not applied for the due registration of any Registered
Intellectual Property. To Sellers' knowledge, each item of Company Registered
Intellectual Property is valid and subsisting, all necessary registration,
application, maintenance and renewal fees, as applicable, in connection with
such Registered Intellectual Property have been made and all necessary documents
and certificates in connection with such Registered Intellectual Property have
been filed with the relevant patent, copyright, trademark or other authorities
in the United States for the purposes of maintaining such Registered
Intellectual Property. The Company has all Intellectual Property necessary to
run the Business as currently conducted.
(s) Proprietary Information of Third Parties. To Sellers'
knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with the Company in connection with and during the
Company's ownership and operation of the Business has (i) violated or may be
violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (ii)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party, or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might be
contemplated. To the Sellers' knowledge, no person employed by or affiliated
with the Company in connection with and during the Company's ownership and
operation of the Business has employed or proposes to employ any trade secret or
any information or documentation proprietary to any former employer and no
person employed by or affiliated with the Company in connection with and during
the Company's ownership and operation of the Business has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Sellers have no reason to believe there will be any such
employment or violation.
16.
<PAGE> 21
(t) [Reserved]
(u) Environmental Liability.
(i) Environmental Substance Liability. To the Sellers'
knowledge, no event has occurred or condition exists or operating practice is
being employed that could give rise to material liability on the part of the
Sellers under existing law for any losses, liabilities, damages (whether
consequential or otherwise), settlements, penalties, interest and expenses,
including closure expenses, costs of assessment, containment, or removal (other
than transportation and/or disposal of materials required to be transported or
disposed of in the ordinary course of business, remedial work, or monitoring)
arising under any presently enacted federal, state, or local statute, or any
regulation that has been promulgated pursuant thereto, or common law, as a
result of or in connection with, or alleged to be a result of or in connection
with, the following:
(A) the handling, storage, use, transportation or
disposal of any Substances (as hereinafter defined) in or near
or from the Leased Premises by the Company or any owner of any
property used or owned by the Company;
(B) the handling, storage, use, transportation or
disposal of any Substances by the Company which Substances were
a product, by-product or otherwise resulted from the operations
conducted by or on behalf of the Company;
(C) any intentional or unintentional emission, discharge
or release of any Substances in, from or near facilities or
plants into or upon the air, surface water, ground water or land
or any disposal, handling, manufacturing, processing,
distribution, use, treatment, or transport of such Substances
in, from or near the Leased Premises; or
(D) the presence of any toxic or hazardous building
materials (including but not limited to asbestos or similar
substances) in the Leased Premises, including but not limited to
the inclusion of such materials in the exterior and interior
walls, floors, ceilings, tile, insulation or any other portion
of building structures.
As used in this Section 4.1(u), the term "Substances" shall mean
any pollutant, hazardous substance, hazardous material, hazardous waste or toxic
waste, as defined in any presently enacted Federal, state or local statute or
any regulation that has been promulgated pursuant thereto.
(ii) Environmental Permits. To the Sellers' knowledge,
the Company has obtained and holds all registrations, permits, licenses, and
approvals issued by or on behalf of any federal, state or local government body
or agency ("Environmental Permits"), that are required in connection with the
discharge or emission of Substances from the Leased Premises or the generation,
treatment, storage, transportation or disposal of any such Substances. Such
Environmental Permits, which are described in Section 4.1(u) of the Disclosure
Schedule, are
17.
<PAGE> 22
currently effective and sufficient for the ownership and operation of the plants
and facilities as currently conducted, used or owned by the Company.
Notwithstanding any other term or provision hereof, the Sellers make no
representation or warranty that the Environmental Permits can be transferred as
of the Closing Date, but (A) to Sellers' knowledge, the Environmental Permits
may be transferred with the approval of the applicable governmental authority,
subject to the satisfaction of the applicable governmental authorities as to the
policies and procedures implemented by the Buyer with respect to the Buyer's
handling, storage and disposal of Substances in connection with the Buyer's
intended use, ownership and operation of the Business, and (B) the Sellers have
no reason to believe that the applicable governmental authorities will not be
satisfied with the Buyer's policies and procedures in connection with the
Buyer's intended use, ownership and operation of the Business and accordingly
the Sellers have no reason to believe that the applicable governmental
authorities will not in due course consent to the transfer of the Environmental
Permits to the Buyer.
(v) Taxes. Except as set forth in Section 4.1(v) of the
Disclosure Schedule, all federal, state, local and foreign tax returns and tax
reports required to be filed by the Company on or before the date hereof have
been timely filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed and all
amounts shown as owing thereon have been paid. All taxes (including, without
limitation, income, accumulated earnings, property, sales, use, franchise, value
added, fuel, employees' income withholding and social security taxes) which have
become due or payable or required to be collected by the Company or as otherwise
attributable to any periods ending on or before the date hereof and the Closing
Date and all interest and penalties thereon, whether disputed or not and whether
or not shown on any Return, have been paid or will be paid in full on or prior
to the Closing Date, except where the Company has a reasonable basis for
determining that the taxes are not then due and payable. All deposits required
by law to be made by the Company with respect to employees' withholding taxes
have been duly made, and, as of the Closing Date, all such deposits will have
been made. No claim or Encumbrance other than a Permitted Encumbrance will be
placed upon the Purchased Assets with respect to (i) any Taxes attributable to
the ownership or use of the Purchased Assets with respect to periods prior to
and including the Closing Date or (ii) any other Taxes (regardless of whether
attributable to periods prior to and including the Closing Date) imposed upon
the Company or attributable to the actions or activities of the Company. The
Company is not presently under, has not received notice of an, nor to the
Sellers' knowledge is there any contemplated, investigation or audit by the
Internal Revenue Service or any state tax agency. The Company has not taken, or
failed to take, any action which could create any tax lien on any of the
Purchased Assets. There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement and any exhibit or
annex hereto, covering any current or former employee of or service provider to
the Company that, individually or collectively, could give rise to the payment
of any amount by Buyer or its Affiliates that would not be deductible pursuant
to Section 280G or Section 162 of the Code. None of the Purchased Assets
consists of stock or securities of another corporation or entity. Neither the
Company nor any Member is other than a United States person within the meaning
of the Code.
(w) Insurance. Section 4.1(w) of the Disclosure Schedule
correctly describes (by type, carrier, policy number, limits, premium, and
expiration date) the material insurance coverages carried by the Company in
connection with its ownership and operation of the
18.
<PAGE> 23
Purchased Assets and the Business. As of the date of this Agreement, there is no
material claim by the Company pending under any of the material Company
insurance policies as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums payable under all
such material Company insurance policies have been paid and, to the Company's
knowledge, the Company are otherwise in material compliance with the terms of
such policies. As of the date of this Agreement, the Company does not know of
any threatened termination of, or material premium increase with respect to, any
of its material Company insurance policies.
(x) Brokers. Sellers have not retained any broker in
connection with the transactions contemplated hereunder. Buyer has no
and will have no obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee in connection with this Agreement or the
transactions contemplated hereby by reason of any action taken by or on behalf
of any Seller.
(y) Disclosure. Neither this Agreement, nor the Disclosure
Schedule to this Agreement, contains any untrue statement of a material fact,
taken together with all other statements made in this Agreement or the
Disclosure Schedule, or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading.
4.2 REPRESENTATIONS AND WARRANTIES OF SELLERS AS OF THE CLOSING. As an
inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, each of the Sellers jointly and severally
represents and warrants to the Buyer as of the Closing hereunder, except as set
forth in the Disclosure Schedule furnished to Buyer, specifically identifying
the relevant subsection of this Section 4.2, as follows:
(a) Organization; Qualification and Ownership. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts. The Company currently
conducts its business exclusively within the Commonwealth of Massachusetts. The
Company has the corporate power and authority to own and hold its Assets and
Properties and to carry on the Business as currently conducted. Kenneth G.
Condon is the Manager of the Company. The Company has the following named
officers, each duly elected and qualified by the Manager of the Company as of
the date hereof: Elizabeth Chen, President, and Kenneth G. Condon, Treasurer.
The Company has delivered to Buyer correct and complete copies of the Company's
Certificate of Organization and Operating Agreement, each as amended to date.
The Members of the Company are 520 Commonwealth Avenue Real Estate Corp., a
Massachusetts corporation, and 660 Corporation, a Massachusetts corporation.
(b) Corporate Power and Authority. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
the other documents and instruments contemplated hereby. The execution, delivery
and performance of this Agreement and the documents contemplated hereby and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by the Company's Manager and the Company's Members. This
Agreement, and each of the other agreements, documents and instruments to be
executed and delivered by the Sellers have been duly executed and delivered
19.
<PAGE> 24
by, and constitute the valid and binding obligation of the Sellers, enforceable
against the Sellers in accordance with their terms, subject to the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium and other
similar laws now or hereafter in effect, as well as limitations imposed by
general principles of equity upon the specific enforceability of any of the
remedies, covenants or other provisions and the availability of injunctive
relief or other equitable remedies.
(c) Validity, Etc. Neither the execution and delivery of this
Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other agreements in compliance with the
terms and conditions hereof and thereof will, except as set forth in Section
4.1(c) of the Disclosure Schedule, (i) conflict with or result in any breach of
any trust agreement, certificate of organization, or operating agreement of any
of the Company, (ii) except for approval of the transactions contemplated hereby
by the Office of the Attorney General of the Commonwealth of Massachusetts,
Public Charities Division, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, (iii) result in a breach of or default (or give rise to any right of
termination, cancellation or acceleration) under any law, rule or regulation or
any judgment, decree, order, governmental permit (other than permits set forth
in a Schedule hereto which are not transferable), license or order or any of the
terms, conditions or provisions of any mortgage, indenture, note, license,
agreement or other instrument or obligation to which the Company is a party or
by which the Company or its property is bound, or (iv) result in the creation of
any Encumbrance other than a Permitted Encumbrance upon the Purchased Assets.
(d) Capital Structure. The Members own, beneficially and of
record, one hundred percent (100%) of the Membership Interests In the following
percentages: 520 Commonwealth-99%; 660 Corporation-1%. All of the Membership
Interests are duly authorized, validly issued, fully paid and nonassessable.
There are no options, warrants, conversion rights, rights of exchange or other
rights, plans, agreements or commitments of any nature whatsoever (including,
without limitation, conversion or preemptive rights) providing for the purchase,
issuance or sale (except as contemplated by this Agreement) of any Membership
Interests or any securities convertible into or exchangeable for any Membership
Interests. The Members own the Membership Interests free and clear of all
Encumbrances, and have, and on the Closing Date will have, good and valid title
to such.
(e) Authority of the Members. Each Member has all necessary
power and authority and has taken all action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder and no other proceedings on the part of such Member is
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. Each Member is a corporation duly authorized to conduct
business and is in good standing under the laws of the Commonwealth of
Massachusetts. This Agreement has been duly and validly executed and delivered
by each Member and constitutes a legal, valid and binding obligation of each
Member, enforceable against each Member in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws now or hereafter in effect, as well as limitations
imposed by general principles of equity upon the specific enforceability of any
of the remedies, covenants or other provisions and the availability of
injunctive relief or other equitable remedies.
20.
<PAGE> 25
(f) No Affiliates. Other than its Members and Trustees of
Boston University, the Company does not have any Affiliates; the Company is not
a partner in any partnership or a party to a joint venture.
(g) Consents and Approvals. Except for the approval of the office
of the Attorney General of the Commonwealth of Massachusetts, Public Charities
Division, and as set forth in Section 4.1(c) or Section 4.1(g) of the Disclosure
Schedule, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental or Regulatory
Authority is required by or with respect to the Sellers in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(h) Financial Statements; Absence of Undisclosed Liabilities. The
Company has previously delivered to Buyer the Financial Statements. The
Financial Statements fairly present the financial condition and results of
operations of the Company as of the dates thereof and for the periods covered
thereby; provided, however, that the Financial Statements lack footnotes and
certain other presentation items.
(i) Purchased Assets. Section 4.1(o) of the Disclosure Schedule
sets forth a true and complete list of all tangible personal property owned by
the Company with an original purchase price in excess of $25,000 and used or
useable in the Business. The tangible personal property included in the
Purchased Assets will be, at the Closing, all of the tangible personal property
currently owned by the Company and used or useable in the Business. The Company
is the owner of all of the right, title and interest in and to, and has good and
marketable title, free and clear of all Encumbrances other than Permitted
Encumbrances, to the Purchased Assets listed in Section 4.1(o) of the Disclosure
Schedule, except as specifically set forth therein. With respect to equipment
leased by the Company, all leases, conditional sale contracts, franchises or
licenses pursuant to which the Company may hold or use (or permit others to hold
or use) such equipment or property are valid and in full force and effect, and
to Sellers' knowledge there is not, under any of such instruments, any existing
default or event of default or event which with notice or lapse of time or both
would constitute such a default. The Company's possession and use of such leased
property has not been disturbed and no claim has been asserted against the
Company adverse to its rights in such leasehold interests. All Purchased Assets,
equipment and property being sold, transferred or assigned hereunder is adequate
and usable for the purposes for which it is currently used and is in good
operating condition and repair, ordinary wear and tear excepted.
(j) Real Property. The Company does not own or hold title to any
real property. Section 4.1(p) of the Disclosure Schedule sets forth a true and
complete list and description of each Leased Premise. Each lease covering a
Leased Premises is in full force and effect (there existing no default under any
such lease which, with the lapse of time or notice or otherwise, would entitle
the lessor to terminate the same), conveys the leased real estate purported to
be conveyed thereunder and is enforceable by the Company. The Company has the
right to use the Leased Premises in accordance with the terms of such leases
free and clear of all Encumbrances, claims or other interests or rights of third
parties, except those which do not or would not have an adverse effect on the
Leased Premises as used in the operation of the Business. The Company has not
received notice of any pending or threatened condemnation or
21.
<PAGE> 26
similar proceedings or assessments affecting any of the Leased Premises, nor to
the Sellers' knowledge is any such condemnation or assessment contemplated by
any governmental authority.
(k) Brokers. Sellers have not retained any broker in connection
with the transactions contemplated hereunder. Buyer has no and will have no
obligation to pay any broker's, finder's, investment banker's, financial
advisor's or similar fee in connection with this Agreement or the transactions
contemplated hereby by reason of any action taken by or on behalf of any Seller.
(l) Disclosure. Neither this Agreement, nor the Disclosure
Schedule to this Agreement, contains any untrue statement of a material fact,
taken together with all other statements made in this Agreement or the
Disclosure Schedule, or omits a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which made, not
misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers, as of the date hereof and
as of the Closing, as follows:
5.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Buyer is duly authorized to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is required except for any
jurisdiction where failure so to qualify would not have an Adverse Effect upon
Buyer. Buyer has full power and authority, and holds all Permits and
authorizations necessary, to carry on the business in which it is engaged and to
own and use the properties owned and used by it except where the failure to have
such power and authority or to hold such license, permit or authorization would
not have an Adverse Effect on Buyer.
5.2 AUTHORITY OF BUYER. Buyer has all necessary corporate power and
corporate authority and has taken all corporate actions necessary to enter into
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder and no other proceedings on the part of Buyer
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and constitutes a legal, valid and binding obligation of such
Buyer enforceable against Buyer in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
5.3 CAPITAL STRUCTURE. The authorized stock of Buyer consists of
80,000,000 shares of Common Stock, of which 38,503,345 shares were issued and
outstanding as of December 31, 1997, and 5,000,000 shares of Preferred Stock,
none of which were issued or outstanding as of December 31, 1997. As of December
31, 1997, there were issued and outstanding:
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<PAGE> 27
(a) 38,504,459 shares of Buyer Common Stock;
(b) no shares of Preferred Stock;
(c) options exercisable into 4,068,506 shares of Buyer Common
Stock, warrants exercisable into 6,606,094 shares of Buyer Common Stock and an
aggregate principal amount of $6,250,000 of convertible promissory notes
convertible into shares of Buyer Common Stock; and
(d) an aggregate principal amount of $50 million 7 1/2%
Convertible Subordinated Debentures of Glycomed, Inc., a wholly owned subsidiary
of Buyer.
(e) All such shares, options, warrants, convertible promissory
notes and Convertible Subordinated Debentures have been duly authorized, and all
such issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any Encumbrances other than any Encumbrances
created by or imposed upon the holders thereof.
(f) The shares of Buyer Common Stock issuable pursuant to the
transactions contemplated in this Agreement, if issued, will
be duly authorized, validly issued, fully paid and non-assessable.
5.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Buyer has furnished or
made available to the Company copies of all reports or registration statements
filed by it with the U.S. Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934 (the "Exchange Act") all in the form so
filed (all the foregoing being collectively referred to as the "SEC Documents").
As of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act, as the case may be, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC. The financial statements of Buyer, including the notes thereto,
included in the SEC Documents (the "Buyer Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the financial position of
Buyer at the dates thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There has been no change in Buyer accounting policies except
as described in the notes to the Buyer Financial Statements.
5.5 LITIGATION. There are no Actions or Proceedings pending, or as to
which Buyer has received any notice of assertion against Buyer, which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement or which, if determined
adversely to Buyer would have an Adverse Effect on Buyer.
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ARTICLE 6
COVENANTS OF THE PARTIES
6.1 COVENANTS OF THE COMPANY (AND THE MEMBERS) FROM THE DATE OF THIS
AGREEMENT TO THE CLOSING DATE. The Company and each of the Members covenant
with the Buyer, in the period from the date of this Agreement to the Closing
Date (except as otherwise provided herein), to act, as follows:
(a) Cooperation. The Company and the Members shall use their
commercially reasonable efforts to perform and fulfill all conditions and
obligations to be fulfilled or performed by it hereunder, to the end that the
transactions contemplated hereby will be fully and timely consummated.
(b) Access. Until the Closing, the Company shall give Buyer, its
attorneys, accountants and other authorized representatives reasonable access,
upon reasonable notice and at reasonable times, to the Leased Premises and
suppliers, employees, products, technology, business and financial records,
contracts, business plans, budgets and projections, agreements and commitments
relating to the operation of the Business. Buyer agrees that, prior to the
Closing, it shall not contact or otherwise communicate with the Company's
customers, suppliers or other third parties with whom the Company has a
relationship in connection with the Company's ownership and operation of the
Purchased Assets and the Business, without in each case obtaining the prior
approval of the Company, which approval shall not be unreasonably withheld,
delayed or conditioned.
(c) Insurance. The Company shall maintain insurance policies
providing coverage in type and amount substantially similar to its existing
policies relating to the ownership and operation of the Purchased Assets and the
Business through the Closing.
(d) Compliance with Laws. The Company shall operate the Business
in compliance with all applicable laws, rules, regulations and orders, except
for minor failures to be in compliance with applicable laws, rules, regulation
and orders that would not, individually or in the aggregate, have a material
adverse effect on the Purchased Assets or the operation or condition (financial
or otherwise) or prospects of the Business.
(e) Keeping of Books and Records. The Company shall continue to
keep adequate records and books of account, in which complete entries will be
made in accordance with its existing accounting principles consistently applied,
reflecting all financial transactions and in which all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its ownership and operation of the Purchased Assets
and the Business.
(f) Actions Prior to Closing. The Company shall operate the
Business, pending the Closing, only in the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Company will not, except in the
Ordinary Course of Business, without the prior written consent of Buyer, (i)
make any disposition of any Purchased Asset, (ii) enter into any contract or
release or relinquish any contract or other right with respect to the ownership
or operation of the Purchased Assets or the Business, or (iii) enter into or
renew any employment
24.
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agreement with any employees or consultants or grant any increases in the
compensation or benefits to, or agree to pay any bonus, severance or termination
payment or other special compensation to, any employees or consultants involved
in the operation of the Business.
(g) Litigation. The Company will promptly notify Buyer
of any lawsuits, claims, proceedings or investigations which are
commenced or, to the Sellers' knowledge, threatened against the Company, or
against any employee or consultant of the Company, involving in any way the
ownership or operation of the Purchased Assets or the Business or which may
threaten the consummation by the Company of the transactions contemplated
hereby.
(h) Continued Effectiveness of Representations and Warranties.
