<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999
REGISTRATION NO. 333---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AFFYMETRIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 77-0319159
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
VERN NORVIEL, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
AFFYMETRIX, INC.
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
NEIL T. ANDERSON, ESQ. MICHAEL E. LYTTON, ESQ.
SULLIVAN & CROMWELL PALMER & DODGE LLP
125 BROAD STREET ONE BEACON STREET
NEW YORK, NEW YORK 10004 BOSTON, MASSACHUSETTS 02108
(212) 558-4000 (617) 573-0100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and all
other conditions to the merger of Genetic MicroSystems, Inc. with and into GMS
Acquisition, Inc. pursuant to the Agreement and Plan of Merger described in the
enclosed Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share,
together with attached rights to purchase
Series B Junior Participating Preferred
Stock.......................................... 1,070,000 N.A. $8,513.91 $2.37
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement relates to common stock, par value $0.01 per
share, together with attached rights to purchase Series B Junior
Participating Preferred Stock, of the Registrant, Affymetrix, Inc.,
estimated to be issuable upon the consummation of the merger of Genetic
MicroSystems, Inc., a Massachusetts corporation, with and into GMS
Acquisition, Inc., a Massachusetts corporation, pursuant to the Agreement
and Plan of Merger, dated as of September 10, 1999, by and among Genetic
MicroSystems, Inc., Affymetrix, Inc., GMS Acquisition, Inc., Jean Montagu as
Stockholder Representative, and the stockholders of Genetic MicroSystems,
Inc. set forth in the signature pages to that document.
(2) Genetic MicroSystems, Inc. is a privately held corporation and there is no
market for its securities. Pursuant to Rule 457(f)(2) of the Securities Act
of 1933, as amended, the proposed maximum aggregate offering price is based
upon the book value of the securities of Genetic MicroSystems, Inc. being
acquired in the proposed merger. The book value of the securities of Genetic
MicroSystems being acquired in the proposed merger was determined as of
October 13, 1999 and is a negative number. Since Genetic MicroSystems has an
accumulated capital deficit, pursuant to Rule 457(f)(2) of the Securities
Act, one-third of the principal amount, par value or stated capital of
Genetic MicroSystems' securities is used. The Genetic MicroSystems' shares
of common stock have no par value and no stated capital and the Genetic
MicroSystems' shares of convertible preferred stock have a par value of
$0.01 per share. The number of Genetic MicroSystems' shares of convertible
preferred stock outstanding and subject to warrants as of October 13, 1999,
is 2,554,174. The proposed maximum aggregate offering price is equal to: (i)
2,554,174 multiplied by (ii) 0.01 and divided by (iii) 3.
(3) Calculated by multiplying .000278 by the proposed maximum aggregate offering
price.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[GENETIC MICROSYSTEMS LOGO]
34 COMMERCE WAY
WOBURN, MASSACHUSETTS 01801
-------------------------
To the Stockholders of Genetic MicroSystems, Inc.:
Genetic MicroSystems, Inc. has entered into a merger agreement with
Affymetrix, Inc. Under that agreement, Genetic MicroSystems would become a
wholly owned subsidiary of Affymetrix.
In the merger, Affymetrix will issue up to 1,070,000 shares of its common
stock, representing less than 4% of the outstanding Affymetrix common stock
after the merger. For each share of Genetic MicroSystems stock that you own, you
will be entitled to receive a fraction of a share of Affymetrix common stock
determined by dividing 1,070,000 by the number of outstanding shares of Genetic
MicroSystems common stock and convertible preferred stock and the outstanding
options and warrants to purchase Genetic MicroSystems common stock and
convertible preferred stock immediately before the effective time of the merger.
In addition, 10% of the shares to be issued at the closing of the merger will be
placed on a pro-rata per stockholder basis in an escrow fund to satisfy certain
indemnification obligations of Genetic MicroSystems.
The merger has been structured with the intent that you will not recognize
gain or loss for federal income tax purposes on the receipt of Affymetrix common
stock in exchange for your Genetic MicroSystems shares. A more detailed
discussion of the material federal income tax consequences of the merger is
contained in the accompanying proxy statement/prospectus.