From the date hereof up to and including the Closing Date, the Company will
continue to operate the Business in such manner that the representations and
warranties contained in this Agreement by the Company or the Sellers, as the
case may be, shall continue to be true and correct on and as of the Closing Date
as if made on and as of the Closing Date, except for changes and the
consequences of events arising in the Ordinary Course of Business after the date
hereof none of which would have an Adverse Effect on the Purchased Assets or the
operation or condition (financial or otherwise) or prospects of the Business as
presently conducted. Without limiting the foregoing, as of the Closing Date, the
Company will have satisfied in full all of its liabilities and obligations
thereunder due in the Ordinary Course of Business prior to the Closing.
(i) Tax Returns. The Company shall cause to be prepared and
timely filed all of its required tax returns for all periods up to and including
the Closing Date.
6.2 COVENANTS OF THE COMPANY (AND THE MEMBERS) FROM THE MERGER CLOSING
TO THE CLOSING DATE. (a) Except as otherwise contemplated by this Agreement,
during the period from the Merger Closing to the Closing Date, without the
prior written consent of Buyer, the Company will not, and each of the Members
shall to the extent it is in their respective powers cause the Company not to:
(i) commence or conduct any new business other than the
Business;
(ii) create, incur or assume any long-term or short-term
debt (including obligations with respect to capital leases), other than in
connection with the acquisition of any real property, machinery, equipment or
other capital assets with a purchase price not in excess of $30,000 in the
aggregate or (i) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other Person, other than endorsing negotiable instruments in the Ordinary
Course of Business in amounts less than $30,000;
(iii) declare, set aside or pay any distribution to any
Member (whether in cash or property or any combination thereof);
(iv) permit any material insurance (or reinsurance) policies
to be cancelled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies with similarly rated insurance
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companies providing coverage equal to or greater than coverage remaining under
those cancelled, terminated or lapsed are in full force and effect;
(v) create, organize or otherwise establish any new
subsidiary or joint venture;
(vi) make any change to its Certificate of Organization,
Operating Agreement or other organizational documents;
(vii) take any other action which would result in an Adverse
Effect on the Company;
(viii) agree, whether in writing or orally, whether formally
or informally, to engage in any of the actions described in clauses (i) through
(vii) of this Section 6.2.
(b) The Company shall prepare and deliver to Buyer within fifteen
(15) business days after each month end an unaudited balance sheet, a statement
of income and cash flows and detail of general and administrative expenses of
the Company for the immediately preceding calendar month during the period from
the Merger Closing through the earlier of (i) the Closing Date or (ii)
termination pursuant to Section 10.1 of this Agreement.
6.3 ADDITIONAL COVENANTS OF THE PARTIES. Each of the parties covenants
with the others to act, as follows:
(a) The Company shall allow Buyer or its authorized
representatives, at Buyer's own expense during regular business hours, or
otherwise with the consent of the Company (which consent shall not be
unreasonably withheld), to interview employees of the Company and to make such
inspection of the Company and to inspect (and, if applicable, make copies of)
Books and Records, plants, offices, warehouses and other facilities of the
Company as requested by Buyer or its authorized representatives and reasonably
necessary for or reasonably related to the operation of the Business, including
historical financial information, concerning the Business; provided, however,
that any information obtained from the Members or the Company is subject to the
obligations imposed by Section 10.12 below.
(b) As soon as practicable after execution of this Agreement,
Sellers will commence all reasonable action required hereunder to obtain all
applicable Permits, consents, approvals and agreements of, and to give all
notices and make all filings with, any third parties as may be necessary to
authorize, approve or permit the full and complete consummation of the
transactions contemplated hereby by the Closing Date.
(c) Each of the parties shall give prompt notice to the other
party, of (i) the discovery of a fact or facts of which the notifying party has
actual knowledge which cause it or him to conclude that any of the
representations, warranties or statements made by it or him or in an any
exhibit, schedule or other document delivered pursuant to this Agreement, may be
false or misleading or omission of any facts necessary in order to make such
representations, warranties or statements not false or misleading; (ii) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty made by them in this Agreement
to be untrue or inaccurate any time from the date hereof to the Closing Date;
and
26.
<PAGE> 31
(iii) any failure of the notifying party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it or him hereunder.
Each party hereto shall use all reasonable efforts to remedy any failure on its
or his part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it or him hereunder. During the period from the
date of this Agreement to the Closing Date, Sellers will promptly notify Buyer
of any material change in, or outside of, the normal course of business or
operations of the Company and of any Governmental or Regulatory Authority
complaints, investigative hearings, or the institution, threat (to the extent
Sellers have knowledge of such threat) or settlement of litigation, in each case
involving an amount in excess of $150,000 and relating to the Company, and shall
keep Buyer fully informed in reasonable detail of such events. The Company shall
not enter into any settlements over $150,000 in connection with any such
litigation without the prior written consent of Buyer.
(d) Subject to the terms and conditions of this Agreement, each
of the parties hereto will use its commercially reasonable best efforts to take,
or cause to be taken, all action, or to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, obtaining all consents and approvals of all
Persons and Governmental or Regulatory Authorities and removing any injunctions
or other impairments or delays or otherwise which are necessary to the
consummation of the transactions contemplated by this Agreement.
(e) Each of the parties hereto will use its best efforts to make
or cause to be made all such filings and submissions as may be required under
applicable laws and regulations for the consummation of the transactions
contemplated by this Agreement. Sellers and Buyer will coordinate and cooperate
with one another in exchanging such information and provide each other such
assistance as any other party may reasonably request in connection with the
foregoing.
(f) On the earlier of the Closing Date or the date of payment of
the Option Consideration, Buyer will have registered, pursuant to the Securities
Act, the offer and sale of shares of Buyer Common Stock to be included in the
Purchase Price, if any, will have qualified such shares of Buyer Common Stock
for sale under applicable foreign or state securities or "blue sky" laws, and
maintained in effect such registrations and qualifications. Such Buyer Common
Stock, when delivered, shall be free of any restrictions on resale, other than
such restrictions required under federal securities laws.
(g) The shares of Buyer Common Stock, if any, issuable to the
Company pursuant to Section 3.4 shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
(h) On the Closing Date, the Company will amend its Operating
Agreement and all other documents necessary to change its name to any name other
than "Marathon Biopharmaceuticals, LLC" or any name similar thereto, shall
otherwise cease using the name "Marathon Biopharmaceuticals, LLC" and any
similar name thereto in any capacity, and will assign to Buyer all rights in and
to the name "Marathon Biopharmaceuticals, LLC."
27.
<PAGE> 32
(i) Unless and until this Agreement is terminated pursuant to
Section 10.1, neither the Company nor any of the Members nor any of their
respective Affiliates, if any, will directly or indirectly solicit, initiate or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Purchaser) relating to any
transaction involving the sale of all or a substantial portion of the Assets or
Properties of the Company, or any membership interests of the Company, or any
merger, consolidation, business combination or similar transaction involving the
Company (each a "Proposed Acquisition Transaction"). Sellers will immediately
notify Buyer if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any information is requested with respect to any
Proposed Acquisition Transaction and notify Buyer of the terms of any proposal
which it or its Affiliates, if any, may receive in respect of any such Proposed
Acquisition Transaction, including without limitation the identity of the
prospective purchaser or soliciting party. Sellers shall also provide Buyer with
a copy of any written offer.
(j) Except as required by applicable law, prior to the Closing,
no party shall issue or cause the publication of any press release or otherwise
make any public statement with respect to the transactions contemplated hereby
without the prior written consent of Buyer and the Company, which consent shall
not be unreasonably withheld.
(k) (i) Buyer and Seller acknowledge and affirm their intention
that Buyer shall not assume any liabilities or obligations of the Company to any
current or former employee of the Company, other than those persons listed in
Schedule 6.3(k)(i) and as provided in Schedule 3.3. Buyer shall not have any
liability or obligation to or in respect of any employee or agent of the
Company, including but not limited to any liability or obligation (A) to employ
or engage any such employee or agent, (B) arising from such employee or agent's
dismissal by the Company or any notice and/or payment in lieu of notice required
by applicable law in connection with such dismissal, or (C) in respect of any
compensation, tenure, seniority, benefit, or welfare plan or arrangement of any
kind.
(ii) Schedule 6.3(k)(ii) hereto sets forth a list of all those
employees of the Company at the Facility to whom Buyer intends to offer
employment (the "Selected Employees"). Buyer shall offer employment to all of
the Selected Employees upon such terms and conditions as Buyer shall in its sole
discretion determine. At any time prior to the Closing Buyer may, but is in no
way obligated to, offer employment to such other employees of the Company whose
employment is terminated by Seller, notwithstanding that such employees are not
listed on Schedule 6.3(k)(ii) hereto.
(l) The Company shall take all necessary action to keep the
Service Agreement in full force and effect and binding on the parties thereto
consistent with its terms, and shall not amend or modify any provisions of the
Service Agreement without Buyer's prior written consent. The Company shall not
consider Seragen in breach or default of the Service Agreement for any failure
of Seragen to perform its obligations under the Service Agreement prior to the
Merger Closing and shall forbear from taking any action of whatever nature
inconsistent with this Section 6.3(l). After the Merger Closing, Buyer will, or
will cause Seragen to, faithfully perform all of its obligations, including
payment obligations, to the Company under the terms of the Service Agreement.
28.
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(m) The Company shall not amend, modify or terminate any material
contract, agreement, commitment, license or franchise so as to cause an Adverse
Effect on the Company or the Purchased Assets.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF SELLERS
The obligations of Sellers to effect the transactions
contemplated hereby are subject to the satisfaction, at or before the Closing,
of each of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Buyer contained in this Agreement shall be true and correct on and
as of the Closing Date, except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date), and Buyer shall have performed all agreements and
covenants in a timely manner required to be performed by it prior to or on the
Closing Date.
7.2 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings shall have been
instituted or threatened which question the validity or legality of the
transactions contemplated hereby.
7.3 CONSENTS. All Permits, authorizations, consents, approvals and
waivers from third parties and Governmental or Regulatory Authorities and other
Persons necessary or appropriate to permit Buyer to perform their respective
obligations hereunder and to consummate the transactions contemplated hereby
shall have been obtained. The office of the Attorney General of the Commonwealth
of Massachusetts, Public Charities Division ("Massachusetts Attorney General"),
shall have approved the transactions contemplated by this Agreement to the
reasonable satisfaction of the Company and Mintz Levin and such approval shall
be effective as of the Closing Date.
7.4 CLOSING DELIVERIES. Buyer shall have executed and delivered the
documents required to be executed and delivered by Buyer pursuant to
Section 3.8(b) above.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated
hereby is subject to the satisfaction, at or before the Closing, of each of the
following conditions:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Sellers contained in this Agreement shall be true and correct on
and as of the Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall remain true and
correct as of such date), and Sellers shall have performed all agreements and
covenants in a timely manner required to be performed by them prior to or on the
Closing Date.
29.
<PAGE> 34
8.2 NO ACTIONS OR PROCEEDINGS. No Actions or Proceedings shall have
been instituted or threatened which question the validity or legality of the
transactions contemplated hereby.
8.3 CONSENTS. All Permits, authorizations, consents, approvals and
waivers from third parties and Governmental or Regulatory Authorities and
other Persons necessary or appropriate to permit Sellers to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby shall have been obtained, including, without limitation, the continued
effectiveness of approvals required from the Massachusetts Attorney General,
referred to in Section 7.3 above, to the satisfaction of Buyer and Buyer's
counsel.
8.4 CLOSING DELIVERIES. The Company and the Members shall have executed
and delivered the documents required to be executed and delivered by the Company
and the Members, respectively, pursuant to Section 3.8(c) above.
ARTICLE 9
ACTIONS BY THE PARTIES AFTER THE CLOSING
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. The representations,
warranties and covenants of Sellers contained in or made pursuant to this
Agreement or any certificate, document or instrument delivered pursuant to or in
connection with this Agreement or the transactions contemplated hereby shall
survive the execution and delivery of this Agreement and the Closing hereunder
notwithstanding any investigation, analysis or evaluation by Buyer or its
designees of the Purchased Assets, Business, operations or condition (financial
or otherwise) of the Company and, where applicable, of the Members, and the
Purchase Assets and thereafter the representations and warranties of Sellers
shall continue to survive in full force and effect for a period of one (1) year
after the Closing Date; provided, however, that (i) the representations and
warranties contained in Sections 4.(a) through (e) shall continue to survive
indefinitely after the Closing Date; and (ii) the representations and warranties
in Section 4.1(u) shall continue to survive after the Closing Date for a period
of three (3) years; and (iii) the representations and warranties in Section
4.1(v) shall continue to survive after the Closing Date until the expiration of
all applicable statutes of limitations.
9.2 INDEMNIFICATION.
(a) By Sellers. Sellers, jointly and severally,
shall indemnify, defend and hold harmless Buyer, and its officers, directors,
employees, agents, successors and assigns (collectively the "Buyer Group") from
and against any and all costs, losses (including, without limitation, diminution
in value), Liabilities, damages, lawsuits, deficiencies, claims and expenses,
including without limitation, interest, penalties, costs of mitigation, clean-up
or remedial action, lost profits and other losses resulting from any shutdown or
curtailment of operations, damages to the Environment, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, the "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any covenant, representation,
warranty or agreement or the inaccuracy of any representation, made by any of
the Sellers in or pursuant to this Agreement, (ii) any Excluded Assets or (iii)
any Liabilities of the Company on the Closing Date which are not part of the
Assumed Liabilities.
30.
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(b) By Buyer. Buyer shall indemnify, defend and hold harmless
Sellers and their respective officers, employees, agents, successors and assigns
from and against any and all Damages incurred in connection with, arising out
of, resulting from or incident to (i) any breach of any covenant,
representation, warranty or agreement or the inaccuracy of any representation,
made by Buyer in or pursuant to this Agreement or (ii) any liability relating to
the Business arising on or after the Closing Date.
(c) Defense of Claims. If any Action or Proceeding is filed or
initiated against any party entitled to the benefit of indemnity hereunder,
written notice thereof shall be given to the indemnifying party as promptly as
practicable (and in any event within thirty (30) days after the service of the
citation or summons); provided, however, that the failure of any indemnified
party to give timely notice shall not affect rights to indemnification hereunder
except to the extent that the indemnifying party demonstrates actual damage
caused by such failure. After such notice, if the indemnifying party shall
acknowledge in writing to the indemnified party that the indemnifying party
shall be obligated under the terms of its indemnity hereunder in connection with
such Action or Proceeding, then the indemnifying party shall be entitled, if it
so elects, to take control of the defense and investigation of such Action or
Proceeding and to employ and engage attorneys of its own choice to handle and
defend the same, such attorneys to be reasonably satisfactory to the indemnified
party, at the indemnifying party's cost, risk and expense (unless (i) the
indemnifying party has failed to assume the defense of such Action or Proceeding
or (ii) the named parties to such Action or Proceeding include both of the
indemnifying party and the indemnified party, and the indemnified party and its
counsel determine in good faith that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party and that joint representation would be
inappropriate), and to compromise or settle such Action or Proceeding, which
compromise or settlement shall be made only with the written consent of the
indemnified party, such consent not to be unreasonably withheld. The indemnified
party may withhold such consent if such compromise or settlement would adversely
affect the conduct of business or requires less than an unconditional release to
be obtained. If (i) the indemnifying party fails to assume the defense of such
Action or Proceeding within fifteen (15) days after receipt of notice thereof
pursuant to this Section 9, or (ii) the named parties to such Action or
Proceeding include both the indemnifying party and the indemnified party and the
indemnified party and its counsel determine in good faith that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party and that joint
representation would be inappropriate, the indemnified party against which such
Action or Proceeding has been filed or initiated will (upon delivering notice to
such effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such Action or Proceeding on behalf of and for the account and risk of the
indemnifying party; provided, however, that such Action or Proceeding shall not
be compromised or settled without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld. In the event the indemnified
party assumes defense of the Action or Proceeding, the indemnified party will
keep the indemnifying party reasonably informed of the progress of any such
defense, compromise or settlement and will consult with, when appropriate, and
consider any reasonable advice from, the indemnifying party of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 9.2 and for any final judgment (subject to any right of appeal), and
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<PAGE> 36
the indemnifying party agrees to indemnify and hold harmless the indemnified
party from and against any Damages by reason of such settlement or judgment.
Regardless of whether the indemnifying party or the indemnified
party takes up the defense, the indemnifying party will pay reasonable costs and
expenses in connection with the defense, compromise or settlement for any Action
or Proceeding under this Section 9.2.
The indemnified party shall cooperate in all reasonable respects
with the indemnifying party and such attorneys in the investigation, trial and
defense of such Action or Proceeding and any appeal arising therefrom; provided,
however, that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such Action or Proceeding and any appeal
arising therefrom. The indemnifying party shall pay all expenses due under this
Section 9.2 as such expenses become due. In the event such expenses are not so
paid, the indemnified party shall be entitled to settle any Action or Proceeding
under this Section 9.2 without the consent of the indemnifying party and without
waiving any rights the indemnified party may have against the indemnifying
party.
(d) Tax Indemnification.
(i) Notwithstanding anything in this Agreement to the
contrary, Sellers, jointly and severally, shall indemnify, defend and hold
harmless all members of the Buyer Group for, from and against all Damages
arising in respect of any Pre-Closing Period (as defined below) asserted against
or incurred by members of the Buyer Group resulting from a breach of the
representations or warranties set forth in Section 4.25 above, including the
Disclosure Schedule referred to therein and relating to such Section ("Tax
Losses").
(ii) "Pre-Closing Period" means any taxable period ending
on or before the Closing Date, and the portion of any taxable period beginning
on or before but ending after the Closing Date which portion begins on the first
day of such a taxable period and ends on the Closing Date.
(iii) Notwithstanding anything in this Agreement to the
contrary, Buyer shall have the right to control any audit or determination by
any taxing authority, initiate any claim for refund or amended return, contest,
defend against, resolve, and settle any assessment, notice of deficiency or
other adjustment or proposed adjustment of Taxes or otherwise resolve any issue
pertaining to any Tax Losses; provided, however, that Buyer shall consult with
Sellers in contesting any proposed adjustment, shall consider any reasonable
advice from Sellers concerning such contest and shall not settle any such
contest without the prior written consent of Buyer, which shall not be
unreasonably withheld. Sellers shall have the right to receive in a timely
manner copies of all non-privileged correspondence, records and relevant
documentation and to be timely informed of and to attend all meetings with third
parties relating to any claimed Tax Losses.
(e) Limitations on Liability. An indemnified party shall be
obligated to provide indemnity under this Article 9 only if and to the extent
that the Damages incurred by an indemnified party exceed $150,000 and in no case
shall an indemnifying party be obligated to provide indemnity for Damages in
excess of $1,000,000. The limitations of this Section 9.2(e)
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shall not apply to Damages resulting from fraudulent misrepresentations
or Damages incurred under Sections 9.2(a)(iii) or 9.2(b)(ii).
ARTICLE 10
MISCELLANEOUS
10.1 TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(a) by mutual written consent of the parties hereto;
(b) by the Company, if the Company or any Seller is not in material
breach of their respective obligations under this Agreement and (i) any
condition precedent to Sellers' obligations hereunder is not satisfied and such
condition is not waived by Sellers at or prior to the Closing Date or (ii) there
has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement and such violation or
breach has not been waived in writing by Sellers; or
(c) by Buyer, if Buyer is not in material breach of its
obligations under this Agreement and (i) any condition precedent to Buyer's
obligations hereunder is not satisfied and such condition is not waived by Buyer
at or prior to the Closing Date or (ii) there has been a material violation or
breach by any of the Sellers of any agreement, representation or warranty
contained in this Agreement and such violation or breach has not been waived in
writing by Buyer;
(d) by Buyer, if there shall be any action taken, or any statute,
rule regulation or order enacted, promulgated or issued or deemed applicable to
the transactions contemplated by this Agreement, by any governmental entity,
which would (i) prohibit Buyer's ownership or operation of all or any portion of
the Purchased Assets of the Company or (ii) compel Buyer to dispose of or hold
separate all or a portion of the Purchased Assets of the Company as a result of
the transactions contemplated by this Agreement;
(e) by Buyer, if the Company seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the Company within
sixty (60) days;
(f) by the Company, if Buyer seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against Buyer within sixty
(60) days;
(g) by Buyer or the Company, if the Merger Agreement is
terminated;
in which case, Buyer or Sellers, as the case may be, may terminate this
Agreement at its or their option by notice to the other party or parties. In the
event of the termination of this Agreement as above provided, no party shall
have any liability hereunder of any nature whatsoever to any other party,
including any liability for Damages; provided, however, that if, at the time of
such termination, any party is in default under its obligations hereunder, the
party in default shall be liable to the other parties for such default.
33.
<PAGE> 38
In the event that a condition precedent to its obligations is not
satisfied, nothing contained herein shall be deemed to require any party to
terminate this Agreement, rather than to waive such condition precedent and
proceed with the Closing. This Agreement shall terminate automatically if the
Closing has not occurred on or prior to January 31, 1999, subject to extension
pursuant to the Option Agreement, unless otherwise extended in writing by all
parties hereto, provided that such termination will not relieve a party in
breach of any of its obligations.
10.2 NOTICES. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:
IF TO THE COMPANY, TO:
Marathon Biopharmaceuticals, LLC
97 South Street
Hopkington, MA 01748
Facsimile No.: (508) 497-0777
Attention: President
WITH COPIES TO:
Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, MA 02111
Facsimile No.: (617) 542-2241
Attention: Thomas J. Kelly, Esq.
Dionne & Gass
73 Tremont Street
Boston, MA 02108
Facsimile No.: (617) 723-4151
Attention: Richard Dionne, Esq.
520 Commonwealth Avenue Real Estate Corp. (see below)
34.
<PAGE> 39
IF TO THE MEMBERS, TO:
520 Commonwealth Avenue Real Estate Corp.
881 Commonwealth Avenue
Boston, MA 02115
Facsimile No.: (617) 353-5492
Attention: Kenneth G. Condon, President
IF TO BUYER, TO:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Facsimile No.: (619) 550-7506
Attention: William L. Respess, Esq.
WITH COPIES TO:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
Facsimile No.: (619) 234-1966
Attn: Faye H. Russell, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 10.2, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 10.2, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 10.2, be deemed given upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
10.3 ENTIRE AGREEMENT. This Agreement (and all Exhibits and Schedules
attached hereto, all other documents delivered in connection herewith)
supersedes all prior discussions and agreements among the parties with respect
to the subject matter hereof and contains the sole and entire agreement among
the parties hereto with respect thereto.
10.4 WAIVER. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party hereto of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by law or otherwise afforded, will be
cumulative and not alternative.
35.
<PAGE> 40
10.5 AMENDMENT. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
10.6 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Section 9.2.
10.7 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other parties hereto and any attempt to do so will
be void; provided, any party's rights to indemnification under Article 9 may be
freely assigned; provided further, Buyer may assign its rights, interests and
obligations hereunder to an Affiliate or in connection with the merger of Buyer
or the sale of all or substantially all of the assets of the Buyer. This
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
10.8 HEADINGS. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the
provisions hereof.
10.9 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and mutually acceptable to
the parties herein.
10.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts executed and performed in such State, without giving effect to
conflicts of laws principles.
10.11 CONSENT TO JURISDICTION AND FORUM SELECTION. The parties hereto
agree that all actions or proceedings arising in connection with this Agreement
shall be initiated and tried exclusively in the State and Federal courts located
in the Commonwealth of Massachusetts. The aforementioned choice of venue is
intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that specified in
this Section 10.11. Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar doctrine or to object to venue with
respect to any proceeding brought in accordance with this paragraph, and
stipulates that the State and Federal courts located in the Commonwealth of
Massachusetts shall have in personam jurisdiction and venue over each of them
for the purposes of litigating any dispute, controversy or proceeding arising
out of or related to this Agreement. Each party hereby authorizes and accepts
service of process sufficient for personal jurisdiction in
36.
<PAGE> 41
any action against it as contemplated by this Section 10.11 by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement, or in the manner set forth
in Section 10.11 of this Agreement for the giving of notice. Any final judgment
rendered against a party in any action or proceeding shall be conclusive as to
the subject of such final judgment and may be enforced in other jurisdictions in
any manner provided by law.
10.12 CONFIDENTIALITY. Each of the parties agrees that, until the Closing,
it and its officers, directors, managers, employees, agents, Affiliates and
representatives shall maintain the facts surrounding the negotiation of this
Agreement, this Agreement, disclosures made herein and hereunder, and the
results of investigations and audits conducted hereunder completely confidential
and shall not disclose such information to any other Person (except as may be
required by law or legal process or as necessary to carry out the terms of this
Agreement or to the extent such information becomes public information or
generally available to the public through no fault of such party or its
Affiliates) without the prior written consent of Buyer and the Company.
10.13 EXPENSE. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses and costs incidental to the preparation
of this Agreement and to the consummation of the transactions contemplated
hereby.
10.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
37.
<PAGE> 42
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By: /s/ DAVID E. ROBINSON
----------------------------------------------
Name: David E. Robinson
--------------------------------------------
Title: President and Chief Executive Officer
-------------------------------------------
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts limited liability company
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
520 COMMONWEALTH AVENUE REAL ESTATE CORP.,
a Massachusetts corporation
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
660 CORPORATION, a Massachusetts corporation
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
[SIGNATURE PAGE TO THE ASSET PURCHASE AGREEMENT]
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the parties hereto as of the date first above written.
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts limited liability company
By: /s/ KENNETH G. CONDON
-----------------------------------------------
Name: Kenneth G. Condon
---------------------------------------------
Title: Manager
--------------------------------------------
520 COMMONWEALTH AVENUE REAL ESTATE CORP.,
a Massachusetts corporation
By: /s/ KENNETH G. CONDON
-----------------------------------------------
Name: Kenneth G. Condon
---------------------------------------------
Title: President
--------------------------------------------
660 CORPORATION, a Massachusetts corporation
By: /s/ KENNETH G. CONDON
-----------------------------------------------
Name: Kenneth G. Condon
---------------------------------------------
Title: Treasurer
--------------------------------------------
[SIGNATURE PAGE TO THE ASSET PURCHASE AGREEMENT]
<PAGE> 44
EXHIBIT A
CERTIFICATE OF OFFICER
LIGAND PHARMACEUTICALS INCORPORATED
This Certificate is delivered pursuant to Section 3.8(b)(ii) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated
("Buyer"), Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate
Corp. and 660 Corporation. Capitalized terms used herein without definition
shall have the same meaning as set forth in the Agreement.
I, ________________________, do hereby certify that I am the duly
elected, qualified and acting ______________________ of Buyer and as such, am
authorized to execute this Certificate on its behalf, and I further certify
that:
1. All representations and warranties of Buyer contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Buyer has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
3. All Permits, authorizations, consents, approvals and waivers from
third parties and Governmental or Regulatory Authorities and other Persons
necessary or appropriate to permit Buyer to perform its respective obligations
hereunder and to consummate the transactions contemplated by the Agreement have
been obtained.
IN WITNESS WHEREOF, I have executed this Certificate as of the Closing
Date, this ____ day of ________________, 199__.
___________________________________
Name:_______________
<PAGE> 45
EXHIBIT B
BILL OF SALE
THIS BILL OF SALE dated as of May ___, 1998, is being executed
and delivered by Marathon Biopharmaceuticals LLC, a Massachusetts limited
liability company (the "Company"), 520 Commonwealth Real Estate Corporation, a
Massachusetts corporation ("520 Corporation"), and 660 Corporation, a
Massachusetts corporation ("660 Corporation," and together with the Company and
520 Commonwealth, the "Sellers"), pursuant to that certain Option and Asset
Purchase Agreement dated as of May __, 1998 (the "Purchase Agreement"), by and
among Sellers and Ligand Pharmaceuticals Incorporated, a Delaware corporation
("Buyer"). The execution and delivery of this Bill of Sale is a condition to
Buyer's obligations under the Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Seller hereby agrees as
follows:
1. Capitalized terms used herein but not defined herein shall
have the meanings assigned such terms in the Purchase Agreement.
2. Subject to the terms and conditions set forth in the Purchase
Agreement, Sellers hereby grant, sell, convey, assign, transfer and deliver to
Buyer, and Buyer hereby acquires from Sellers, free and clear of any Encumbrance
or adverse claim of any kind whatsoever other than any Permitted Encumbrance,
all of the Company's right, title, and interest in and to all assets,
properties, rights, leases, fixtures, accessories, claims, contracts and
interests of the Company of every kind, type or description, real, personal and
mixed, tangible and intangible, wherever located, that are used in or pertain to
the Business and operations of the Company (the "Purchased Assets"), including
without limitation:
(a) the equipment, leasehold improvements, furniture
and fixtures, vehicles and other operating assets owned or leased by the Company
and used in the Business as set forth in Schedule 3.1(a) to the Purchase
Agreement;
(b) all customer lists and customer accounts owned by the
Company as set forth in Schedule 3.1(b) to the Purchase Agreement;
(c) all of the Company's right, title and interest in
and to the contracts and agreements set forth in Schedule 3.1(c) to the Purchase
Agreement;
(d) all Permits issued to or held by the Company
necessary or incidental to the conduct of the Business set forth in Schedule
3.1(d) to the Purchase Agreement to the extent transferable;
(e) all the operating data, books, files, documents and
records of the Company relating to the Business;
<PAGE> 46
(f) all prepaid expenses, deposits (other than lease
security deposits, if any) and deferred items in effect as of the date hereof
and from which Buyer may derive future benefit;
(g) all of the Company's rights to the name "Marathon
Biopharmaceuticals", all variations thereof and all trademarks, trade names,
service marks and goodwill associated therewith; and
(h) the goodwill and going concern value of the
business of the Company.
3. Buyer hereby waives compliance by Sellers with the provisions
of the bulk transfer laws of any state. Sellers warrant and agree to pay and
discharge when due all claims of creditors which could be asserted against Buyer
by reason of such noncompliance. Sellers shall indemnify and hold Buyer harmless
from, against and in respect of (and shall on demand reimburse Buyer for) any
Damages suffered or incurred by Buyer by reason of the failure of Sellers to pay
or discharge such claims.
4. From time to time after the date hereof, Sellers will execute
and deliver, or cause its affiliates to execute and deliver, to Buyer such
instruments of sale, transfer, conveyance, assignment and delivery, and such
consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Buyer or its counsel in order to vest in the Company all
right, title and interest of Seller in and to the Purchased Assets and otherwise
in order to carry out the purpose and intent of this Bill of Sale.
5. Notwithstanding any other provisions of this Bill of Sale to
the contrary, nothing contained in this Bill of Sale shall in any way supersede,
modify, replace, amend, change, rescind, waive, exceed, expand, enlarge or in
any way affect the provisions, including warranties, covenants, agreements,
conditions, representations or, in general any of rights and remedies, and any
of the obligations and indemnifications of Sellers or Buyers set forth in the
Purchase Agreement nor shall this Bill of Sale expand or enlarge any remedies
under the Purchase Agreement including without limitation any limits on
indemnification specified therein. This Bill of Sale is intended only to effect
the transfer of certain property transferred pursuant to the Purchase Agreement
and shall be governed entirely in accordance with the terms and conditions of
the Purchase Agreement.
6. This Bill of Sale may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
<PAGE> 47
IN WITNESS WHEREOF, Sellers have caused this Bill of Sale to be
executed and delivered on the date and year first written above.
Marathon Biopharmaceuticals, LLC,
a Massachusetts limited liability
company
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
520 Commonwealth Real Estate
Corporation, a Massachusetts
corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
660 Corporation,
a Massachusetts corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
[SIGNATURE PAGE TO THE BILL OF SALE]
<PAGE> 48
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement ("Assignment") is
entered into this ____ day of ____, 199__, by and between Ligand Pharmaceuticals
Incorporated, a Delaware corporation ("Assignee"), and Marathon
Biopharmaceuticals LLC, a Massachusetts limited liability company, 520
Commonwealth Real Estate Corporation, a Massachusetts corporation and 660
Corporation, a Massachusetts corporation (collectively, the "Assignors").
RECITALS
WHEREAS, Assignors and Assignee have entered into that certain
Option and Asset Purchase Agreement, dated as of May ___, 1998 (the "Purchase
Agreement") for the sale by Assignors of the Purchased Assets (as defined in
Section 3.1 of the Purchase Agreement) (initially capitalized terms used herein
and not otherwise defined herein shall have the meanings given to such terms in
the Purchase Agreement); and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the consummation of the transactions contemplated under
the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth herein, and for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. ASSIGNMENT AND ASSUMPTION. Assignors hereby agree that,
effective as of the Closing, it shall grant, sell, convey, assign, transfer and
deliver to Assignee, and Assignee hereby agrees to accept and assume, free and
clear of any Encumbrance or adverse claim of any kind whatsoever other than any
Permitted Encumbrance, all of Assignors' right, title and interest in and to all
the Purchased Assets. Assignors hereby assign, and Assignee hereby assumes,
agrees to pay, perform and discharge when due, any liability or obligation with
respect to the Assumed Liabilities.
2. RETAINED LIABILITIES. The parties acknowledge and agree that,
except for the Assumed Liabilities, Assignors shall retain and be responsible
for all obligations, liabilities, and claims of any nature, accruing, arising
out of, or relating to the Assignors (including without limitation any liability
or obligation arising out of or relating to any of the Excluded Assets), whether
actual or contingent, matured or unmatured, liquidated or unliquidated, or know
or unknown (the "Retained Liabilities"). Assignors shall indemnify and hold
Assignee harmless from, against and in respect to (and shall reimburse Assignee
for) any loss, liability, cost or expenses, including, without limitation,
reasonable attorneys' fees, suffered or incurred by Assignee by reason of or
resulting from the Retained Liabilities.
3. ENTIRE AGREEMENT; AMENDMENT. This Assignment, together with
the Purchase Agreement, constitutes the entire agreement and understanding
between and among the parties hereto with respect to the matters set forth
herein, and supersedes and replaces any prior agreements and understandings,
whether oral or written, between and among them with respect
<PAGE> 49
to such matters. Neither this Agreement nor any provisions hereof may be
modified, amended or waived except by the written agreement of the parties
hereto.
4. ASSUMPTION OF LIABILITIES. Assignee hereby assumes and
hereafter shall pay when due and discharge those liabilities, contracts,
commitments and other obligations of Assignor set forth in Schedule 3.3 to the
Purchase Agreement.
5. EFFECT. Notwithstanding any other provisions of this
Assignment and Assumption Agreement to the contrary, nothing contained in this
Assignment and Assumption Agreement shall in any way supersede, modify, replace,
amend, change, rescind, waive, exceed, expand, enlarge or in any way affect the
provisions, including warranties, covenants, agreements, conditions,
representations or, in general any of rights and remedies, and any of the
obligations and indemnifications of Sellers or Assignee set forth in the
Purchase Agreement nor shall this Assignment and Assumption Agreement expand or
enlarge any remedies under the Purchase Agreement including without limitation
any limits on indemnification specified therein. This Assignment and Assumption
Agreement is intended only to effect the transfer of certain property
transferred pursuant to the Purchase Agreement and shall be governed entirely in
accordance with the terms and conditions of the Purchase Agreement.
6. ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. From time to time
after the date hereof, Assignor will execute and deliver, or cause its
affiliates to execute and deliver, to Assignee such instruments of sale,
transfer, conveyance, assignment and delivery, and such consents, assurances,
powers of attorney and other instruments as may be reasonably requested by
Assignee or its counsel in order to vest in Assignee all right, title and
interest of Assignor in and to the Purchased Assets and otherwise in order to
carry out the purpose and intent of this Assignment and Assumption Agreement.
7. GOVERNING LAW. This Assignment shall in all respects be
construed in accordance with and governed by the laws of the State of Delaware
without giving effect to its conflicts-of-laws principles (other than any
provisions thereof validating the choice of the laws of the State of
Massachusetts in the governing law).
8. COUNTERPARTS. This Agreement may be executed in any number of
counter parts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
[SIGNATURE PAGE TO FOLLOW]
2
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Assignment as
of the day and year first written above.
MARATHON BIOPHARMACEUTICALS, LLC,
a Massachusetts corporation
By: __________________________________
Name: ________________________________
Title: _________________________________
520 COMMONWEALTH REAL ESTATE CORPORATION,
a Massachusetts corporation
By: _________________________________
Name: _______________________________
Title: ________________________________
660 CORPORATION,
a Massachusetts corporation
By: _________________________________
Name: ______________________________
Title: _______________________________
LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation
By: ________________________________
Name: _____________________________
Title: ______________________________
[SIGNATURE PAGE TO THE ASSIGNMENT AND ASSUMPTION AGREEMENT]
3
<PAGE> 51
EXHIBIT D
INTELLECTUAL PROPERTY ASSIGNMENT
INTELLECTUAL PROPERTY ASSIGNMENT dated as of _______, 199__, by
and between Ligand Pharmaceuticals Incorporated, a Delaware corporation
("Assignee"), and Marathon Biopharmaceuticals, LLC, a Massachusetts limited
liability company ("Assignor").
WHEREAS, Assignee, Assignor, 520 Commonwealth Real Estate
Corporation, a Massachusetts corporation and 660 Corporation, a Massachusetts
corporation, are parties to that certain Option and Asset Purchase Agreement
dated as of May __, 1998 (the "Purchase Agreement").
WHEREAS, the execution and delivery of this Intellectual Property
Assignment is a condition precedent to Assignee's obligations under the Purchase
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Assignor assigns to Assignee, and Assignee hereby accepts such
assignment of, Assignor's entire right, title and interest in and to all of
Assignor's intellectual property, all patents, patent applications, and patent
licenses (including, without limitation, as set forth on Exhibit "A" hereto),
all trademarks and trademark applications (including, without limitation, as set
forth on Exhibit "A" hereto) and all copyrights and copyright applications
(including, without limitation, as set forth on Exhibit "A" hereto); all
registrations and applications and renewals for any of the foregoing; all trade
secrets, confidential information, ideas, formulae, compositions, know-how,
technical and computer data, documentation and software, financial, business and
marketing plans, consumer and supplier lists and related information, marketing
and promotional materials and all other information, know-how and intellectual
property rights and all tangible embodiments thereof of Assignor or utilized by
the Business; all income, royalties, damages and payments due as of the date
hereof or thereafter with respect to any of the foregoing and all other rights
with respect thereto (including, without limitation, rights to damages and
payments for past, present or future infringements or misappropriations thereof)
in all countries (collectively, "Intellectual Property") and the goodwill of the
business and operations of Marathon (the "Business") associated with the
Intellectual Property.
2. The rights, title and interest assigned under Section 1 above
shall be for Assignee's own use and enjoyment, and for the use and enjoyment of
Assignee's successors, assigns or other legal representatives, as fully and
entirely as the same would have been held and enjoyed by the Assignor if this
assignment and sale had not been made.
3. Assignor authorizes and requests the Commissioner of Patents
and Trademarks of the United States, and an official of any country or countries
foreign to the United States, whose duty it is to register patents, trademarks
or copyrights, to record Assignee as the assignee and owner of the Intellectual
Property.
4. Concurrently with the execution of this Intellectual Property
Assignment,
<PAGE> 52
Assignor shall deliver the original papers, applications, and other
official documents relating to all patents and trademarks, and other
Intellectual Property, assigned under Section 1 above.
5. Assignor hereby represents and warrants that all rights,
title, and interest assigned under Section 1 above are free and clear of any
liens and encumbrances and that Assignor has not executed and will not execute
any agreement or other instrument in conflict herewith.
6. Assignor hereby covenants and agrees that it shall cease and
refrain from all use of all rights, title, and interests assigned under Section
1 above in all countries of the world as of the date hereof.
7. Assignor hereby appoints Assignee as Assignor's
attorney-in-fact, irrevocably and coupled with an interest, to executive,
acknowledge, deliver and record any documents or instruments necessary to effect
the assignment contemplated under Section 1.
8. With respect to the Intellectual Property, Assignor will, from
and after the Closing (i) use its best efforts to keep such Intellectual
Property confidential, including continuing to protect the confidential nature
of such Intellectual Property as if the sale provided for in the Purchase
Agreement had not occurred, (ii) not disclose the Intellectual Property to any
third party and (iii) not use the Intellectual Property. Assignor's obligations
of confidentiality and nondisclosure shall not apply to Intellectual Property
which (a) as of the Date hereof, was generally available to the public; (b)
after the date hereof, becomes generally available to the public through no act
or omission on the part of Assignor; or (c) is hereafter received on a
non-confidential basis by Assignors from a third party who has the lawful right
to disclose such Intellectual Property on such basis.
9. From time to time after the date hereof, Assignor will execute
and deliver, or cause its affiliates to execute and deliver, to Assignee such
instruments of sale, transfer, conveyance, assignment and delivery, and such
consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Assignee or its counsel in order to vest in Assignee all
right, title and interest of Assignor in and to the Purchased Assets and
otherwise in order to carry out the purpose and intent of this Intellectual
Property Assignment.