Your Board of Directors has scheduled a special meeting of stockholders to
be held on --, 1999 at Genetic MicroSystems headquarters, 34 Commerce Way,
Woburn, Massachusetts 01801, commencing at 10:00 a.m. local time to vote for
adoption of the merger agreement and the appointment of a stockholder
representative.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED
MERGER, HAS DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE IN THE BEST
INTERESTS OF GENETIC MICROSYSTEMS AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF
THE MERGER; THE PROPOSAL THAT THE MERGER DOES NOT CONSTITUTE A LIQUIDATION,
DISSOLUTION OR WINDING UP OF GENETIC MICROSYSTEMS; AND APPOINTMENT OF JEAN
MONTAGU AS STOCKHOLDER REPRESENTATIVE.
I, together with five other stockholders of Genetic MicroSystems, who
together with me beneficially own and have voting control over approximately
69.5% of the outstanding shares of Genetic MicroSystems common stock and
approximately 72% of the outstanding shares of Genetic MicroSystems convertible
preferred stock, have agreed to vote for adoption of the merger proposals. These
shares represent more than the number of votes necessary to adopt the merger
agreement and approve the merger.
Please complete, sign and date the enclosed proxy card and return it in the
enclosed self-addressed and stamped envelope, even if you plan to attend the
special meeting. If you sign, date and mail your proxy card without indicating
how you wish to vote, your proxy will be counted as a vote in favor of adopting
the merger proposals.
We appreciate your support in this very important transaction. We are very
enthusiastic about the merger with Affymetrix, and are confident that the
combined company will grow and prosper in a competitive marketplace. On behalf
of the board of directors of Genetic MicroSystems, I urge you to vote "FOR"
approval of the merger proposals.
PLEASE READ THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS CAREFULLY FOR
DETAILED INFORMATION ABOUT THE PROPOSED MERGER CAREFULLY AND TO CONSIDER THE
RISK FACTORS RELATING TO THE MERGER BEGINNING ON PAGE 21 OF THE PROXY
STATEMENT/PROSPECTUS.
Sincerely,
/s/ Jean Montagu
Jean Montagu
President and Chief Executive Officer
<PAGE> 3
[GENETIC MICROSYSTEMS LOGO]
34 COMMERCE WAY
WOBURN, MASSACHUSETTS 01801
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON --, 1999
TO THE STOCKHOLDERS OF GENETIC MICROSYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Genetic
MicroSystems, Inc. will be held on --, 1999, at 10:00 a.m., local time, at the
offices of Genetic MicroSystems located at 34 Commerce Way, Woburn,
Massachusetts 01801, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of September 10, 1999, by and among Affymetrix,
Inc., a Delaware corporation, GMS Acquisition, Inc., a Massachusetts
corporation wholly owned directly by Affymetrix, Genetic MicroSystems,
Inc., a Massachusetts corporation, Jean Montagu as Stockholder
Representative and the stockholders of Genetic MicroSystems, Inc. listed in
the signature pages of that document, pursuant to which, among other
things:
- Each outstanding share of Genetic MicroSystems common stock and
convertible preferred stock will be converted into the right to
receive a fraction of a share of Affymetrix common stock, based on an
exchange ratio described in the accompanying proxy
statement/prospectus.
- Genetic MicroSystems will be merged with and into GMS Acquisition,
Inc. as a result of which Genetic MicroSystems will become a wholly
owned subsidiary of Affymetrix.
- Affymetrix will assume each outstanding option and warrant to purchase
Genetic MicroSystems common stock or convertible preferred stock,
which will be converted into an option or warrant to purchase a
fraction of a share of Affymetrix common stock.
- 10% of the shares to be issued at the closing of the merger will be
placed into an escrow fund.
2. To have the holders of shares of Genetic MicroSystems Series A
convertible preferred stock vote on the proposal that the merger does not
constitute a liquidation, dissolution or winding up of Genetic
MicroSystems.
3. To appoint Jean Montagu as Stockholder Representative to act on
behalf of the current Genetic MicroSystems stockholders in connection with
the escrow fund established pursuant to the terms of the merger agreement
and the escrow agreement.