10. Notwithstanding any other provisions of this Intellectual
Property Assignment to the contrary, nothing contained in this Intellectual
Property Assignment shall in any way superseded, modify, replace, amend, change,
rescind, waive, exceed, expand, enlarge or in any way affect the provisions,
including warranties, covenants, agreements, conditions, representations, or in
general any of the rights and remedies, and any of the obligations and
indemnifications of Assignor or Assignee set forth in the Purchase Agreement nor
shall this Intellectual Property Assignment expand or enlarge any remedies under
the Purchase Agreement including without limitation any limits on
indemnification specified therein. This Intellectual Property Assignment is
intended only to effect the transfer of certain property
<PAGE> 53
transferred pursuant to the Purchase Agreement and shall be governed entirely in
accordance with the terms and conditions of the Purchase Agreement.
11. This Intellectual Property Assignment shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns.
12. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer with
answer back confirmation or mailed (postage prepaid by certified or registered
mail, return receipt requested) or by overnight courier to the parties at the
following addresses or facsimile numbers.
If to the Company:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attn: William L. Respess, Esq.
Fax: (619) 550-7506
with copies to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
Facsimile No.: (619) 234-1966
If to Marathon:
Marathon Biopharmaceuticals LLC
97 South Street
Hopkinton, MA 07418
Attn: Secretary
with copies to:
---------------------------
---------------------------
Mintz Levin Cohn Ferris Glovsky and Popeo PC
One Financial Center
Boston, MA 02111
<PAGE> 54
13. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition, whether
of like or different nature. This Agreement may be amended or modified only by a
writing executed by both parties.
14. This Intellectual Property Assignment shall in all respects
be construed in accordance with and governed by the laws of the State of
Delaware without giving effect to its conflicts-of-laws principles (other than
any provisions thereof validating the choice of the laws of the State of
Delaware in the governing law).
15. This Intellectual Property Assignment may be executed by the
parties herein in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together shall
constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
LIGAND PHARMACEUTICALS INCORPORATED, a
Delaware corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
MARATHON BIOPHARMACEUTICALS, LLC, a
Massachusetts limited liability company
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE> 56
STATE OF )
) ss
COUNTY OF )
On , 1997, before me personally appeared
, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
-----------------------------------
Notary Public
STATE OF )
) ss
COUNTY OF )
On , 1997, before me personally appeared
, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
-------------------------------------
Notary Public
<PAGE> 57
Exhibit A
<PAGE> 58
EXHIBIT E
CERTIFICATE OF MANAGER
MARATHON BIOPHARMACEUTICALS, LLC
This Certificate is delivered pursuant to Section 3.8(c)(vii) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC (the "Company"), 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation. Capitalized terms used herein without
definition shall have the same meaning as set forth in the Agreement.
I, _____________________, do hereby certify that I am the duly elected,
qualified and acting Manager of the Company and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. I have custody and control of the records of the Company.
2. Attached hereto as Attachment 1 is a true and correct copy of the
Operating Agreement of the Company in full force and effect as of the date
hereof.
3. Attached hereto as Attachment 2 is a true and correct copy of the
Certificate of Organization of the Company as filed with the Secretary of the
Commonwealth of Massachusetts. No filing has been made with such authority since
the date of thereof and no other filing is pending.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
___________________________________
Name:_______________
<PAGE> 59
EXHIBIT F-1
CERTIFICATE OF OFFICER
520 COMMONWEALTH AVENUE REAL ESTATE CORP.
This Certificate is delivered pursuant to Section 3.8(c)(vi) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp.
("Member") and 660 Corporation. Capitalized terms used herein without definition
shall have the same meaning as set forth in the Agreement.
I, _________________, do hereby certify that I am the duly elected,
qualified and acting _________________ of Member and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. All representations and warranties of Member contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Member has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
___________________________________
Name:_______________
<PAGE> 60
EXHIBIT F-2
CERTIFICATE OF OFFICER
660 CORPORATION
This Certificate is delivered pursuant to Section 3.8(c)(vi) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC, 520 Commonwealth Avenue Real Estate Corp. and
660 Corporation ("Member"). Capitalized terms used herein without definition
shall have the same meaning as set forth in the Agreement.
I, _________________, do hereby certify that I am the duly elected,
qualified and acting _________________ of Member and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. All representations and warranties of Member contained in the
Agreement are true and correct on and as of the date hereof, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), and Member has
performed all agreements and covenants in a timely manner required to be
performed by it prior to or on the date hereof.
2. No Actions or Proceedings have been instituted or threatened which
question the validity or legality of the transactions contemplated by the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
___________________________________
Name:_______________
<PAGE> 61
EXHIBIT G
CERTIFICATE OF MANAGER
MARATHON BIOPHARMACEUTICALS, LLC
This Certificate is delivered pursuant to Section 3.8(c)(vii) of that
certain Option and Asset Purchase Agreement (the "Agreement"), dated as of
__________________, 199__, by and among Ligand Pharmaceuticals Incorporated,
Marathon Biopharmaceuticals, LLC (the "Company"), 520 Commonwealth Avenue Real
Estate Corp. and 660 Corporation. Capitalized terms used herein without
definition shall have the same meaning as set forth in the Agreement.
I, _____________________, do hereby certify that I am the duly elected,
qualified and acting Manager of the Company and as such, am authorized to
execute this Certificate on its behalf, and I further certify that:
1. I have custody and control of the records of the Company.
2. Attached hereto as Attachment 1 is a true and correct copy of the
Operating Agreement of the Company in full force and effect as of the date
hereof.
3. Attached hereto as Attachment 2 is a true and correct copy of the
Certificate of Organization of the Company as filed with the Secretary of the
Commonwealth of Massachusetts. No filing has been made with such authority since
the date of thereof and no other filing is pending.
IN WITNESS WHEREOF, I have executed this Certificate as of the
Closing Date, this ____ day of ________________, 199__.
___________________________________
Name:_______________
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 3 TO OPTION AND WHOLESALE PURCHASE AGREEMENT
This Amendment is executed as of the 11th day of May, 1998 by and
between Eli Lilly and Company ("Lilly") and Ligand Pharmaceuticals Incorporated
("Ligand").
WHEREAS, Lilly and Ligand have entered into an Option and Wholesale
Purchase Agreement dated as of November 25, 1997, amended on February 23, 1998
and further amended on March 16, 1998 (the "Agreement"); and
WHEREAS, the parties now desire to amend the Agreement to limit the time
period during which Section 1.3 of the Agreement will be operative.
NOW, therefore, in consideration of the foregoing, the mutual covenants
set forth below and other consideration, receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Section 1.3 of the Agreement is hereby amended to read in its
entirety as follows:
"1.3 CASH/ROYALTY OPTION. On or before the earlier of (i) January 31,
1999 or (ii) the Effective Date (as defined therein) of the Agreement
between Ligand and Lilly dated May 11, 1998 (the "Subsequent Agreement")
(collectively, (i) and (ii) shall be known as the "Cash/Royalty
Termination Date"), Ligand may determine to exercise the Cash/Royalty
Option (as defined below), by delivery of written notice to Lilly
informing Lilly of its decision to exercise the Cash/Royalty Option (the
"Cash/Royalty Notice"). Upon delivery of the Cash/Royalty Notice, this
Agreement shall automatically terminate and the parties only surviving
rights and obligations under this Agreement shall be as follows
(collectively, (a) and (b) below shall be known as the "Cash/Royalty
Option"):
(a) Subject to the terms and conditions set forth in the stock
purchase agreement described in Section 4.6, Lilly shall purchase from
Ligand, and Ligand shall sell and issue to Lilly, for Twenty Million
Dollars ($20,000,000), the number of shares of Ligand's voting common
stock (the "Shares") equal to Twenty Million Dollars ($20,000,000)
divided by one hundred twenty percent (120%) of the average daily
closing price for the Shares as reported by the National Association of
Securities Dealers, Inc. on the twenty (20) consecutive trading days
immediately preceding the date which is five (5) days prior to the date
of the Cash/Royalty Notice; and
(b) Ligand shall have the right to designate either Targretin (as
defined in that certain Development and License Agreement (Targretin)
dated the date of this Agreement), Compound 268 or Compound 324 (each as
defined in that certain Collaboration Agreement dated the date of this
Agreement) for increased royalties, which right shall be exercised in
the manner set forth and on the terms and conditions provided in Section
5.1(b) of the Targretin Agreement with respect to
1
<PAGE> 2
Targretin, or Section 6.1(b) of the Collaboration Agreement with respect
to Compound 268 or Compound 324.
The Cash/Royalty Option shall terminate if not exercised before the
Cash/Royalty Termination Date and thereafter the only option available
under this Agreement shall be the Ligand Option."
2. All other terms and conditions of the Agreement shall remain in full
force and effect.
3. As of the date of this Amendment, Lilly and Ligand have entered into
an Agreement (the "Lilly Agreement") which sets forth certain rights relating to
the Product. In the event of inconsistency between this Amendment and the Lilly
Agreement, the terms of the Lilly Agreement shall govern.
4. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one in the same.
[Remainder of Page Intentionally Left Blank]
2
<PAGE> 3
<TABLE>
<S> <C>
LIGAND PHARMACEUTICALS ELI LILLY AND COMPANY
INCORPORATED
By: /s/ DAVID E. ROBINSON By:
------------------------ ------------------------
Title: President and Chief Title:
Executive Officer ------------------------
Date: May 11, 1998 Date: May , 1998
---
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 3 TO
OPTION AND WHOLESALE PURCHASE AGREEMENT]
3
<PAGE> 4
<TABLE>
<S> <C>
LIGAND PHARMACEUTICALS ELI LILLY AND COMPANY
INCORPORATED
By: By: /s/ Sidney Taurel
------------------------ ------------------------
Sidney Taurel
Title: Title: President and Chief
------------------------ Executive Officer
Date: May , 1998 Date: May 11, 1998
---
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 3 TO
OPTION AND WHOLESALE PURCHASE AGREEMENT]
4
<PAGE> 1
EXHIBIT 10.7
AGREEMENT
This Agreement ("Agreement") is entered into as of May 11, 1998 among
Eli Lilly and Company, an Indiana corporation ("Lilly"), Ligand Pharmaceuticals
Incorporated, a Delaware corporation ("Ligand"), and Seragen, Inc., a Delaware
corporation ("Seragen"). All of the provisions of this Agreement (except
Sections 2(b), 2(c), 2(e), 11 and 13 or as otherwise provided in this Agreement)
shall be effective as set forth in Sections 2(a), 2(c) and 2(d) (the "Effective
Date"); and Sections 2(b), 2(c), 2(e), 11 and 13 shall be effective as of the
date hereof between Lilly and Ligand only. Seragen shall not be a party to this
Agreement and none of the provisions hereof shall be deemed to be for the
benefit of Seragen until such time as Seragen executes this Agreement as of the
closing (the "Closing") of the proposed merger (the "Merger") of Seragen with
and into Knight Acquisition Corporation, a Delaware corporation and wholly owned
subsidiary of Ligand ("Knight Acquisition"), as set forth below. All references
to "Seragen" in this Agreement shall include the surviving corporation of the
Merger, pursuant to the terms of that certain Agreement and Plan of
Reorganization dated as of May 11, 1998 (the "Reorganization Agreement"), a copy
of which has been furnished to Lilly. Upon the consummation of the Merger,
Seragen will be a wholly owned subsidiary of Ligand and Ligand will cause
Seragen to execute this Agreement as of the Closing.
WHEREAS, Lilly and Seragen are parties to the Sales and Distribution
Agreement (as amended through the date hereof, the "Sales Agreement") dated as
of August 3, 1994, as previously amended by an Amendment to Sales and
Distribution Agreement dated May 28, 1996, and to the Development Agreement
dated as of August 3, 1994 (as amended through the date hereof, the "Development
Agreement"), each of the Sales Agreement and the Development Agreement having
been amended by an Amendment dated December 16, 1994, an Amendment re: Steering
Committee effective June 30, 1995, an Amendment to Sales and Distribution
Agreement and Development Agreement dated April 7, 1997, a certain letter
agreement dated June 5, 1997, and a certain letter agreement dated May 11, 1998,
in each case between Lilly and Seragen (collectively, the Sales Agreement and
the Development Agreement shall be known as the "Seragen Agreements");
WHEREAS, the Sales Agreement governs certain marketing and distribution
rights with respect to Seragen's fusion protein technology;
WHEREAS, the Development Agreement governs the conduct of certain basic
and clinical research performed with respect to Seragen's fusion protein
technology;
WHEREAS, Ligand and Lilly are parties to the Option and Wholesale
Purchase Agreement dated November 25, 1997, as the same may be amended from time
to time ("Wholesale Purchase Agreement");
WHEREAS, Ligand desires to have the option in certain circumstances to
(i) reject the Ligand Option (as defined in the Wholesale Purchase Agreement)
and its rights and obligations under the Wholesale Purchase Agreement (other
than the rights and obligations set forth in Section 1.3 of the Wholesale
Purchase Agreement), (ii) to accept the assignment by Lilly of all of Lilly's
rights and obligations under the Seragen Agreements, subject to the terms and
conditions
<PAGE> 2
of this Agreement (the "Assignment"), and, in the event Ligand elects subclause
(ii) above, Lilly desires to effect the Assignment or (iii) to exercise the
Ligand Option.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter recited, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
shall have the same meaning herein as in the Seragen Agreements, as applicable.
When used in this Agreement, each of the following terms shall have the meanings
set forth below:
"BLA" shall mean a biologics license application.
"Confidential Information" shall mean all information,
inventions, knowhow and data disclosed by one party to the other party, or its
respective affiliates or agents, pursuant to this Agreement, whether in oral,
written, graphic or electronic form and whether in existence as of the effective
date or developed or acquired in the future, except where such information (i)
is public knowledge at the time of disclosure by the disclosing party, (ii)
becomes public knowledge through no fault of the receiving party, (iii) was in
the possession of the receiving party at the time of disclosure by the
disclosing party as evidenced by proper business records or (iv) is disclosed to
the receiving party by a third party, to the extent such third party's
disclosure was not in violation of any obligation of confidentiality.
"Confidential Information" shall also include all information that would have
been included in the definition of "Confidential Information" under the Seragen
Agreements, which information shall be deemed to be subject to the nondisclosure
and nonuse obligations contained herein notwithstanding the assignment of the
Seragen Agreements hereunder.
"Cover" (including variations thereof such as "Covering",
"Covered", and "Coverage") shall mean the manufacture, use, import, offer for
sale or sale of the Product would infringe a Valid Claim; provided, with respect
to process or manufacturing patent, that a Valid Claim therein effectively
precludes third parties from manufacturing, using, importing, offering for sale
or selling the Product. The determination of whether the Product is Covered by a
particular Valid Claim shall be made on a country by country basis. A Valid
Claim shall be deemed to provide effective preclusion hereunder where (i) there
is no competing Product being marketed or (ii) if the Product is being marketed
by a competitor, it infringes the Valid Claim (including any period in which,
and provided that, the Valid Claim is being litigated).
"DAB389IL-2" shall mean a fusion protein developed by Seragen
comprising the first 389 amino acids of the A and B fragments of the diptheria
toxin combined with interleukin-2. The term shall include pharmaceutical
formulations comprising a DAB389IL-2 developed under the Seragen Agreements.
"Data Exclusivity Period" shall mean the period, if any,
during which the FDA, or other equivalent regulatory agency in the case of
countries other than the United States, prohibits reference, for purposes of
seeking Regulatory Approval, to clinical and other data contained in the
Regulatory Approval package relating to the Product, without the consent of the
party holding the new drug application or equivalent Regulatory Approval.
2
<PAGE> 3
"Dollar" shall mean United States dollars.
"First Commercial Sale" shall mean the first sale for use by
the general public of the Product after receipt of Regulatory Approval in that
country.
"Ligand Option Period" shall have the meaning given it in the
Wholesale Purchase Agreement.
"Net Sales" shall mean the gross amount invoiced by Ligand,
Seragen or any affiliate or sublicensee of either Ligand or Seragen to unrelated
third parties for the Product, Less: (i) trade, quantity and cash discounts
actually allowed; (ii) discounts, refunds, rebates, chargebacks, retroactive
price adjustments and any other allowances which effectively reduce the net
selling price; (iii) actual product returns and allowances; (iv) the
manufacturing cost of drug delivery systems, including royalties payable
thereon; (v) any tax imposed on the production, sale, delivery or use of the
Product (excluding federal, state or local taxes based on income); (vi)
distribution expenses reasonably documented by Ligand; and (vii) any other
similar and customary deductions (as defined and accepted by GAAP), actually
incurred. Such amounts shall be determined from the books and records of Ligand,
Seragen and any affiliate or sublicense of either Ligand or Seragen which shall
be maintained in accordance with GAAP.
"Product" shall mean the finished, salable pharmaceutical form
of DAB389IL-2.
"Regulatory Approval" shall mean all authorizations by the
appropriate governmental entity or entities necessary for commercial sale of the
Product (including exports) in a jurisdiction in which Ligand or any affiliate
or sublicensee elects to market the Product, including, without limitation,
approval of labeling, price, reimbursement and manufacturing.
"Royalty Term" shall mean, with respect to the Product in each
country, (A) if the manufacture, use, import, offer for sale or sale of the
Product in such country is Covered by a Seragen Patent, the period of time equal
to the longer of (1) ten (10) years from the date of First Commercial Sale of
the Product in such country (or, if First Commercial Sale occurs prior to
January 1, 2000, in such country, for ten (10) years from January 1, 2000) or
(2) the expiration of the last-to-expire applicable patent in such country;
provided, however, if the manufacture, use, import, offer for sale or sale of
the Product is Covered only by a Valid Claim of a pending patent application in
such country, the Royalty Term shall expire, except as provided in (B) below,
five (5) years from the date of the First Commercial Sale in such country unless
(y) the pending patent application Covering such Product issues prior to the end
of such five (5) year period, in which case the Royalty Term shall not expire at
the end of such five (5) year period, or (z) the pending patent application
Covering such Product issues after the end of such five (5) year period, in
which case the Royalty Term shall expire at the end of such five (5) year period
but shall be reinstated from the date the patent issues, or (B) if the
manufacture, use, import offer for sale or sale of the Product in such country
is not so Covered by a Seragen Patent, the period of time equal to the Data
Exclusivity Period in such country.
"Seragen Agreements" shall have the meaning set forth in the
preamble to this Agreement.
3
<PAGE> 4
"Seragen Patents" shall mean all patents, both foreign and
domestic (including without limitation, all substitutions, extensions, reissues,
renewals, reexaminations, patents of addition, supplementary protection
certificates and inventors' certificates thereof), and all patent applications
(including provisional applications, divisions, continuations and
continuations-in-part), heretofore or hereafter filed or having any legal force
in any country together with any patents that have issued or in the future issue
therefrom, which are owned, controlled, or licensed (with the right to disclose
and sublicense and subject to the rights of third parties existing thereon), in
whole or in part, by Seragen or any affiliate of Seragen, and which Cover the
Product.
"Valid Claim" shall mean any claim (a) issued in an unexpired
patent which has not been held unenforceable, unpatentable or invalid by a
decision of a court or other governmental agency of competent jurisdiction
following exhaustion of all possible appeal processes, and which has not been
admitted to be invalid or unenforceable through reissue, reexamination or
disclaimer, or (b) of a pending patent application, so long as such patent
application is being diligently prosecuted.
2. Effectiveness of this Agreement, Assignment of Seragen Agreements;
Effectiveness of Wholesale Purchase Agreement.
(a) In the event the Closing occurs prior to first Regulatory
Approval, this Agreement shall become effective as of the Closing and
thereafter: (i) the Wholesale Purchase Agreement shall be deemed to have expired
without the exercise of the Ligand Option (as defined in the Wholesale Purchase
Agreement) or the Cash/Royalty Option and the Wholesale Purchase Agreement shall
be of no further force or effect; (ii) Ligand shall have no further right to
exercise its option under Section 6.1 (b) of the Collaboration Agreement dated
November 25, 1997, among Lilly, Ligand and Allergan Ligand Retinoid
Therapeutics, Inc.; and (iii) Ligand shall have no further right to exercise its
option under Section 5.1 (b) of the Development and License Agreement
(Targretin) dated November 25, 1997, between Lilly and Ligand.