4. To transact such other business as may properly come before the
special meeting or any adjournment(s) of the special meeting.
<PAGE> 4
Stockholders of record at the close of business on --, 1999 are entitled to
notice of, and to vote at, the special meeting and any adjournment or
postponement of the special meeting. Each holder of record of common stock and
convertible preferred stock on such record date will be entitled to one vote for
each share held on each matter to be acted upon at the special meeting, except
with respect to Item 2, with respect to which only holders of Genetic
MicroSystems Series A convertible preferred stock will be entitled to vote.
THE BOARD OF DIRECTORS OF GENETIC MICROSYSTEMS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER; THE
PROPOSAL THAT THE MERGER DOES NOT CONSTITUTE A LIQUIDATION, DISSOLUTION OR
WINDING UP OF GENETIC MICROSYSTEMS; AND APPOINTMENT OF JEAN MONTAGU AS
STOCKHOLDER REPRESENTATIVE.
Please complete, sign, date and promptly return the enclosed proxy card in
the enclosed self-addressed and stamped envelope even if you plan to attend the
special meeting. If you decide to attend the special meeting you may vote in
person even if you have returned a proxy.
Holders of outstanding shares of Genetic MicroSystems common stock and
convertible preferred stock have the right to dissent from the merger and,
subject to certain conditions, receive payment for their shares. These rights
are described in greater detail in the accompanying proxy statement/prospectus
under the caption "Appraisal Rights" and are set forth in full in Appendix E to
the attached document.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY AT THIS TIME.
By Order of the Board of Directors,
/s/ Peter Lewis
Peter Lewis
Corporate Clerk of Genetic
MicroSystems, Inc.
Woburn, Massachusetts
, 1999
<PAGE> 5
THIS DOCUMENT AND THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS DOCUMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to completion, dated October 14, 1999
[AFFYMETRIX GENECHIP LOGO][GENETIC MICROSYSTEMS, INC. LOGO]
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
GENETIC MICROSYSTEMS, INC.
PROSPECTUS OF
AFFYMETRIX, INC.
UP TO 1,070,000 SHARES OF
COMMON STOCK
Affymetrix, Inc. and Genetic MicroSystems, Inc. have entered into a merger
agreement. As a result of the merger, Genetic MicroSystems will become a wholly
owned subsidiary of Affymetrix. Pursuant to the terms of the merger agreement,
Affymetrix will exchange an aggregate of up to 1,070,000 shares of Affymetrix
common stock for all the outstanding common stock and convertible preferred
stock of Genetic MicroSystems and all shares issuable upon exercise of all
outstanding options and warrants to acquire Genetic MicroSystems stock. Based on
the number of Genetic MicroSystems shares, and vested and unvested options or
warrants outstanding as of October 13, stockholders of Genetic MicroSystems will
receive approximately 0.2832 of a share of Affymetrix common stock for each
share of Genetic MicroSystems common stock or convertible preferred stock. This
exchange ratio, however, is subject to reduction if Genetic MicroSystems issues
or grants additional shares, options or warrants in the ordinary course of
business prior to the effective time of the merger. In addition, pursuant to the
terms of the merger agreement and an escrow agreement, 10% of the aggregate
number of shares of Affymetrix common stock to be delivered by Affymetrix at the
closing of the merger will be placed in an escrow fund to satisfy certain
indemnification obligations of Genetic MicroSystems. See "The Merger
Agreement -- Indemnification and Liability Obligations" on page 64 and "Escrow
Agreement" on page 68.
The merger is intended to qualify as a tax-free reorganization and to be
accounted for as a pooling-of-interests. See "The Merger -- Material Federal
Income Tax Consequences" on page 49 and "The Merger -- Accounting Treatment" on
page 51.
THE BOARD OF DIRECTORS OF GENETIC MICROSYSTEMS UNANIMOUSLY RECOMMENDS THAT
GENETIC MICROSYSTEMS STOCKHOLDERS VOTE FOR: ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER; THE PROPOSAL THAT THE MERGER DOES NOT CONSTITUTE A
LIQUIDATION, DISSOLUTION OR WINDING UP OF GENETIC MICROSYSTEMS; AND APPOINTMENT
OF JEAN MONTAGU AS STOCKHOLDER REPRESENTATIVE.
Massachusetts law is applicable to the merger and requires that the merger
agreement be approved by the affirmative vote of two-thirds of the shares of
each class of stock of Genetic MicroSystems. Affymetrix has entered into
stockholder voting agreements with Jean Montagu, the Chairman, Chief Executive
Officer and founder of Genetic MicroSystems, and with five other stockholders of
Genetic MicroSystems who are all either family members of Jean Montagu or
executive officers or directors of Genetic MicroSystems. These six stockholders,
who together beneficially own and have voting control over approximately 69.5%
of the shares of Genetic MicroSystems common stock and approximately 72% of the
shares of Genetic MicroSystems convertible preferred stock, have agreed to vote
for adoption of the merger proposals and their shares represent more than the
number of votes necessary to adopt the merger agreement and approve the merger.
Affymetrix is a Delaware corporation and the shares of Affymetrix common
stock trade on the NASDAQ National Market under the symbol "AFFX." Genetic
MicroSystems is a privately held Massachusetts corporation with fewer than
ninety stockholders.
THIS DOCUMENT PROVIDES YOU WITH DETAILED INFORMATION ABOUT THE MERGER
AGREEMENT AND THE PROPOSED MERGER. AFFYMETRIX PROVIDED THE INFORMATION
CONCERNING AFFYMETRIX. GENETIC MICROSYSTEMS PROVIDED THE INFORMATION CONCERNING
GENETIC MICROSYSTEMS. PLEASE SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE
94 FOR ADDITIONAL INFORMATION ON AFFYMETRIX.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS DOCUMENT IN ITS
ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING ON
PAGE 21.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this proxy statement/prospectus dated --, 1999
and the form of proxy on or about --, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About the
Merger............................ ii
Summary............................. 1
Recent Developments................. 12
Summary of Selected Historical
Information of Affymetrix......... 13
Summary of Selected Historical
Financial Data of Genetic
MicroSystems...................... 14
Pro Forma Combined Financial
Information of Affymetrix......... 15
Unaudited Selected Pro Forma
Condensed Combined Financial
Data.............................. 16
Comparative Per Share Information... 17
Market Price and Dividend
Information....................... 19
Risk Factors........................ 21
Cautionary Statement Concerning
Forward-Looking Statements........ 39
The Companies....................... 39
The Genetic Microsystems Special
Meeting........................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Appraisal Rights.................... 43
The Merger.......................... 45
The Merger Agreement................ 53
Stock Option Agreement.............. 66
Escrow Agreement.................... 68
Stockholder Voting Agreements....... 69
Stock Ownership of Directors,
Executive Officers and Principal
Stockholders...................... 70
Interests of Certain Persons in the
Merger............................ 72
Genetic Microsystems' Management's
Discussion and Analysis of the
Financial Condition and Results of
Operation......................... 75
Description of Affymetrix Capital
Stock............................. 78
Comparison of Stockholder Rights.... 84
Validity of Shares.................. 94
Experts............................. 94
Where You Can Find More
Information....................... 94
</TABLE>
LIST OF APPENDICES
Appendix A -- Agreement and Plan of Merger, dated as of September 10, 1999, by
and among Affymetrix, Inc., GMS Acquisition, Inc., Genetic
MicroSystems, Inc., Jean Montagu, as Stockholder Representative,
and the stockholders of Genetic MicroSystems, Inc. listed in the
signature pages thereto
Appendix B -- Stock Option Agreement, dated as of September 10, 1999, between
Affymetrix, Inc. and Genetic MicroSystems, Inc.