(b) (i) In the event first Regulatory Approval is received
prior to the Closing (which Regulatory Approval has been received on or before
January 31, 1999) and Ligand is in compliance with Section 5.9 of the
Reorganization Agreement through the date of such Regulatory Approval (as
determined pursuant to that certain letter agreement dated the date hereof
between Ligand, Lilly and Seragen), within fifteen (15) days following receipt
of the first Regulatory Approval, Ligand shall elect one of the following
alternatives, by written notice to Lilly within such fifteen (15)-day period:
(A) to exercise the Cash/Royalty Option (as defined in Section 1.3 of the
Wholesale Purchase Agreement) and thereby elect to receive an equity investment
and an increase in certain royalties under Section 1.3 of the Wholesale Purchase
Agreement; or (B) to proceed with the Assignment by Lilly, subject to the terms
and conditions of this Agreement.
(ii) In the event first Regulatory Approval is received prior
to the Closing (which Regulatory Approval has been received following January
31, 1999) and Ligand
4
<PAGE> 5
is in compliance with Section 5.9 of the Reorganization Agreement through the
date of such Regulatory Approval (as determined pursuant to that certain letter
agreement dated the date hereof between Ligand, Lilly and Seragen), within
fifteen (15) days following receipt of the first Regulatory Approval ("Notice
Period"), Ligand shall elect one of the following alternatives, by written
notice to Lilly within the Notice Period: (A) to proceed with the Assignment by
Lilly, subject to the terms and conditions of this Agreement; or (B) to
terminate this Agreement. In the event Ligand elects to terminate this Agreement
under this Section 2(b)(ii), the Wholesale Purchase Agreement shall be deemed
terminated and Ligand shall have no right to exercise either the Ligand Option
or the Cash/Royalty Option.
(iii) (A) In the event first Regulatory
Approval is received prior to the Closing and Ligand is not in compliance with
Section 5.9 of the Reorganization Agreement through the date of such Regulatory
Approval (as determined pursuant to that certain letter agreement dated the date
hereof between Ligand, Lilly and Seragen), Ligand shall elect one of the
following alternatives, by written notice to Lilly within the Notice Period: (I)
to exercise the Cash/Royalty Option (as defined in Section 1.3 of the Wholesale
Purchase Agreement) and thereby elect to receive an equity investment and an
increase in certain royalties under Section 1.3 of the Wholesale Purchase
Agreement; or (II) to exercise the Ligand Option (as defined in Section 1.1 of
the Wholesale Purchase Agreement) and thereby elect to act as Lilly's exclusive
wholesaler of the Product, subject to the terms and conditions of the Wholesale
Purchase Agreement.
(B) Notwithstanding the foregoing, Lilly
may extend the Notice Period, in its sole discretion, by written notice to
Ligand during the Notice Period, for a period not to exceed ninety (90) days
("Extended Notice Period"). Ligand shall not be permitted to exercise the
Cash/Royalty Option or the Ligand Option without Lilly's prior written consent
during the Extended Notice Period until that day which is three (3) business
days prior to the last day of the Extended Notice Period at which time, if the
Closing has not occurred, Ligand may exercise either the Cash/Royalty Option or
the Ligand Option.
(iv) No First Commercial Sale shall occur within the
Notice Period or the Extended Notice Period. During the period of time following
first Regulatory Approval through to First Commercial Sale, Lilly and Ligand
shall cooperate to insure preparations for product launch proceed in an
expeditious manner to ensure Product is made available to patients as soon as
possible.
(c) If Ligand exercises the Cash/Royalty Option pursuant to
Sections 2(b)(i) or 2(b)(iii) above, the sole surviving right and obligations of
Ligand and Lilly shall be as set forth in Section 1.3 of the Wholesale Purchase
Agreement and upon delivery of the Cash/Royalty Notice: (i) the Wholesale
Purchase Agreement shall have no effect other than as set forth in Section 1.3
of such agreement; (ii) Ligand shall exercise its option under Section 6.1(b) of
the Collaboration Agreement dated November 25, 1997, among Lilly, Ligand and
Allergan Ligand Retinoid Therapeutics, Inc.; (iii) Ligand shall exercise its
option under Section 5.1(b) of the Development and License Agreement (Targretin)
dated November 25, 1997, between Lilly and Ligand; and (iv) this Agreement shall
terminate.
5
<PAGE> 6
(d) If Ligand elects to proceed with the Assignment pursuant
to Sections 2(b)(i) or (ii) above, the Assignment shall be deemed to have
occurred and this Agreement shall be effective as of the date of delivery of
notice by Ligand to Lilly pursuant to Sections 2(b)(i) or (ii) above and
thereafter: (i) the Wholesale Purchase Agreement shall be deemed to have expired
without the exercise of the Ligand Option (as defined in the Wholesale Purchase
Agreement) or the Cash/Royalty Option and the Wholesale Purchase Agreement shall
be of no farther force or effect; (ii) Ligand shall have no further right to
exercise its option under Section 6.1(b) of the Collaboration Agreement dated
November 25, 1997, among Lilly, Ligand and Allergan Ligand Retinoid
Therapeutics, Inc.; and (iii) Ligand shall have no further right to exercise its
option under Section 5.1(b) of the Development and License Agreement (Targretin)
dated November 25, 1997, between Lilly and Ligand.
(e) If Ligand exercises the Ligand Option pursuant to Section
2(b)(iii) above, the sole surviving right and obligations of Ligand and Lilly
shall be as set forth in the Wholesale Purchase Agreement and upon delivery of
notice of exercise pursuant to Section 1.2 of the Wholesale Purchase Agreement:
(i) the Wholesale Purchase Agreement shall have be in full force and effect
other than Section 1.3 of such agreement; (ii) Ligand shall have no further
right to exercise its option under Section 6.1(b) of the Collaboration Agreement
dated November 25, 1997, among Lilly, Ligand and Allergan Ligand Retinoid
Therapeutics, Inc.; (iii) Ligand shall have no further right to exercise its
option under Section 5.1(b) of the Development and License Agreement (Targretin)
dated November 25, 1997, between Lilly and Ligand; and (iv) this Agreement shall
terminate.
(f) In the event the Reorganization Agreement is terminated
prior to Regulatory Approval, this Agreement shall have no further force or
effect and Ligand's sole options shall be to exercise the Ligand Option or, if
the Reorganization Agreement is terminated on or prior to January 31, 1999, the
Cash/Royalty Option under the Wholesale Purchase Agreement.
(g) Upon the Assignment, except for the obligations reaffirmed
by Lilly pursuant to Section 4 below, Lilly hereby assigns all of its rights and
obligations under the Seragen Agreements in whole to Ligand and Ligand hereby
assumes all of Lilly's rights and obligations under the Seragen Agreements in
whole without recourse to Lilly. From and after the date of assignment
hereunder, as between Lilly on the one hand, and Ligand (and Seragen, as of the
Closing) on the other hand, all rights and obligations relating to the Product
shall be governed by this Agreement and that certain letter agreement between
Ligand, Lilly and Seragen dated the date hereof.
3. Payment of Preclinical, Clinical and Registration Expenses.
(a) Lilly shall (i) in the event the Closing has not yet
occurred, reimburse Ligand for Ligand's payments to Seragen under the Seragen
Agreements with respect to and (ii) in the event that the Closing has occurred,
pay to Seragen, the direct costs (provided such costs would have been
reimbursable under the Seragen Agreements) incurred by Seragen (the "Product
Costs") associated with (A) the submitting clinical data (Seragen Phase III
protocol 04-10) to the United States Food and Drug Administration ("FDA") and
(B) seeking approval of that
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<PAGE> 7
submission by the FDA as required by the Seragen Agreements until the earlier of
the date on which (x) a BLA for the Product is rejected, (y) a not approved,
approvable or approved letter from the FDA is received for the Product or (z) a
BLA for the Product is withdrawn. "Product Costs" shall not include any internal
costs of Seragen except for internal costs of the nature previously reimbursed
by Lilly under the Seragen Agreements.
(b) Lilly shall (i) in the event the Closing has not yet
occurred, reimburse Ligand for Ligand's payments to Seragen under the Seragen
Agreements with respect to and (ii) in the event that the Closing has occurred,
pay to Seragen, an amount up to $6.85 million (less amounts spent by Lilly after
October 15, 1997 in connection with Seragen protocols 04-11 and 04-14, and
amounts related to registration efforts for the Product) for expenditures (as
set forth in the Seragen Agreements) incurred by Seragen and Ligand for
completion of Seragen protocols 04-11 and 04-14 following approval of the
Products by FDA. Ligand will be responsible for any expenditures in excess of
the $6.85 million to be paid by Lilly pursuant to this Section 3 as set forth in
the Seragen Agreements. If any portion of the $6.85 million referred to above is
not used or reasonably required to pay the expenses referred to in this Section
3(b), Lilly shall be entitled to retain the unused portion.
(c) Ligand shall, during the time that Lilly is obligated to
pay amounts under this Section 3, furnish or cause to be furnished to Lilly on a
quarterly basis a written report of the Product Costs and other expenditures
incurred as set forth in Sections 3(a) and 3(b) above in the immediately
preceding calendar quarter (the "Quarterly Report"). Each Quarterly Report shall
be due on the seventy-fifth (75th) day following the close of each calendar
quarter and shall set forth in reasonable detail a listing of the Product Costs,
the purposes of such expenditures and the persons to whom such amounts were
paid. Ligand shall, or shall cause Seragen to, keep accurate records in
sufficient detail to enable the amounts due hereunder to be determined and to be
verified by the independent public accountants described hereunder.
(d) Lilly shall pay Ligand or Seragen, as the case may be, for
all amounts due hereunder in Dollars by any bank wire transfer in next day
funds. The payments due hereunder shall be made on or before the forty-fifth
(45th) day following receipt by Lilly of the Quarterly Report.
(e) Lilly may, at its own expense, obtain an audit of any
Quarterly Report by independent certified public accounts designated by Lilly
and reasonably acceptable to Ligand. Such request shall be made within one year
from receipt by Lilly of a Quarterly Report. The independent certified public
accountant shall have the right to examine all records kept pursuant to this
Section and shall report to Lilly the findings of said examination of records
insofar as necessary to verify the Quarterly Report. Such findings shall be
maintained in confidence by Lilly. In the event such accounting shows Lilly is
entitled to any refund of amounts paid, Ligand shall refund such amount by any
bank wire transfer in next day funds within thirty (30) days following Ligand's
receipt of the auditor's report. In the event the amount of the overpayment by
Lilly is greater than 10% of the amount actually due, Ligand shall promptly
reimburse Lilly for the cost of the audit.
7
<PAGE> 8
4. Ajinomoto Agreement. Lilly hereby reaffirms its agreement, contained
in that certain letter agreement dated June 5, 1997, between Lilly and Seragen
(the "Letter Agreement"), to pay to Ajinomoto Co., Inc. ("Ajinomoto") certain
amounts that may become due by Seragen to Ajinomoto under the terms of the
License Agreement dated December 13, 1994, as amended by the Amendment to the
License Agreement dated June 1, 1997, in both cases between Seragen and
Ajinomoto (the "Ajinomoto Agreement"). As of the date hereof, Lilly has paid
$2.15 million of the aggregate of $4.3 million that Lilly has agreed to pay to
Ajinomoto. The remaining amounts that Lilly hereby reaffirms its agreement to
pay as set forth in the Letter Agreement total $2.15 million. Lilly further
agrees that promptly after its receipt of written request from Ligand at any
time during the term of this Agreement, Lilly shall designate Ligand (or Seragen
as requested by Ligand) as a "Partner" under, and shall provide the written
notice required by, the License Agreement dated June 9, 1997, between Lilly and
Ajinomoto ("Ajinomoto Agreement"). In the event Ligand (or Seragen as requested
by Ligand) is designated a Partner under the Ajinomoto Agreement, Ligand shall
pay, or cause to be paid, all royalties to Ajinomoto as required by such
Ajinomoto Agreement.
5. Waiver of US Approval Milestone. Pursuant to Section 2.3 of the Sales
Agreement, as amended through the date hereof, Lilly is obligated to provide
Seragen with a milestone payment of One Million Dollars ($1,000,000) within
fifteen (15) calendar days after first Regulatory Approval (as defined in the
Sales Agreements) of the Product in the United States (the "US Approval
Milestone"). Lilly and Ligand have agreed that payment of the US Approval
Milestone shall be waived by Ligand on behalf of Seragen if Regulatory Approval
of the Product in the United States is obtained following the Closing. In the
event Regulatory Approval of the Product in the United States is obtained on or
prior to Closing, Lilly will make timely payment of the US Approval Milestone.
Within thirty (30) days following the Closing, Ligand shall, or shall cause
Seragen to, remit Five Hundred Thousand Dollars ($500,000) to Lilly; if the
Closing never occurs, Ligand shall have no obligation to remit the amounts set
forth in this sentence.
6. Ligand Payments to Lilly Upon Product Approval and Sales Milestones.
(a) Ligand shall pay to Lilly the following amounts:
(i) Five Million Dollars ($5,000,000) upon the later
of (A) thirty (30) days following Seragen's
receipt from FDA of notice of final approval of
the labeling for the BLA related to the Product
or (B) thirty (30) days from the Closing (the
"BLA Consideration"); and
(ii) Five Million Dollars ($5,000,000) upon delivery
to Lilly of a quarterly report provided under
Section 8(c) of this Agreement showing that the
cumulative, worldwide Net Sales of the Product
have reached Twenty Million Dollars
($20,000,000) (the "Sales Consideration").
(iii) If and only if the Reorganization Agreement is
terminated following the Effective Date, (A) an
additional Five Million Dollars ($5,000,000)
within thirty (30) days following the
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<PAGE> 9
termination of the Reorganization Agreement
("Additional BLA Consideration") and (B) an
additional Five Million Dollars ($5,000,000)
upon payment of the Sales Consideration pursuant
to Section 6(a)(ii) above ("Additional Sales
Consideration").
(iv) The BLA Consideration, the Additional BLA
Consideration, the Sales Consideration and the
Additional Sales Consideration, if any, may be
paid in the form of cash, common stock, par
value $.001 per share, of Ligand ("Common
Stock"), or a combination of both as determined
by Ligand in its sole discretion. For purposes
of determining the value of shares of Common
Stock, if any, distributed pursuant to this
Section 6, Common Stock shall be valued at the
average of the closing prices of Common Stock on
the NASDAQ National Market for the twenty (20)
consecutive trading days immediately preceding
the date which is five (5) consecutive days
prior to the date of: (i) the issuance of the
shares of Common Stock by Ligand under Sections
6(a)(i) or 6(a)(iii)(A); or (ii) the delivery of
the report by Ligand under Section 6(a)(ii). The
delivery of shares of Common Stock by Ligand and
the acceptance of such shares by Lilly pursuant
to this Section 6 shall not constitute a breach
by Lilly of its obligations under Section 4.2 of
the Stock Purchase Agreement dated November 25,
1997, between Lilly and Ligand.
7. Forgiveness of Bulk Prepayment. Pursuant to the Seragen Agreements,
Lilly paid to Seragen Five Million Dollars ($5,000,000) to be repaid via a
credit against Bulk Sales Price (as defined in the Seragen Agreements) due
Seragen by Lilly under the Sales Agreement (the "Bulk Prepayment"). If and only
if the Closing occurs, Lilly shall forgive the entire amount of the Bulk
Prepayment and neither Seragen nor Ligand shall have any obligation to advance
the credit against the Bulk Prepayment provided for in Section 2.2 of the Sales
Agreement.
8. Ligand Payment of Royalties to Lilly.
(a) Subject to the terms and conditions of this Agreement
including, without limitation, Section 9 of this Agreement, and during the
Royalty Term, in partial consideration of the terms set forth herein, Ligand
shall pay Lilly the following royalties based on worldwide Net Sales of the
Product for all indications during a calendar year as set forth below. No
royalties shall be due on Net Sales of Products during calendar years 1998 and
1999, even if sales are actually made during such calendar years.
<TABLE>
<CAPTION>
Worldwide royalties
- --------------------------------------------------
2002 and
Year Year thereafter during
2000 2001 the Royalty Term
- ----------------------- -------------------- ------------------ -------------------
<S> <C> <C> <C>
Percent of net sales 13% 18% 20%*
- ----------------------- -------------------- ------------------ -------------------
</TABLE>
9
<PAGE> 10
* If and only if the Reorganization Agreement is terminated following the
Effective Date, royalties in the calendar year 2002 and thereafter
during the Royalty Term shall be 22%.
(b) Royalty payments under this Agreement shall be made to
Lilly at the time of delivery of the quarterly report under Section 8(c) below.
If at any time legal restrictions prevent the prompt remittance of any payments
with respect to any country where the Product is sold, Ligand or its
sublicensees or marketing partners shall have the right and option to make such
payments by depositing the amount thereof in local currency to Lilly's account
in a bank or depository in such country.
(c) During the term of this Agreement and after the First
Commercial Sale of the Product in any country, Ligand shall furnish or cause to
be furnished to Lilly on a quarterly basis a written report or reports covering
each calendar quarter (each such calendar quarter being sometimes referred to
herein as a "reporting period") showing (i) the Net Sales of the Product in each
country during the Royalty Term by Ligand, its affiliates, sublicensees and
assigns, (ii) the royalties which shall have accrued under this Section 8 in
respect of such sales and the basis for calculating those royalties and (iii)
until such time as the Sales Consideration is paid under Section 6(a)(ii) of
this Agreement, the cumulative Net Sales of the Product from the date of First
Commercial Sale in any country through the end of the reporting period. Such
reports shall be mailed to : Eli Lilly and Company, Attn: Royalty
Administration, D.C. 2211, Lilly Corporate Center, Indianapolis, Indiana 46285.
With respect to sales of the Product invoiced in
Dollars, the Net Sales amounts and the amounts due to Lilly hereunder shall be
expressed in Dollars. With respect to sales of the Product invoiced in a
currency other than Dollars, the Net Sales shall be calculated using Ligand's
then current standard exchange rate methodology for the translation of foreign
currency sales into Dollars. Each quarterly report shall be accompanied by a
list of the exchange rates used in calculating Net Sales covered by such
quarterly report. Ligand will at Lilly's reasonable request but not more
frequently than once a calendar quarter inform Lilly as to the specific exchange
rate translation methodology, if any, used for a particular country or
countries. In the event that any exchange rate translation methodology changes,
Ligand will inform Lilly of the change in the quarterly report next due.
Each quarterly report shall be due on the
seventy-fifth (75th) day following the close of each reporting period. Ligand
shall keep accurate records in sufficient detail to enable the amounts due
hereunder to be determined and to be verified by the independent public
accountants described hereunder. Ligand shall furnish annually to Lilly
appropriate evidence of payment of any tax or other amount required by
applicable laws or regulations to be deducted from any royalty payment,
including any tax or withholding levied by a foreign taxing authority in respect
of the payment or accrual of any royalty.
(d) Upon the written request of Lilly, at Lilly's expense and
not more than once in or in respect of any calendar year, independent public
accountants designated by Lilly and
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<PAGE> 11
reasonably acceptable to Ligand shall verify the accuracy of the sales reports
furnished by Ligand in respect of any calendar year ending not more than
thirty-six (36) months prior to the date of such notice. Upon the expiration of
thirty-six (36) months following the end of any calendar year, the calculation
of amounts payable with respect to such fiscal year shall be binding and
conclusive upon Lilly, and Ligand and its sublicensees and marketing partners
shall be released from any liability or accountability with respect to payments
for such year. The report prepared by such independent public accountant, a copy
of which shall be sent or otherwise provided to Ligand by such independent
public accountant at the same time it is sent or otherwise provided to Lilly,
shall contain the conclusions of such independent public accountant regarding
the audit and will specify that the amounts paid to Lilly pursuant thereto were
correct or, if incorrect, the amount of any underpayment or overpayment. If such
independent public accountant's report shows any underpayment, Ligand shall
remit or shall cause its sublicensees or marketing partners to remit to Lilly
within thirty (30) days after Ligand's receipt of such report, (i) the amount of
such underpayment and (ii) if such underpayment exceeds ten percent (10%) of the
total amount owed for the calendar year then being audited, the reasonable and
necessary fees and expenses of such independent public accountant performing the
audit, subject to reasonable substantiation thereof. Any overpayments shall be
fully creditable against amounts payable in subsequent payment periods. Lilly
agrees that all information delivered or subject to review under this Section or
under any sublicensee or marketing agreement is Confidential Information (as
defined below) and that Lilly shall retain all such information in confidence.