Appendix C -- Escrow Agreement, dated as of September 10, 1999, among Genetic
MicroSystems, Inc., Affymetrix, Inc., GMS Acquisition, Inc., Jean
Montagu, as Stockholder Representative, and Bank One Trust
Company, N.A., as Escrow Agent
Appendix D -- Form of Stockholder Voting Agreement
Appendix E -- Sections 85 through 98 of the Massachusetts Business Corporation
Law Regarding Appraisal Rights
Appendix F -- Genetic MicroSystems' Audited Financial Statements for the Year
Ended December 31, 1998 and the period from August 7, 1997 (date
of inception) to December 31, 1997, and Unaudited Condensed
Financial Statements for the Six Months ended July 3, 1999 and
June 30, 1998
i
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger agreement is adopted, Affymetrix will exchange an aggregate of
up to 1,070,000 shares of Affymetrix common stock for all the Genetic
MicroSystems common and convertible preferred shares:
- issued and outstanding immediately prior to the effective time of the
merger; and
- subject to options or warrants immediately prior to the effective time of
the merger, whether vested or unvested or currently exercisable or
unexercisable.
The number of Affymetrix shares to be received by each Genetic MicroSystems
stockholder will be calculated immediately prior to the effective time of
the merger by dividing 1,070,000 by the aggregate number of the Genetic
MicroSystems shares issued and outstanding and Genetic MicroSystems shares
subject to Genetic MicroSystems options or warrants.
Each outstanding option or warrant to purchase Genetic MicroSystems common
stock or convertible preferred stock, will be converted into an option or
warrant to acquire the number of shares of Affymetrix common stock that the
holder would have received in the merger if the holder had exercised the
option or warrant immediately prior to the closing of the merger and the
exercise price will be adjusted appropriately.
You will not receive fractional shares of Affymetrix common stock. Instead,
you will receive the cash value, without interest, of any fractional share
of Affymetrix common stock that you might otherwise have been entitled to
receive.
Q: AS A GENETIC MICROSYSTEMS STOCKHOLDER, DO I HAVE TO ACCEPT AFFYMETRIX COMMON
STOCK IN EXCHANGE FOR MY GENETIC MICROSYSTEMS SHARES IF THE MERGER IS
APPROVED?
A: No. If you are a Genetic MicroSystems stockholder and you follow the
procedures prescribed by Massachusetts law, including filing a written
objection with Genetic MicroSystems prior to the special meeting and
refraining from voting for adoption of the merger agreement, you may dissent
from the merger and have the fair value of your stock appraised by a court
and paid in cash. If you follow those procedures, you will not receive
Affymetrix common stock. The fair value of your Genetic MicroSystems stock,
determined in the manner prescribed by Massachusetts law, will be paid to
you in cash. You may be required in this case to pay federal taxes on the
amount of cash you receive. For a more complete description of these
appraisal rights, see "Appraisal Rights" on page 43 and Appendix E to this
document.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed self-addressed and stamped envelope as soon as possible, so
that your shares may be represented at the special meeting. If you sign and
send in your proxy and do not indicate how you want to vote, your proxy will
be counted as a vote FOR adoption of the merger agreement. If you do not
vote or you abstain, it will have the effect of a vote against the merger
agreement.
The special meeting will take place on --, 1999 at 10:00 a.m., local time at
Genetic MicroSystems' executive offices, 34 Commerce Way, Woburn,
Massachusetts 01801. If you wish, you may attend the special meeting and
vote your shares in person rather than signing and mailing your proxy card.
IF YOU DO NOT ATTEND THE
ii
<PAGE> 8
SPECIAL MEETING IN PERSON, YOUR PROXY MUST BE RECEIVED ON OR PRIOR TO -- IN
ORDER FOR YOUR SHARES TO BE VOTED AT THE SPECIAL MEETING.
Q: WHAT IS THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF GENETIC
MICROSYSTEMS?
A: THE BOARD OF DIRECTORS OF GENETIC MICROSYSTEMS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER;
THE PROPOSAL THAT THE MERGER DOES NOT CONSTITUTE A LIQUIDATION, DISSOLUTION
OR WINDING UP OF GENETIC MICROSYSTEMS; AND APPOINTMENT OF JEAN MONTAGU AS
STOCKHOLDER REPRESENTATIVE.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of the following three ways:
- you can send a written notice signed by you stating that you would like to
revoke your proxy. If you choose this method, you must submit your notice
of revocation to Genetic MicroSystems at 34 Commerce Way, Woburn,
Massachusetts 01801, Attention: Peter Lewis, Clerk;
- you can complete and submit a new proxy card. If you choose this method,
you must submit your new proxy card to Genetic MicroSystems at 34 Commerce
Way, Woburn, Massachusetts 01801, Attention: Peter Lewis, Clerk; or
- you can attend the special meeting and vote in person. Simply attending
the special meeting, however, will not revoke your proxy; you must vote at
the special meeting.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Affymetrix and Genetic MicroSystems are working towards completing the
merger in or before January, 2000. Genetic MicroSystems must obtain
stockholder approval and intends to complete the merger as soon as possible
after the special meeting. The merger agreement may be terminated if the
merger is not consummated by February 15, 1999.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The merger has been structured with the intent that you will not recognize
gain or loss for federal income tax purposes on your receipt of Affymetrix
common stock in exchange for your shares of Genetic MicroSystems stock. To
review the tax consequences to stockholders in greater detail, see "The
Merger -- Material Federal Income Tax Consequences" on page 49.
Q: ARE THERE ANY RISKS RELATED TO THE PROPOSED TRANSACTION OR ANY RISKS RELATED
TO OWNING AFFYMETRIX COMMON STOCK?
A: Yes, there are substantial risks to the transaction and ownership of
Affymetrix common stock. You should carefully review the risk factors
described beginning on page 21.
Q: WHAT HAPPENS AS THE MARKET PRICE OF AFFYMETRIX COMMON STOCK FLUCTUATES?
A: The maximum number of shares of Affymetrix common stock to be distributed to
the Genetic MicroSystems stockholders is fixed at 1,070,000. This number
includes shares of Affymetrix common stock to be issued at the closing of
the merger as well as shares of Affymetrix common stock that
iii
<PAGE> 9
will be subject to the options and warrants that Affymetrix is assuming in
the merger. Since the market value of Affymetrix common stock will fluctuate
before and after the closing of the merger, the value of the shares of
Affymetrix common stock that Genetic MicroSystems stockholders will receive
in the merger will fluctuate as well and could increase or decrease
significantly.
iv
<PAGE> 10
This document incorporates by reference important business and financial
information about Affymetrix that is not included in, or delivered with, this
document. Affymetrix will provide you with copies of the information relating to
Affymetrix that have been incorporated by reference, without charge, upon
written or oral request to:
AFFYMETRIX, INC.
CORPORATE SECRETARY
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-5000
Genetic MicroSystems is a privately held corporation that is not subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
and therefore does not incorporate information in this document by reference
unless such information appears in an Appendix to this document.
v
<PAGE> 11
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully, you should read carefully this entire document and the documents
we refer to in this document. See "Where You Can Find More Information" on page
94. The merger agreement is attached as Appendix A to this document. We
encourage you to read it, as well as the documents attached as Appendices B
through E as these are important legal documents that govern the merger. We have
included page references to other parts of this document in parentheses to
direct you to a more complete description of the topics presented in this
summary.
THE COMPANIES (PAGE 39)
AFFYMETRIX, INC.
3380 Central Expressway
Santa Clara, California 95051
(408) 731-5000
Affymetrix is in the business of developing and commercializing DNA probe
array technology and systems for the acquisition, analysis and management of
complex genetic data in order to facilitate and improve the diagnosis,
monitoring and treatment of disease. Shares of Affymetrix common stock trade on
the NASDAQ National Market under the symbol "AFFX".
GENETIC MICROSYSTEMS, INC.
34 Commerce Way
Woburn, Massachusetts 01801
(781) 932-9333
Genetic MicroSystems is a privately held corporation with fewer than ninety
stockholders primarily engaged in the manufacture of biotechnology research
equipment.
GMS ACQUISITION, INC.
3380 Central Expressway
Santa Clara, California 95051
(408) 731-5000
GMS Acquisition is a wholly owned subsidiary of Affymetrix. If we complete
the merger, Genetic MicroSystems will be merged into GMS Acquisition. GMS
Acquisition was organized for use in the merger and will be the successor to
Genetic MicroSystems. It is anticipated that, at the effective time of the
merger, GMS Acquisition will be renamed Genetic MicroSystems, Inc.