(e) In the event of any sublicense of Product rights by Ligand
to third parties, the terms of such sublicense shall require the sublicensee to
furnish the appropriate reports under this Section 8 to Lilly.
9. Ligand Sublicense of Rights in Certain Territories. In lieu of, and
not in addition to, the obligations set forth in Section 8 to pay royalties with
respect to Net Sales in such territories, in the event that Ligand outlicenses
rights to the Product in a territory other than North America or Europe, Ligand
shall pay to Lilly, within thirty (30) days of Ligand's receipt of the payments
described below: (a) one-half (1/2) of the net upfront, milestone, technology
access or other cash payments received by Ligand from the sublicensee, but not
including any purchase of Ligand equity, loans to Ligand or any noncash
consideration (to the extent practicable, Ligand will work with the licensee to
have Lilly paid its portion of such payments directly in such territory from the
gross amount of the payment, provided, however, that such direct payment does
not cause Ligand to incur any obligations that it would not otherwise have that
would result in Ligand receiving less than one-half of the gross amount of such
payment) and (b) one-half (1/2) of the net royalty payments that Ligand receives
in consideration for the conveyance of such rights.
10. Lilly Fill/Finish of Product.
(a) Lilly shall perform the final formulation, sterile
filling, packaging and labeling of bulk DAB389IL-2 ("Bulk Material") supplied by
Seragen (or Ligand) ("Fill/Finish"). Lilly shall perform Fill/Finish in
accordance with specifications agreed upon by Ligand and Lilly (and in the event
the Closing has not occurred, pursuant to specifications required by Seragen)
prior to the first shipment of Bulk Material to Lilly and in accordance with all
applicable laws and
11
<PAGE> 12
regulations (the "Fill/Finish Specifications") and the other terms and
conditions set forth in Appendix A to this Agreement.
(b) In consideration of Lilly's Fill/Finish obligations
hereunder, Ligand shall pay to Lilly a fee of $3 per 300(greek mu)g vial
(frozen) for the first three years of the Fill/Finish Term (as defined in
Appendix A). For years four and five, the $3 fee per 300(greek mu)g vial would
increase at a rate of 10% per year.
(c) Ligand and Lilly each agree to use reasonable efforts to
complete as promptly as possible after the date of this Agreement a separate
agreement pursuant to which Lilly shall provide Fill/Finish for the Product. The
terms of such agreement will be consistent with the provisions of this Section
10 and Appendix A attached hereto and shall supersede the terms of this Section
10 and Appendix A attached hereto.
11. Additional Agreements by Lilly. Until the earlier of the Effective
Date or the termination of this Agreement pursuant to Section 13(q), Lilly shall
not amend (in a manner that would impair Ligand's rights under this Agreement),
terminate or agree to terminate the Seragen Agreements, or take any action which
would give rise to a right of termination by Seragen under the Seragen
Agreements or deliver the Option Termination Notice (as defined in the Wholesale
Purchase Agreement) without the prior written consent of Ligand, which can be
withheld at its sole discretion, unless and until Lilly's costs and expenses
(whether paid to Ligand under Section 3 of this Agreement or to Seragen under
the Seragen Agreements prior to the Effective Date) exceed the sum of (a) $6.85
million and (b) Product Costs (collectively, the "Cap"); provided
notwithstanding this Section 11, Lilly shall remain subject to this Section 11
if Ligand bears all costs and expenses under this Section 11: (y) in excess of
the Cap; and (z) only for the purpose of determining costs to be borne by
Ligand, costs of preparation, submission and management of regulatory
applications and all other Lilly activities related to the development and
approval of the Product, including internal costs (as determined by Lilly from
its books and records in accordance with its standard cost allocation practices)
and all out-of-pocket expenses.
12. Representations and Warranties. Each party hereby represents and
warrants to each of the other parties to this Agreement that as of the date
hereof and as of the date of assignment of this Agreement pursuant to Section 2
of this Agreement:
(a) Authorization. Such party (i) has the corporate power and
authority and the legal right to enter into this Agreement and perform its
obligations hereunder and (ii) has taken all necessary corporate action on its
part required to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder.
(b) Governmental Approvals. All necessary consents, approvals
and authorizations of all governmental authorities required to be obtained by
such party in connection with this Agreement have been obtained.
12
<PAGE> 13
13. Miscellaneous Provisions.
(a) Governing Law. The Agreement shall be governed by the laws
of the State of Indiana, without regard to Indiana choice of law provisions.
(b) Dispute Resolution Process. In the event of any dispute
relating to this Agreement, the parties shall, prior to instituting any lawsuit,
arbitration or other dispute resolution process on account of such dispute,
present such dispute to David Robinson or his successor as Chief Executive
Officer of Ligand on behalf of Ligand, and August Watanabe or his successor as
Chief Scientific Officer of Lilly on behalf of Lilly; provided, however, that
this provision shall not prevent either party from seeking a preliminary
injunction or other equitable relief in the event such party believes it will
suffer irreparable harm. These executives shall confer and consider each party's
view and shall attempt in good faith to resolve the dispute between themselves
or, if they are unable to so resolve the dispute, to establish a mechanism to
resolve the dispute promptly and efficiently. In the event said executives are
unable to resolve such dispute or agree upon a mechanism to resolve such dispute
within thirty (30) days, either party shall be entitled to institute litigation
and seek such remedies as may be available.
(c) Notices. All notices required or permitted to be given
under this Agreement shall be in writing and shall be deemed given, upon
receipt, if mailed by registered or certified mail (return receipt requested),
postage prepaid, or sent by overnight delivery (receipt verified) to the address
below, or given personally or transmitted by facsimile to the number indicated
below (with confirmation).
To Lilly:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attention: General Counsel
Fax: (317) 276-9152
To Ligand:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
Fax: (619) 625-4521
Any party may, by written notice to the others, designate a new address or fax
number to which notices to the party giving the notice shall thereafter be
mailed or faxed.
(d) Force Majeure. If either party's performance hereunder is
affected by any extraordinary, unexpected and unavoidable event such as acts of
God, floods, fires, riots, war, accidents, labor disturbances, breakdown of
plant or equipment, lack or failure of transportation
13
<PAGE> 14
facilities, unavailability of equipment, sources of supply or labor, raw
materials, power or supplies, infectious diseases of animals, or by the reason
of any law, order, proclamation, regulation, ordinance, demand or requirement of
the relevant government or any sub-division, authority or representative
thereof, or by reason of any other cause whatsoever (provided that in all such
cases the party claiming relief on account of such event can demonstrate that
such event was extraordinary, unexpected and unavoidable by the exercise of
reasonable care) ("Force Majeure") it shall as soon as reasonably practicable
notify the other party of the nature and extent thereof and take all reasonable
steps to overcome the Force Majeure and to minimize the loss occasioned to that
other party. Neither party shall be deemed to lose any rights under this
Agreement or be in breach of this Agreement or otherwise be liable to the other
party by reason of any delay in performance or nonperformance of any of its
obligations hereunder, except with respect to payment obligations, to the extent
that such delay and nonperformance is due to any Force Majeure of which it has
notified the other party and the time for performance of that obligation shall
be extended accordingly.
(e) Withholding, Taxes. If either party is required by the
United States government or other authorities to withhold any tax on the amounts
payable by that party to the other party under this Agreement, that party shall
be allowed to do so, and shall in such case remit payments to the other party
net of such withheld amount, provided that the withholding party furnishes the
other party with reasonable evidence of such withholding payment in electronic
or written form as soon as practicable after such withholding in order that the
other party may use the withholding tax paid as a tax credit.
(f) Entire Agreement. This Agreement, the Confidentiality
Agreements between Ligand and Lilly dated September 30, 1996, January 23, 1997
and May 8, 1997, between Ligand and Lilly and that certain letter agreement
between Ligand, Lilly and Seragen of even date herewith sets forth the entire
agreement and understanding of the parties relating to the subject matter
contained herein and merges all prior discussions and agreements between them.
No party shall be bound by any representation other than as expressly stated in
this Agreement, or by a written amendment to this Agreement signed by authorized
representatives of both parties.
(g) Non-Waiver. The failure of a party in any one or more
instances to insist upon strict performance of any of the terms and conditions
of this Agreement shall not be construed as a waiver or relinquishment, to any
extent, of the right to assert or rely upon any such terms or conditions on any
future occasion.
(h) Relationship of Parties. The relationship created by this
Agreement is solely a buyer-seller relationship and is not any form of joint
venture, partnership, franchise, or other agency relationship. Neither party
shall, under any circumstance, have any authority or otherwise purport to bind
the other party to any express or implied contract or to represent or otherwise
bind the other party before or in connection with any proceeding by any
governmental agency. Except as set forth in this Agreement, nothing herein is
intended to grant or imply any license or other rights in favor of a party to
any patent, trademark, copyright, trade secret, technology, know-how or other
rights of the other party relating to the Product or the ingredients thereof.
14
<PAGE> 15
(i) Severability. If any term, covenant or condition of this
Agreement or the application thereof to any party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (i) the remainder of this
Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
(j) Assignment. Any party may discharge any obligations and
exercise any right hereunder through an affiliate although such party shall
remain ultimately responsible for the proper discharge of all obligations
hereunder notwithstanding any assignment or delegation to any such affiliate
(references to a party shall include any affiliate of such party to whom such an
assignment or delegation has been made in accordance with this Agreement).
Ligand may assign the Agreement and its rights and obligations hereunder at any
time although Ligand shall remain ultimately responsible for the proper
discharge of all obligations hereunder notwithstanding any assignment or
delegation (references to Ligand shall include any assignee of Ligand to whom
such assignment or delegation has been made in accordance with this Agreement).
Except as provided in this Section 130), Lilly shall not delegate duties of
performance or assign, in whole or in part, rights or obligations under this
Agreement without the prior written consent of Ligand, not to be unreasonably
withheld, and any attempted delegation or assignment without such written
consent shall be of no force or effect. This Agreement shall be binding upon the
permitted successors and assigns of the parties.
(k) Headings. The headings contained in this Agreement have
been added for convenience only and shall not be construed as limiting or
defining the content of said sections or paragraphs.
(l) Interpretation. This Agreement has been jointly prepared
by the parties and their respective legal counsel and ambiguities shall not be
strictly construed against either party.
(m) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which shall
constitute together the same document.
(n) Compliance with Laws. Each party shall, and shall cause
its respective Affiliates to, comply in all material respects with all federal,
state, local and foreign laws, statutes, rules and regulations applicable to the
parties and their respective activities under this Agreement.
(o) Further Actions. Each party agrees to execute,
acknowledge, and deliver such further instruments, and to do all such other
acts, as may be necessary or appropriate to carry out the purposes and intent of
this Agreement.
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<PAGE> 16
(p) Confidential Information. Unless otherwise set forth in
this Agreement, for a period from the earlier of the date of First Commercial
Sale or the Closing until five (5) years following the termination of this
Agreement, each party and its respective affiliates shall maintain in confidence
all Confidential Information, and shall not, except as contemplated by this
Agreement, disclose Confidential Information or use Confidential Information for
its benefit or the benefit of others, without the consent of the disclosing
party (the "Disclosing Party"). Documents made available to the receiving party
(the "Receiving Party") shall remain the property of the Disclosing Party and
shall be returned upon written request of the Disclosing Party, except that one
copy of all such information may be retained for legal archival purposes by the
Receiving Party. Each party may disclose Confidential Information for the
purpose of making various regulatory filings and complying with applicable
governmental regulations, and to sublicensees (potential and actual), marketing
partners (potential and actual), consultants and others having a need to know
for the purposes of development, manufacture or marketing of Product, provided
that such sublicensees, marketing partners, consultants and others shall also
agree to appropriate and comparable confidentiality and non-use provisions. In
addition, each party shall be entitled to disclose Confidential Information to
the extent required by applicable law, orders of courts, regulatory authorities
or similar bodies having jurisdiction over the party ("Legal Process"). The
Receiving Party shall promptly notify the Disclosing Party of any request or
demand by Legal Process for disclosure of Confidential Information. With respect
to any disclosure of Confidential Information, including the text of this
Agreement, for the purpose of complying with applicable government regulations,
the disclosing party shall give the other party an opportunity to review and
comment upon the extent of any such disclosure of Confidential Information prior
to disclosure. Neither Lilly nor Ligand/Seragen shall disclose any information
about this Agreement without the prior written consent of Ligand or Lilly,
respectively. Consent shall not be required, however, for (a) disclosures to tax
or other governmental authorities or to potential or actual sublicensees, or
marketing partners to the extent required or contemplated by this Agreement,
provided, that in connection with such disclosure, each party agrees to use its
commercially reasonable efforts to secure confidential treatment of such
information, (b) disclosures of information for which consent has previously
been obtained or (c) information which had previously been publicly disclosed.
Each party shall have the further right to disclose the terms of this Agreement
as required by applicable law, including the rules and regulations promulgated
by the Securities and Exchange Commission, and to disclose such information to
shareholders or potential investors as is customary for publicly held companies.
Any copy of this Agreement to be filed with the Securities and Exchange
Commission shall be redacted to the satisfaction of Ligand and Lilly; provided,
in the event that the Securities and Exchange Commission objects to the
redaction of any portion of the Agreement after the initial submission, the
filing party shall inform the other party of the objections and shall in good
faith respond to the objections in an effort to limit the disclosure required by
the Securities and Exchange Commission, but in any event the filing party shall
be free to include any portions of the Agreement it deems necessary to respond
to the objections in any future filings. Without limiting the generality of the
foregoing and except in the circumstance where a party's outside counsel advises
the party that immediate disclosure is required, in the event that a Receiving
Party, intends to disclose Confidential Information as permitted under this
Section 13(p), such a party will provide to the Disclosing Party a copy of the
information to be disclosed and an opportunity to comment thereon prior to such
disclosure, and, to the extent practicable, consult
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<PAGE> 17
with the Disclosing Party on the necessity for the disclosure and the text of
the proposed release within a reasonable time in advance of the proposed
disclosure. The confidentiality obligations of this Section 13(p) shall survive
the termination or expiration of the Agreement.
(q) Termination of Agreement This Agreement shall terminate:
(i) in the event the Effective Date does not occur on or prior to January 31,
1999; provided in the event that Ligand or Seragen has exercised the Option (as
such term is defined in the Extension Option Agreement dated the date hereof
between Ligand, Seragen, Marathon Biopharmaceuticals, LLC, 520 Commonwealth Real
Estate Corporation and 660 Corporation), such date shall be extended upon each
exercise of the Option to the then effective termination date of such Option; or
(ii) if the Reorganization Agreement is terminated prior to First Commercial
Sale, on the date on which the Reorganization Agreement is terminated.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ELI LILLY AND COMPANY
By:
-------------------------------------
Title:
----------------------------------
LIGAND PHARMACEUTICALS
INCORPORATED
By:
-------------------------------------
Title:
----------------------------------
SERAGEN, INC.
By:
-------------------------------------
Title:
----------------------------------
18
<PAGE> 19
APPENDIX A
The additional terms and conditions which shall govern Lilly's
performance of its Fill/Finish obligations hereunder and Ligand's payment for
such services are as follows:
1. PAYMENT FOR FILL/FINISH. Ligand agrees to pay in full within thirty
(30) days (with a 2% cash discount if paid within twenty (20) days of the
original shipping date) each invoice delivered by Lilly to Ligand for the
Fill/Finish activities sold under this Agreement in accordance with the
applicable provisions of this Agreement; and to pay interest on all overdue
amounts owing from Ligand to Lilly hereunder outstanding for more than 30 days
("overdue") at the Prime Rate as published in The Wall Street Journal in effect
from time to time plus six percent (6%) per annum (or the highest amount allowed
by law, if such lawful amount is lower than the foregoing) from the date the
amounts become overdue.
2. TAX EXEMPTION CERTIFICATES. Ligand agrees to provide to Lilly a copy
of Ligand's sales tax exemption certificate, whether it be a resale certificate,
blanket exemption, or direct payment exemption under applicable laws, and to
notify Lilly promptly of any change which affects Ligand's exemption status and
to provide such other information or certifications as Lilly may reasonably
request in order to minimize tax liability and to comply with applicable tax or
other regulations of each of the jurisdictions worldwide in which Ligand sells
the Product.
3. CONTROLS. Lilly agrees to establish such internal controls and
maintain such records as will assure compliance with its obligations under this
Agreement and the ability of Ligand and appropriate regulatory authorities to
conduct a meaningful review of such records.
4. FORECASTS. Ligand agrees to provide sales forecasts at such times and
in such detail as Lilly may reasonably request in order to determine Fill/Finish
requirements.
5. CERTAIN COVENANTS OF LILLY. Lilly covenants and agrees as follows:
(a) To carry out the Fill/Finish operations in accordance with
the applicable regulatory approvals required for the Product.
(b) To carry inventory of the Product and to ship the Product
to Ligand's third party distributors.
(c) To use commercially reasonable efforts to maintain the
Product under proper conditions, both in storage and in transit to customers,
including such refrigeration as may be reasonably required; to supply only
Product that, at the time of shipment, has an expiry date of not less than sixty
(60) days after the date of shipment, and are not damaged, or shopworn; and to
provide to Ligand quarterly upon Ligand's request a listing of Lilly's complete
and current inventory of Product by item and package size certified to be
accurate by Lilly.
(d) To deliver to Ligand the forms of all pre-launch and
launch materials that Lilly's Oncology Global Business Unit may have prepared
for the Product and also to permit
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Ligand's employees to meet with the Lilly marketing staff at Lilly's offices for
a reasonably limited period to assist Ligand in preparing to market the Product,
but Lilly shall have no further responsibility for promotion of the Product.
(e) Prior to the First Commercial Sale of the Product, the
parties shall agree upon the terms of a manufacturing requirements document
which shall set forth procedures for ordering and maintaining inventory, and the
coordination and timing of manufacture and delivery to meet customer orders,
compliance with adverse event reporting and other regulatory requirements and
such other matters as are incidental to this Agreement.
6. TRANSPORTATION COSTS. Lilly shall ship the Product F.O.B. shipping
point. Ligand will pay all transportation charges for the shipment of the
Product.
7. TITLE, RISK OF LOSS AND DAMAGE. Lilly shall assume risk of loss when
Ligand delivers Bulk Material to Lilly. Thereafter, risk of loss shall pass to
Ligand when the Product is duly delivered to the carrier. Ligand shall give
Lilly written notice of any claimed shipping error within thirty (30) days after
the date of shipment from Lilly. Failure of Ligand to give such notice within
such thirty (30)-day period shall be deemed a waiver of Ligand's claim for
shortages or incorrect shipments. Lilly will not be liable for and will not
grant a credit with respect to damage to the Product in the course of shipment
from Lilly, except as set forth in Section 8 below.
8. RETURN FOR CREDIT. Ligand shall have no right to return any Product
for any reason, except that Ligand may return for credit any Product that (i) is
unusable because of Lilly's delay or negligence in shipment or (ii) is not in
conformance with product specifications (described in the BLA for the Product),
if such nonconformity is caused by Lilly's Fill/Finish activities or Lilly's
failure to follow its quality assurance/quality control procedures. Upon request
by Ligand, Lilly will ship replacement Product to Ligand's third party
distributors.
9. WARRANTY. Seragen warrants that the Bulk Material delivered to Lilly
pursuant to this Agreement shall (i) at the time of shipment not be adulterated
or misbranded within the meaning of applicable federal, state or foreign laws as
in effect at the time of delivery as a result of any condition caused by
Seragen's manufacturing activities or resulting from Seragen's failure to follow
its quality assurance/quality control procedures, and (ii) not contain any
manufacturing defect caused by Seragen's manufacturing activities or resulting
from Seragen's failure to follow its quality assurance/quality control
procedures. Lilly warrants that the Product delivered to Ligand pursuant to this
Agreement shall (i) at the time of shipment not be adulterated or misbranded
within the meaning of applicable federal, state or foreign laws as in effect at
the time of delivery as a result of any condition caused by Lilly's Fill/Finish
activities or resulting from Lilly's failure to follow its quality
assurance/quality control procedures, and (ii) not contain any manufacturing
defect caused by Lilly's Fill/Finish activities or resulting from Lilly's
failure to follow its quality assurance/quality control procedures. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER SERAGEN NOR LILLY MAKES ANY
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE BULK MATERIALS OR THE
PRODUCT. ALL OTHER WARRANTIES, EXPRESS OR
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IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY DISCLAIMED BY SERAGEN AND
LILLY. IN NO EVENT SHALL SERAGEN OR LILLY BE LIABLE FOR INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR PROFITS
OF LILLY (IN THE CASE OF SERAGEN) OR LIGAND (IN THE CASE OF LILLY).