GENETIC MICROSYSTEMS' REASONS FOR THE MERGER (PAGE 48)
Genetic MicroSystems' board of directors believes that the merger is in the
best interests of Genetic MicroSystems and its stockholders. In reaching its
decision to approve the merger, Genetic MicroSystems' board of directors
considered a number of factors, including the belief of the Genetic MicroSystems
board of directors:
- - that the markets addressed by Genetic MicroSystems and Affymetrix are
complementary and that customers would be beneficially served by a broad
solution to their microarray needs and through expansion of the total market;
- - that synergies exist between Genetic MicroSystems and Affymetrix with regard
to instrumentation development as well as expansion of the sales, service and
customer support network;
- - that Affymetrix owns and has rights to considerable intellectual property that
Genetic MicroSystems could obtain rights to, thus enabling a greater freedom
to serve its customers efficiently;
- - that the merger would provide access to capital resources needed to compete in
this rapidly expanding marketplace;
- - that, through a tax-free reorganization, the opportunity to own stock of the
combined
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entity would provide stockholders with greater liquidity and a possibility of
a better return on stockholder investment;
- - information relating to the business, assets, management, competitive
position, operating performance, trading performance and prospects of each of
Genetic MicroSystems and Affymetrix, including the prospects of Genetic
MicroSystems if it were to continue as an independent company;
- - the current and historical market prices of the Affymetrix common stock and
the risks associated with ownership of Affymetrix common stock;
- - the possibility of strategic alternatives to the merger for enhancing
long-term stockholder value;
- - the impact of the merger on Genetic MicroSystems' and Affymetrix' customers,
suppliers and employees;
- - the likelihood that the merger would be completed;
- - the terms of the merger agreement, including balanced representations and
warranties, balanced conditions to closing and rights of termination, and
provisions permitting the Genetic MicroSystems board of directors to terminate
the merger agreement in response to a third party proposal which the Genetic
MicroSystems board of directors determines in its good faith judgment to be
more favorable to Genetic MicroSystems stockholders than the merger;
- - the expected qualification of the merger as a reorganization under Section
368(a) of the Internal Revenue Code;
- - the risk that the operations of Affymetrix and Genetic MicroSystems might not
be successfully integrated;
- - the risk that, despite the efforts of Affymetrix and Genetic MicroSystems
after the merger, key personnel might leave the combined company;
- - the difficulty of managing operations in the different geographic locations in
which Genetic MicroSystems and Affymetrix operate and will continue to
operate; and
- - the risk that the potential benefits of the merger might not be fully
realized.
RECOMMENDATION OF THE
GENETIC MICROSYSTEMS BOARD (PAGE 48)
THE BOARD OF DIRECTORS OF GENETIC MICROSYSTEMS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR: ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER; THE
PROPOSAL THAT THE MERGER DOES NOT CONSTITUTE A LIQUIDATION, DISSOLUTION OR
WINDING UP OF GENETIC MICROSYSTEMS; AND APPOINTMENT OF JEAN MONTAGU AS
STOCKHOLDER REPRESENTATIVE.
DATE, TIME AND PLACE
OF THE SPECIAL MEETING (PAGE 41)
The special meeting will be held on --, at 10:00 a.m., local time, at
Genetic MicroSystems' executive offices, 34 Commerce Way, Woburn, Massachusetts
01801.
STOCKHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING; VOTE REQUIRED (PAGE 41)
The close of business on --, 1999 was the record date for the special
meeting. Only Genetic MicroSystems stockholders on the record date are entitled
to notice of and to vote at the special meeting. On the record date, there were
1,006,702 shares of Genetic MicroSystems common stock and 2,431,977 shares of
Genetic MicroSystems Series A and Series B convertible preferred stock
outstanding.