10. BILLING, REBATES, ETC. Ligand shall be solely responsible for
billing and collection activities, rebate programs, return credit procedures and
similar activities related to its sales of Product, it being understood that
Lilly's responsibilities hereunder relate solely to Fill/Finish and shipment to
Ligand's third party distributors.
11. INSPECTION OF INVENTORY AND RECORDS. In the event Lilly inventories
Product, Ligand representative(s) will consult with and advise Lilly concerning
Lilly's inventory of Product and may inspect the same at a mutually agreed upon
time. A Ligand representative may also inspect records of Lilly to determine
compliance with Lilly's Fill/Finish obligations under this Agreement provided
that no such inspection shall relate to transactions occurring more than
eighteen (18) months prior to the date of such inspection, and provided further
that the inspection shall be performed by Ligand's regularly retained
independent auditors or employee. Any Confidential Information disclosed by
Lilly under this Section shall be maintained in confidence.
12. INDEMNITY AND INSURANCE.
(a) Except to the extent Ligand shall be entitled to
indemnification under subparagraph (b) below, Ligand shall hold harmless Lilly
and its affiliates and their respective employees and agents from and against
any and all liabilities, claims, demands, actions, suits, losses, damages, costs
and expenses (including reasonable attorney's fees) based upon
(i) use, sale, promotion, marketing or distribution
of the Product, including without limitation any product liability claims,
regardless of the theory under which such claims are brought, including any
claims for death, bodily injury or property damage arising from the use of the
Product, or
(ii) otherwise results from the negligence or willful
misconduct of Ligand or Seragen or a material breach of this Agreement by either
Ligand or Seragen, except to the extent caused by the negligence or willful
misconduct of Lilly or the material breach by Lilly of this Agreement.
(b) Except to the extent Lilly shall be entitled to
indemnification under subparagraph (a) above, Lilly shall indemnify and hold
harmless Ligand and its affiliates and their respective employees and agents
from and against any and all liabilities, claims, demands, actions, suits,
losses, damages, costs and expenses (including reasonable attorney's fees) based
upon the death or any bodily injury or property damages resulting from (i)
Lilly's Fill/Finish activities, storage, handling, or physical distribution of
Product (including product liability claims, regardless of the theory under
which such claims are brought),
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(ii) otherwise results from the negligence or willful
misconduct of Lilly or its material breach of this Agreement, except to the
extent caused by the negligence or willful misconduct of Ligand or the material
breach by Ligand of this Agreement; provided that, with respect to product
liability claims only, Lilly shall only have an obligation to indemnify or hold
harmless Ligand, its affiliates and their respective employees and agents to the
extent the injury alleged is caused by Lilly's Fill/Finish activities or Lilly's
failure to follow its quality assurance/quality control procedures.
(c) Each of the parties shall promptly notify the other of any
such claim or potential claim covered by any of the above subsections in this
Section 12 and shall include sufficient information to enable the other party to
assess the facts. Each of the parties shall cooperate fully with the other party
in the defense of all such claims. No settlement or compromise shall be binding
on a party hereto without its prior written consent, which shall not be
unreasonably withheld.
(d) Ligand and Lilly shall each have and maintain such type
and amounts of liability insurance covering their respective activities under
this Agreement as is normal and customary in the pharmaceutical industry
generally for parties similarly situated, and will upon request provide the
other party with a copy of its policies of insurance in that regard, along with
any amendments and revisions thereto.
13. RECALLS. In the event of a recall, whether voluntary or ordered by a
government agency in any jurisdiction worldwide ("Recall"), Ligand shall be
responsible for the coordination of Recall activities. Ligand shall bear and
timely pay all costs of notification, shipping and handling, retrieving the
Product subject to Recall already delivered to customers, and other expenses and
costs of the Recall, except to the extent that the Recall is a result of Lilly's
Fill/Finish activities or Lilly's failure to follow its quality
assurance/quality control procedures. Ligand shall provide Lilly with supporting
documentation of all reimbursable expenses and costs.
14. SUBCONTRACT BY LILLY. Lilly, directly or through one or more of its
Affiliates, shall provide the Fill/Finish activities for the Product as
contemplated by this Agreement for a period of five (5) years after the earlier
of the date of First Commercial Sale or the Closing, unless earlier terminated
under Section 15 below ("Fill/Finish Term"). During the Fill/Finish Term, Lilly
shall have the option to subcontract its obligation to provide Fill/Finish
activities for the Product as contemplated by this Agreement to any reputable
entity that (a) has the capacity to provide the Fill/Finish activities for the
Product as contemplated by this Agreement and (b) has or can obtain all
governmental and other permits, licenses and approvals necessary to enable the
entity to provide the Fill/Finish activities without interruption of supply of
Product. The subcontractor shall be subject to the approval of Ligand, which
approval shall not be unreasonably withheld. Upon Lilly's reasonable request,
Ligand and Seragen shall cooperate with Lilly in effecting the transfer of
Fill/Finish activities. Lilly shall remain responsible for the performance by
each such subcontractor of the Fill/Finish activities for the Product required
by this Agreement.
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15. TERMINATION OR CANCELLATION.
(a) Lilly's Fill/Finish obligations under this Agreement shall
be in effect from and after the earlier of the date of First Commercial Sale or
the Closing and shall terminate upon the expiration of the Term. Ligand shall
have the right to terminate Lilly's Fill/Finish obligations under this Agreement
prior to the expiration of the Term ninety (90)days prior written notice to
Lilly.
(b) After the Term, all then accrued rights under purchase
orders and invoices issued in compliance with this Appendix A, the indemnity and
recall provisions of Sections 12 and 13 of this Appendix A, and any rights
either party may then have as a result of any breach of this Appendix A by the
other party shall survive the Term.
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EXHIBIT 10.8
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated as of __________,
which is the date of the closing under the Merger Agreement (as defined herein),
which date is defined under the Merger Agreement as the "Closing Date" and is
referred to herein as the "Closing Date", is made by and among Lehman Brothers
Inc., Shoreline Pacific Institutional Finance, Seragen LLC, Reed R. Prior, Jean
C. Nichols, Elizabeth C. Chen, Robert W. Crane, Leon C. Hirsch, Turi Josefsen,
Gerald S.J. Cassidy and Loretta P. Cassidy (collectively, the "Variable Company
Stakeholders"), Ligand Pharmaceuticals Incorporated ("Parent"), Knight
Acquisition Corporation, a wholly-owned subsidiary of Parent ("Merger Sub"),
Seragen, Inc. (the "Company"), and State Street Bank and Trust Company, a
Massachusetts trust company ("Escrow Agent").
RECITALS
Parent, the Company and Merger Sub have entered into an Agreement
and Plan of Reorganization, dated ________ __, 1998 and attached hereto as
Exhibit A (the "Merger Agreement"), pursuant to which Parent will acquire the
Company through the statutory merger of Merger Sub with and into the Company, at
which time the separate corporate existence of Merger Sub shall cease and the
Company will continue as the surviving corporation (the "Surviving
Corporation"). Section 1.7(a)(i)(A) of the Merger Agreement requires Parent to
deliver to the Escrow Agent $200,000 in cash (the "Parent Amount"). Section 5.13
of the Merger Agreement requires Parent to deliver, or cause to be delivered, to
the Escrow Agent all monies constituting Preclosing Company Revenues, as that
term is defined in the Merger Agreement. The Parent Amount and the Preclosing
Company Revenues are to be held in escrow by the Escrow Agent to satisfy certain
obligations of the Company under the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, the parties hereto hereby agree as
follows:
1. Deposit of Amounts. Parent shall deliver, or shall cause the
Surviving Corporation to deliver, as appropriate, the Parent Amount and the
Preclosing Company Revenues to the Escrow Agent by wire transfer of immediately
available funds as follows:
State Street Bank and Trust Company
Boston, Massachusetts
Account Number:
--------------------
Account Name:
----------------------
The Parent Amount shall be transmitted by Parent for receipt by
the Escrow Agent on the Closing Date. After the Closing Date, Parent shall
promptly transmit, or shall cause the Surviving Corporation to promptly
transmit, as appropriate, all Preclosing Company Revenues to the Escrow Agent as
and when such Preclosing
<PAGE> 2
Company Revenues are received by the Surviving Corporation. Any deposits of
Preclosing Company Revenues with the Escrow Agent shall be accompanied by
written notice to the Escrow Agent identifying the deposit as such and stating
the amount thereof. Within fifteen Business Days (as hereinafter defined) after
the end of each calendar month, Parent shall provide Robert W. Crane and Seragen
LLC, as agents for the Variable Company Stakeholders (each, a "Stakeholder
Agent"), and the Escrow Agent with an accounting certified by the Chief
Financial Officer of Parent of all Preclosing Company Revenues received by the
Surviving Corporation during such month. Within fifteen Business Days after the
end of each calendar month, the Escrow Agent shall provide a statement to each
of the Stakeholder Agents that describes any deposit, distribution or investment
activity with respect to the Escrowed Amount (as defined herein) during such
month.
2. Investments. The Escrow Agent shall invest the Parent Amount
and the Preclosing Company Revenues (collectively, the "Escrowed Amount") in
such current interest bearing bank account as the Stakeholder Agents shall
jointly instruct in writing. In the absence of such a joint written instruction,
the Escrow Agent shall have no obligation or duty to invest (or otherwise pay
interest on) the Escrowed Amount. All earnings received from any investment of
the Escrowed Amount shall be included in, and shall become a part of, the
Escrowed Amount (and any losses on such investments shall be deducted from the
Escrowed Amount). The Escrow Agent shall hold the Escrowed Amount in escrow upon
the terms and conditions set forth in this Agreement.
3. Release of Escrowed Amount. The Escrow Agent shall hold the
Escrowed Amount in its possession until authorized hereunder to deliver the
Escrowed Amount, or any portion thereof, as follows:
(a) Subject to the provisions of Section 3(b), the Escrow
Agent will distribute the Escrowed Amount on the first Business Day after the
120th day following the Closing Date to each of the Variable Company
Stakeholders in accordance with the percentages set forth in Schedule 3(a)
attached hereto. For purposes of this Agreement, a "Business Day" shall mean any
day on which the Corporate Trust Office of the Escrow Agent is open for
business.
(b) Notwithstanding the provisions of Section 3(a) hereof:
(i) If before the 120th day following the Closing
Date, the Escrow Agent receives notice from Parent that there are outstanding
Preclosing Company Payables, as that term is defined in the Merger Agreement,
the Escrow Agent shall hold a portion of the Escrowed Amount equal to Parent's
estimate of the Preclosing Company Payables, as identified in such notice, in
accordance with the following provisions until there has been a Final
Determination, as defined in paragraph (c) hereof, of the amount of such
Preclosing Company Payables and any dispute with respect thereto has been
resolved in accordance with this paragraph (b).
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(ii) Upon receipt by the Escrow Agent of any Final
Determination, the Escrow Agent shall, subject to the 30 day notice provisions
set forth in subparagraph (iii) hereof, promptly distribute to Parent the amount
held in escrow in the amount of such Preclosing Company Payables as provided in
the Final Determination.
(iii) Upon receipt of any Final Determination by
the Escrow Agent as set forth in this paragraph (b), the Escrow Agent shall
promptly notify each of the Stakeholder Agents of, and furnish each with copies
of, the same. If either of the Stakeholder Agents shall, within 30 days after
receipt by both Stakeholder Agents of notice and copies of a Final Determination
from the Escrow Agent, notify the Escrow Agent that it disputes such Final
Determination, the Escrow Agent shall not distribute the amount of such
Preclosing Company Payables, or any portion thereof, to Parent until such
dispute has been settled as provided in Section 6(a) hereof and (A) the
Stakeholder Agents and Parent have provided the Escrow Agent with written notice
of such settlement and of the amount, if any, to be paid in respect of the
disputed Preclosing Company Payables or (B) the Stakeholder Agents or Parent has
provided the Escrow Agent with the final opinion of a court or arbitration panel
of competent jurisdiction from which no appeal can be taken, certified by the
Stakeholder Agents or Parent, as applicable, setting forth the amount, if any,
to be paid in respect of the disputed Preclosing Company Payables. Upon receipt
of such notice of settlement, the Escrow Agent shall disburse the remaining
Escrowed Amount in accordance with the provisions thereof.
(c) For purposes of this Agreement, a "Final
Determination" with respect to a Preclosing Company Payable shall mean (i) a
written statement from Parent setting forth the amount and nature of such
Preclosing Company Payable as finally determined by Parent and briefly
describing the basis for such determination and (ii) a true and complete copy of
the invoice and any other documentation supporting such Preclosing Company
Payable, each of (i) and (ii) as certified by the Chief Financial Officer of
Parent.
4. Tax Issues.
(a) The parties hereto agree that, for tax reporting
purposes, all interest or other income earned from the investment of the
Escrowed Amount shall be allocable to Parent.
(b) The parties hereto agree to provide the Escrow Agent
with a certified tax identification number by signing and returning a Form W-9
(or Form W-8, in the case of non-U.S. persons) to the Escrow Agent within 30
days from the date hereof. The parties hereto understand that, in the event
their tax identification numbers are not certified to the Escrow Agent, the
Internal Revenue Code may require withholding of a portion of any interest or
other income earned on the investment of the Escrowed Amount, in accordance with
the Internal Revenue Code, as amended from time to time.
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<PAGE> 4
5. Concerning the Escrow Agent.
(a) The Escrow Agent shall be paid a fee of [_____] (the
"Escrow Fee") for its services hereunder and shall be reimbursed for all
reasonable expenses, disbursements and advances incurred or made by it in the
performance of its duties hereunder, including reasonable attorneys fees. The
Escrow Fee shall be paid half by Parent and half by the Variable Company
Stakeholders. The Escrow Agent shall deduct the Variable Company Stakeholders'
portion of the Escrow Fee from the Escrowed Amount. Parent shall pay, on the
date of the execution and delivery of this Agreement, its portion of the Escrow
Fee by check drawn on Parent's corporate bank account.
(b) Parent, the Company, Merger Sub and each of the
Variable Company Stakeholders hereby acknowledge and agree that the Escrow Agent
(i) shall not be responsible for any of the agreements referred to herein
(including, without limitation, the Merger Agreement) but shall be obligated
only for the performance of such duties as are specifically set forth in this
Agreement; (ii) shall not be obligated to take any legal or other action
hereunder which might in its judgment involve expense or liability unless it
shall have been furnished with indemnity acceptable to it; (iii) may rely on and
shall be protected in acting or refraining from acting upon any written notice,
instruction (including, without limitation, wire transfer instructions, whether
incorporated herein or provided in a separate written instruction), instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof; and (iv) may
consult reputable legal counsel, including house counsel, and the advice or
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(c) Neither the Escrow Agent nor any of its directors,
officers or employees shall be liable to anyone for any action taken or omitted
to be taken by it or any of its directors, officers or employees hereunder
except in the case of gross negligence, bad faith or willful misconduct. Parent,
the Company, Merger Sub and each of the Variable Company Stakeholders, jointly
and severally, covenant and agree to indemnify the Escrow Agent and hold it
harmless without limitation from and against any loss, liability or expense of
any nature incurred by the Escrow Agent arising out of or in connection with
this Agreement or with the administration of its duties hereunder, including,
but not limited to, legal fees and expenses and other costs and expenses of
defending or preparing to defend against any claim of liability in the premises,
unless such loss, liability or expense shall be caused by the Escrow Agent's
gross negligence, bad faith or willful misconduct. In no event shall the Escrow
Agent be liable for indirect, punitive, special or consequential damages.
(d) Parent, the Company, Merger Sub and each of the
Variable Company Stakeholders, jointly and severally, agree to assume any and
all obligations
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<PAGE> 5
imposed now or hereafter by any applicable tax law with respect to the payment
of the Escrowed Amount under this Agreement, and to indemnify and hold the
Escrow Agent harmless from and against any taxes, additions for late payment,
interest, penalties and other expenses, that may be assessed against the Escrow
Agent on any such payment or other activities under this Agreement. Parent, the
Company, Merger Sub and each of the Variable Company Stakeholders undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Parent, the Company,
Merger Sub and each of the Variable Company Stakeholders, jointly and severally,
agree to indemnify and hold the Escrow Agent harmless from any liability on
account of taxes, assessments or other governmental charges, including without
limitation the withholding or deduction or the failure to withhold or deduct the
same, and any liability for failure to obtain proper certifications or to
properly report to governmental authorities, to which the Escrow Agent may be or
become subject in connection with or which arises out of this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties.
(e) The Escrow Agent shall have no more or less
responsibility or liability on account of any action or omission of any
book-entry depository or subescrow agent employed by the Escrow Agent than any
such book-entry depository or subescrow agent has to the Escrow Agent, except to
the extent that such action or omission of any book-entry depository or
subescrow agent was caused by the Escrow Agent's own gross negligence, bad faith
or willful misconduct.
(f) The Escrow Agent may at any time resign as Escrow
Agent hereunder by giving thirty (30) days prior written notice of resignation
to the other parties hereto. Prior to the effective date of the resignation as
specified in such notice, Parent will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrow Amount to a successor escrow
agent that it selects subject to the reasonable consent of each of the
Stakeholder Agents. Such successor escrow agent shall be a bank or trust
company, organized and existing under the laws of the United States or any state
thereof, subject to examination by state or federal authorities, and have
capital and surplus in excess of $500,000,000. If, however, Parent fails to name
a successor escrow agent within twenty (20) days after the notice of resignation
from the Escrow Agent, the Stakeholder Agents shall be entitled to name such
successor escrow agent. If no successor escrow agent is named by Parent or the
Stakeholder Agents, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor escrow agent. The provisions of
paragraph (c) and (d) shall survive the resignation or removal of the Escrow
Agent or the termination of this Agreement.
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<PAGE> 6
6. Miscellaneous.
(a) Dispute Resolution.
(i) In the event of any dispute arising under
Sections 1 or 3(b) hereof with respect to the Preclosing Company Receivables or
Preclosing Company Payables, such dispute shall be settled by mutual written
agreement of the parties concerned or shall be submitted to the Boston,
Massachusetts office of a nationally recognized accounting firm other than Ernst
& Young LLP or Arthur Anderson LLP for resolution in accordance with the
provisions of Section 5.13 of the Merger Agreement, all costs and expenses of
which shall be paid by the parties to the dispute. The decision of such
accounting firm shall be final and binding with respect to such matters.
(ii) Any dispute, other than a dispute described
under (i) above, arising under the Agreement with respect to the delivery of
ownership or right of possession of the Escrowed Amount or the duties of the
Escrow Agent hereunder shall be settled either by mutual written agreement of
the parties concerned or by a binding arbitration, or by a final order, decree
or judgment of a court of competent jurisdiction in the United States of
America, all costs and expenses of which shall be paid by the parties to the
dispute.
(iii) Prior to the settlement of any dispute, the
Escrow Agent is authorized and directed to retain in its possession without
liability to anyone, all or any portion of the Escrowed Amount that is the
subject of such dispute until such dispute shall have been settled by the mutual
agreement of the parties involved, by binding arbitration pursuant to
subparagraphs (i) or (ii) hereof or by a final order, decree or judgment of a
court in the United States of America, the time for perfection of an appeal of
such order, decree or judgment having expired. The Escrow Agent may, but shall
be under no duty whatsoever to, institute or defend any legal proceeding that
relates to the Escrowed Amount.
(b) Consent to Jurisdiction and Service. Parent, the
Company, Merger Sub and each of the Variable Company Stakeholders hereby
absolutely and irrevocably consents and submits to the jurisdiction of the
courts of the Commonwealth of Massachusetts and of any federal court located in
said Commonwealth in connection with any actions or proceedings brought against
such party by Escrow Agent arising out of or relating to this Agreement. In any
such action or proceeding, each such party hereby absolutely and irrevocably
waives personal service of any summons, complaint, declaration or other process
and hereby absolutely and irrevocably agrees that service thereof may be made by
certified or registered first class mail directed to such party, at its
respective address in accordance with Section 6(d) hereof.
(c) Force Majeure. No party shall be responsible for
delays or failures in performance resulting from acts beyond its control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war, epidemics,
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<PAGE> 7
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
(d) Notice to the Stakeholder Agents. Any notice permitted
or required hereunder shall be deemed to have been duly given if delivered
personally or if mailed, certified or registered mail, postage prepaid, to each
Stakeholder Agent at their addresses set forth below or to such other address as
they may hereafter designate.
If to Seragen LLC:
Seragen LLC
147 Bay State Road
Boston, Massachusetts 02115
Attention: Kenneth G. Condon
If to Robert W. Crane:
Robert W. Crane
423 Scotch Road
Titusville, New Jersey 08560
(e) Notice or Payment to the Parties. Any notice or
instruction to be made or given hereunder shall be in writing. Any notice or
instruction or payment permitted or required hereunder shall be deemed to have
been duly given if delivered personally or if mailed, certified or registered
mail, postage prepaid, to each party at their addresses set forth below or to
such other address as they may hereafter designate.
If to Parent or Merger Sub:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California
Attn: William L. Respess, Esq.
General Counsel
Wire transfer instructions:_____________
If to the Company:
Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Attn: Chief Executive Officer
Wire transfer instructions:_____________
-7-
<PAGE> 8
If to Escrow Agent:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Seragen Escrow
Corporate Trust Department
If to Lehman Brothers Inc.:
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285-0001
Attn: Rodney Young
Wire transfer instructions:_____________
If to Shoreline Pacific Institutional Finance:
Shoreline Pacific Institutional Finance
3 Harbor Drive
Suite 211
Sausalito, California 94965
Attn: General Counsel
Wire transfer instructions:_____________
If to Seragen LLC:
Seragen LLC
147 Bay State Road
Boston, Massachusetts 02115
Attention: Kenneth G. Condon
Wire transfer instructions:_____________
If to Reed R. Prior:
Reed R. Prior
17600 Charity Lane
Germantown, Maryland 20874
Wire transfer instructions:_____________
-8-
<PAGE> 9
If to Jean C. Nichols:
Jean C. Nichols, Ph.D.
c/o Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Wire transfer instructions:_____________
If to Elizabeth C. Chen:
Elizabeth C. Chen
Marathon Biopharmaceuticals, LLC
97 South Street
Hopkinton, Massachusetts 01748
Wire transfer instructions:_____________
If to Robert W. Crane:
Robert W. Crane
423 Scotch Road
Titusville, New Jersey 08560
Wire transfer instructions:_____________
If to Leon C. Hirsch:
Leon C. Hirsch
c/o United States Surgical Corporation
150 Glover Avenue
Norwalk, Connecticut 06856
Wire transfer instructions:_____________
If to Turi Josefsen:
Turi Josefsen
c/o United States Surgical Corporation
150 Glover Avenue
Norwalk, Connecticut 06856
Wire transfer instructions:_____________
-9-
<PAGE> 10
If to Gerald S.J. and Loretta P. Cassidy:
Gerald S.J. and Loretta P. Cassidy
c/o Cassidy and Associates, Inc.
700 13th Street, N.W., Suite 400
Washington, District of Columbia 20005
Wire transfer instructions:_____________
(f) Appointment of Stakeholder Agents. Each of the
Variable Company Stakeholders hereby appoints Seragen LLC and Robert W. Crane,
acting separately, as agents to represent them for all purposes specified
herein.
(g) Binding Effect. This Agreement shall be binding upon
the respective parties hereto and their heirs, executors, successors and
assigns.
(h) Modifications. This Agreement may not be altered or
modified without the consent of each of the parties hereto, which consent shall
not constitute a waiver of any of the terms or conditions of this Agreement,
unless such waiver is specified in writing, and then only to the extent so
specified. A waiver of any of the terms and conditions of this Agreement on one
occasion shall not constitute a waiver of the other terms and conditions of this
Agreement, or of such terms and conditions on any other occasion.
(i) Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Massachusetts, without regard to
its principles of conflicts of law.
(j) Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (i) consents, waivers
and modifications which may hereafter be executed, and (ii) certificates and
other information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered as of the date first above written.
SERAGEN, INC.
By:
---------------------------
Name:
Title:
LIGAND PHARMACEUTICALS INCORPORATED
By:
---------------------------
Name:
Title:
KNIGHT ACQUISITION CORPORATION
By:
---------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------
Name:
Title:
LEHMAN BROTHERS INC.
By:
---------------------------
Name:
Title:
SHORELINE PACIFIC INSTITUTIONAL FINANCE
By:
---------------------------
Name:
Title:
-11-
<PAGE> 12
SERAGEN LLC
By:
---------------------------
Name:
Title:
------------------------------
Reed R. Prior
------------------------------
Jean C. Nichols, Ph.D.
------------------------------
Elizabeth C. Chen
------------------------------
Robert W. Crane
------------------------------
Leon C. Hirsch
------------------------------
Turi Josefsen
------------------------------
Gerald S.J. Cassidy
------------------------------
Loretta P. Cassidy
-12-
<PAGE> 13
SCHEDULE 3(A)
- 3.39113385 percent to Lehman Brothers Inc.
- 1.69556693 percent to Shoreline Pacific Institutional Finance
- 13.91735164 percent to Reed R. Prior
- 4.50267259 percent to Jean C. Nichols
- 3.27467097 percent to Elizabeth C. Chen
- 4.50267259 percent to Robert W. Crane
- 34.06924332 percent to Seragen LLC
- 20.21056806 percent to Leon C. Hirsch
- 8.66167203 percent to Turi Josefsen
- 5.77444803 percent to Gerald S.J. and Loretta P. Cassidy
<PAGE> 1
EXHIBIT 10.11
AMENDMENT NO. 1 TO SERVICE AGREEMENT
This Amendment No. 1 to Service Agreement (the "Amendment") is
made between Seragen, Inc., a Delaware corporation having a usual place of
business at 97 South Street, Hopkinton, Massachusetts ("Seragen"), and Marathon
Biopharmaceuticals, LLC, a Massachusetts limited liability company having a
usual place of business at 97 South Street, Hopkinton, Massachusetts (the
"Service Provider"), as successor by assignment of Trustees of Boston University
("BU"), as of May 11, 1998, for the purpose of amending that certain Service
Agreement, dated as of February 14, 1997 (the "Service Agreement"), between
Seragen and BU.
This Amendment is made with reference to the following facts:
A. Seragen entered into the Service Agreement to purchase certain
services relating to product research, development, manufacturing, clinical
trial, quality control, and quality assurance.
B. Service Provider is the successor by assignment to BU, one of
the original parties to the Service Agreement.
C. Seragen has made certain business decisions that will result
in a reduction of the amount of product research, development, manufacturing,
clinical trial, quality control, and quality assurance services that will be
required in the second Contract Year (as defined in the Service Agreement).
D. Seragen is willing, on the terms set forth in this Amendment,
to perform for itself certain clinical trial services originally subject to the
Service Agreement and Service Provider desires to make available to Seragen the
assets necessary for Seragen to perform those services.
E. Section 2.01 of the Service Agreement provides that, in the
event that Seragen's research and development requirements change, the parties
to the Service Agreement shall negotiate amendments (including appropriate price
reductions) to the services required to be performed under the Service
Agreement. Section 4.01 of the Service Agreement provides that, in such an
event, the parties shall agree on appropriate adjustments to the Technology
Service Fees (as defined in the Service Agreement) payable under the Service
Agreement; provided, however, that in no event shall the Technology Service Fees
payable with respect to any Contract Year be reduced to less than $4,300,000.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Amendment, the parties to this Amendment, intending
to be legally bound, agree as follows:
<PAGE> 2
1. In lieu of the services required to be provided pursuant to
Schedule 1 to the Service Agreement by Service Provider in the second Contract
Year, Service Provider shall provide the services specified in Schedule 1
attached to this Amendment.
2. In light of the reduced services to be provided to Seragen in
the second Contract Year, the Technology Service Fees for the second Contract
Year shall be $4,300,000.
3. Service Provider shall make available without any additional
compensation to Seragen all assets necessary for Seragen to perform such
clinical trial services at the facility located at 99 South Street, Hopkinton,
Massachusetts, as Seragen may from time to time reasonably specify, which
services are not required to be performed by Service Provider under this
Amendment.
4. Capitalized terms used in this Amendment and not otherwise
defined shall have the meaning given those terms in the Service Agreement.
5. Except as expressly modified by this Amendment, the Service
Agreement shall remain in full force and effect.
<PAGE> 3
Seragen and Service Provider have executed this Amendment
effective as of the date first set forth above.
SERAGEN, INC.
/s/ Reed R. Prior
---------------------------------
By: Reed R. Prior
Chairman, Chief Executive
Officer & Treasurer
MARATHON BIOPHARMACEUTICALS, LLC
Service Provider
/s/ Kenneth G. Condon
---------------------------------
By: Kenneth G. Condon
Manager
<PAGE> 4
<TABLE>
<CAPTION>
SCHEDULE 1- SERVICE AGREEMENT
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
MANUFACTURING OF BATCHES - 1998:
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
Fermentation cost of 6 batches of Master Batch Record 22-004, Q4 98 Q2 98 Fermentation plans from
DAB389IL-2 30-004 1997 to be conducted in
Q1/Q2 1998 for PAI will
provide sufficient
inventory
Purification cost of 10 batches of Master Batch Record 31-304, Q2 98 Eliminated Sufficient inventories
2nd Generation - DAB389IL-2 32-304, 34-304, 60-304 for clinicals permit
shift to 1999
Purification cost of 13 batches of Master Batch Record 31-004, Q3 98 Q2 98 Purification plans from
1st Generation - DAB389IL-2 32-004, 60-104 1997 to be conducted in
Q1/Q2 1998 for PAI will
provide sufficient
inventory to cover
product launch
Fermentation cost of 5 batches of Master Batch Record 22-007, Q3 98
DAB389EGF* 24-007
Purification cost of 10 batches of Master Batch Record 31-007, Q4 98
DAB389EGF* 34-007, 44-007, 47-007,
65-007, 66-007 and 70-007
Manufacture of formulation buffer* Q1 98 For Lilly PAI
Includes raw materials, labor and utilities
</TABLE>
Schedule 1 - Page 1
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULE 1- SERVICE AGREEMENT
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
MANUFACTURING FILL OF BATCHES - 1998:
ORIGINAL
ESTIMATED
SERVICE SPECIFICATIONS COMPLETION DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
Fill of DAB389EGF Performed at fill-finish Q4 98 Eliminated Shift to Q2 99
site following their
Master Batch Record(s).
Prior to fill,
formulation performed at
Service Provider
following Master Batch
Record 65-007, 66-007,
70-007.
Fill of DAB389IL-2 Performed at fill-finish Q4 98 1 - 4 fills between Fills planned for 1997 to
1st Generation site following their Q2 - Q4 98 be conducted in Q3/Q4
Master Batch Records(s) 1998 will provide
sufficient inventory to
cover product launch
Fill of DAB389IL-2 Performed at fill-finish Q4 98 Eliminated Shift to Q2 99
2nd Generation site following their
Master Batch Record(s).
Prior to fill
formulation performed at
Service Provider
following Master Batch Record
70-304, 70-404.
Fill of formulation
buffer for PAI* Q2 98
</TABLE>
Schedule 1 - Page 2
<PAGE> 6
SCHEDULE 1- SERVICE AGREEMENT
Shipment of bulk to fill
sites. Storage of fermentation
pellets, purified drug
substance, in process samples
and final drug product
(clinical trial material
only). Shipment of clinical
trial material to clinical
sites (also return,
accountability). Shipment of
material to sites for
non-clinical use. Label
control for clinical and
non-clinical materials (i.e.
not market product)*
<TABLE>
<CAPTION>
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
QUALITY CONTROL AND RELEASE TESTING OF BATCHES - 1998:
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
QC testing of 6 fermentation batches Product spec. 30-004 Q4 98 - ongoing Q2 98 - ongoing
of DAB389IL-2
QC testing of 13 purification batches Product spec. 60-304 Q4 98 - ongoing Q2 98 - ongoing
of 1st Generation DAB389IL-2
QC testing of 5 fermentation batches Q3 98
of DAB389EGF*
QC testing of 10 purification batches Product spec. 60-007 Q4 98 - ongoing Q4 98 - ongoing
of DAB389EGF
QC testing of Fills, DAB389IL-2 Product spec. 90-204-02 Q4 98 - ongoing Q2 98 - ongoing
1st Generation
QC testing of Fills, DAB389IL-2 Product spec. 70-304 and Q4 98 - ongoing Eliminated Shift to 1999
2nd Generation 91-304-01; 5 mg/ml
QC testing of Fills, DAB389IL-2 Product spec. 70-404 and Q4 98 - ongoing Eliminated Shift to 1999
2nd Generation 91-404-02; 150 ug/ml
QC testing of Fills, DAB389EGF Product spec. 70-007 and Q4 98 - ongoing Eliminated Shift to 1999
91-007
</TABLE>
Schedule 1 - Page 3
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULE 1- SERVICE AGREEMENT
<S> <C> <C>
Stability testing of Q4 98 - ongoing Q1 98 - on-going
DAB389IL-2 and DAB389EGF
products held by service
provider for Seragen
Includes raw materials, labor
and overhead
</TABLE>
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
QUALITY ASSURANCE - 1998:
<TABLE>
<CAPTION>
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
Documentation and auditing Q4 98 Q1 98 - on-going
(audit report) specific to the
products in Manufacturing and
Product Development. Review
and approval of all Master
Batch Records, SOPs and
reports as listed in services
agreement.
Certificate of Analysis and Appropriate SOP's and Q4 98 On-going
release notification for release documents
batches and lots listed in
services agreement
Provide copies of all
manufacturing records,
laboratory records, deviation
reports and other records and
documents to Seragen for
review*
</TABLE>
Schedule 1 - Page 4
<PAGE> 8
SCHEDULE 1- SERVICE AGREEMENT
Provide reports, data and other
information needed for Seragen to assess
compliance with regulatory requirements*
Preparation for PAI - implement audit -
specified and other changes to GMP
systems, procedures and documents as
necessary to prepare for FDA inspection.
Provide periodic progress reports to
Seragen. Notify Seragen of any
significant issues impacting on ability
to correct deficiencies and prepare for
inspections*
Includes raw materials, labor and overhead
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
PRODUCT DEVELOPMENT - 1998:
<TABLE>
<CAPTION>
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
2nd Generation; improve lyophilization - Q2 98 Eliminated
and characterization of new DMF
EGF process development continue responses - Q4 98 Eliminated
for BLA
Development of topical formulations and - Q4 98 Eliminated
new molecules
Includes labor and direct materials
</TABLE>
Schedule 1 - Page 5
<PAGE> 9
SCHEDULE 1- SERVICE AGREEMENT
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
CLINICAL / PRE-CLINICAL / REGULATORY STUDIES - 1998:
<TABLE>
<CAPTION>
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
Phase I/II Psoriasis* Protocol 96-04-21 Trial on-going Trial on-going - estimated
completion Q4 98
Phase I/II Psoriasis Protocol 96-04-19 Q2 97 Trial on-going Trial on-going - estimated
completion Q4 98
Phase I (SC) Psoriasis Protocol 98-08-01 Q3 98 Q3 98 Estimated start - Q3 98 with
completion Q3 99
</TABLE>
Schedule 1 - Page 6
<PAGE> 10
<TABLE>
<CAPTION>
SCHEDULE 1- SERVICE AGREEMENT
<S> <C> <C> <C> <C>
Phase I/II EGF Protocol 96-02-03 Q3 97 Trial on-going Trial on-going - estimated
completion Q4 98
Limited use - Rheumatoid Protocol 95-04-18 Trial on-going Trial on-going
Arthritis*
Phase I 2nd Generation - Q1 98 Eliminated
Psoriasis
Phase II/III NHL - Q4 98 Eliminated
Phase I (SC) Derm - Q4 98 Eliminated
Phase I/II (IV) Other - Q4 98 Eliminated
</TABLE>
Includes clinical trail site fees, labs, pathology fees, supplies and
overhead, clinical assays
SERVICES TO BE PERFORMED BY SERVICE PROVIDER FOR SERAGEN IN 1998:
CLINICAL / PRE-CLINICAL / REGULATORY STUDIES AND OTHER- 1998:
<TABLE>
<CAPTION>
ORIGINAL
ESTIMATED
COMPLETION
SERVICE SPECIFICATIONS DATE CURRENT PLANS FOR 1998 COMMENTS
<S> <C> <C> <C> <C>
CTCL trials: service provider -Protocols for studies 93-04-11, Q4 98 On-going Estimated completion
labor and outside contract 93-04-14 date Q2
labor CTCL 00
Non-Besselaar contracts
Pre-Clinical studies: new Q4 98 Eliminated
refold 2nd generation and
EGF studies - includes labor,
supplies and overhead
</TABLE>
Schedule 1 - Page 7
<PAGE> 11
SCHEDULE 1- SERVICE AGREEMENT
* Services were included in original Schedule 1 to Service Agreement but are
being specifically mentioned in this amendment for clarity.
PRICE FOR SERVICES RENDERED IN 1997 - $6,605,651(Original estimate)
PRICE FOR SERVICES RENDERED IN 1997 - $4,300,000 (Revised estimate)
Initials:
- --------------- ---------------- ---------------
Pat Bacha Elizabeth Chen Jean Nichols
- --------------- ----------------
John O'Loughlin Tony Rotunno
Schedule 1 - Page 8
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT:
Glycomed Incorporated
10275 Science Center Drive
San Diego, California 92121
Ligand Pharmaceuticals (Canada) Inc.
374 3rd Avenue South
Saskatoon, Saskatchawan Canada STKIMS
Ligand JVR, Inc.
10275 Science Center Drive
San Diego, California 92121
Allergan Ligand Retinoid Therapeutics, Inc.
10275 Science Center Drive
San Diego, California 92121
Knight Acquisition Corporation
10275 Science Center Drive
San Diego, California 92121
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Ligand
Pharmaceuticals Incorporated for the registration of shares of its common stock
and to the incorporation by reference therein of our report dated January 30,
1998, with respect to the consolidated financial statements of Ligand
Pharmaceuticals Incorporated included in its Annual Report (Form 10-K) for the
year ended December 31, 1997, filed with the Securities and exchange Commission.
ERNST & YOUNG
San Diego, California
July 8, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated February 5, 1998 (except for the matter discussed in Note J as to which
the date is March 30, 1998), (and to all references to our Firm) included in or
made a part of this Proxy Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 6, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report, which includes an explanatory paragraph concerning factors which raise
substantial doubt about the Company's ability to continue as a going concern,
dated February 23, 1996, on our audit of the financial statements of Seragen,
Inc. for the year ended December 31, 1995. We also consent to the references to
our firm under the captions "Experts" and "Selected financial Data of Seragen."
PriceWaterhouseCoopers LLP
Boston, Massachusetts
July 6, 1998
<PAGE> 1
EXHIBIT 99.1
SERAGEN, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ___________ and ___________ jointly and
severally as proxies, with full power of substitution and resubstitution, to
vote all shares of stock which the undersigned is entitled to vote at the
Special Meeting of Stockholders of Seragen, Inc. (the "Company") to be held on
________, 1998 (the "Special Meeting"), or at any adjournments or postponements
thereof, as specified below, and to vote in the proxyholders' discretion on such
other business as may properly come before the Special Meeting and any
adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Approval of Merger. A proposal to approve and adopt the Agreement and
Plan of Reorganization, dated May 11, 1998 (the "Merger Agreement"), by
and among the Company, Ligand Pharmaceuticals Incorporated, a Delaware
corporation ("Ligand"), and Knight Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Ligand ("Merger Sub"), and
to approve Ligand's acquisition of the Company through the merger of
Merger Sub with and into the Company, with the Company being the
surviving corporation and becoming a wholly owned subsidiary of Ligand
(the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Unless otherwise specified by the undersigned, this proxy will be voted
in the manner directed above, but if no contrary direction is made, it will be
voted FOR Proposal 1 above and by the proxyholders, in the proxyholders'
discretion, as to any other matters properly transacted at the Special Meeting
or any adjournments or postponements thereof.
Dated:
------------------------------------
-------------------------------------------
Signature of Stockholder
-------------------------------------------
Printed Name of Stockholder
-------------------------------------------
Title (if appropriate)
Please sign exactly as name appears hereon.
If signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such, and, if signing for
a corporation, please give your title. When
shares are in the names of more than one
person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE
SPECIAL MEETING [ ]