At the special meeting, the merger agreement must be adopted by the vote of
the holders of:
- - two-thirds of the shares of Genetic MicroSystems common stock outstanding and
entitled
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to vote as of the record date for the special meeting;
- - two-thirds of the shares of Genetic MicroSystems convertible preferred stock
outstanding and entitled to vote as of the record date for the special
meeting; and
- - a majority of the shares of Genetic MicroSystems Series A convertible
preferred stock outstanding and entitled to vote as of the record date for the
special meeting.
The affirmative vote of a majority of the shares of Genetic MicroSystems Series
A convertible preferred stock outstanding and entitled to vote as of the record
date for the special meeting will also have to be obtained to the effect that
the merger does not constitute a liquidation, dissolution or winding up of
Genetic MicroSystems.
In addition, the affirmative vote of a majority of Genetic MicroSystems
common stock and convertible preferred stock, taken as a class, will have to be
obtained to appoint Jean Montagu as stockholder representative to act on behalf
of the current Genetic MicroSystems stockholders in connection with the escrow
fund established pursuant to the merger agreement and the escrow agreement.
Each share of Genetic MicroSystems common and convertible preferred stock
will be entitled to one vote on each matter to be acted upon at the special
meeting, except with respect to the proposal that the merger does not constitute
a liquidation, with respect to which only holders of Genetic MicroSystems Series
A convertible preferred stock will be entitled to vote.
Affymetrix has entered into stockholder voting agreements with Jean
Montagu, the Chairman, Chief Executive Officer and founder of Genetic
MicroSystems, and with five other stockholders of Genetic MicroSystems who are
all either family members of Jean Montagu or executive officers or directors of
Genetic MicroSystems. These six stockholders, who together beneficially own and
have voting control over approximately 69.5% of the shares of Genetic
MicroSystems common stock and approximately 72% of the shares of Genetic
MicroSystems convertible preferred stock, have agreed to vote for adoption of
the merger proposals and their shares represent more than the number of votes
necessary to adopt the merger agreement and approve the merger.
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL
STOCKHOLDERS/INTERESTS OF CERTAIN PERSONS
(PAGES 70 AND 72)
When considering the recommendation by the board of directors of Genetic
MicroSystems to vote FOR adoption of the merger agreement, you should be aware
that certain directors and executive officers of Genetic MicroSystems have
interests in the merger that may be different from your interests. Certain
directors, officers and employees of Genetic MicroSystems who hold stock subject
to repurchase rights pursuant to existing plans will receive certain benefits
upon completion of the merger, including elimination of those repurchase rights.
Genetic MicroSystems' board of directors was aware of these interests and
considered them in approving the merger agreement.
As of the record date for the special meeting, the directors and executive
officers of Genetic MicroSystems, as a group, beneficially owned approximately
- --% of the outstanding Genetic MicroSystems common stock and approximately --%
of the outstanding Genetic MicroSystems convertible preferred stock.
OWNERSHIP OF AFFYMETRIX
FOLLOWING THE MERGER
Genetic MicroSystems stockholders collectively will receive a total of up
to 1,070,000 shares of Affymetrix common stock in the merger. This number
includes shares of Affymetrix common stock to be issued at the closing of the
merger as well as shares of Affymetrix common stock that will be subject
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to the options and warrants that Affymetrix is assuming in the merger.
Based on that number, and based on the number of shares of Affymetrix
common stock outstanding as of October 13, existing Genetic MicroSystems
stockholders will own less than 4% of the Affymetrix common stock outstanding
immediately after the merger.
NASDAQ TRADING (PAGE 52)
It is a condition to the merger that Affymetrix file the appropriate
notification form for quotation of Affymetrix common stock to be issued in the
merger with the NASDAQ National Market and pay the applicable fee. Therefore,
prior to consummation of the merger, Affymetrix common stock to be issued in
connection with the merger will be approved for quotation on the NASDAQ National
Market. If we complete the merger, you will be able to trade the shares of
Affymetrix common stock you receive in the merger on the NASDAQ National Market.
Genetic MicroSystems is a privately held company with fewer than ninety
stockholders and is not listed on any exchange, quoted on any trading market or
subject to reporting requirements under the Securities Exchange Act.
THE MERGER AGREEMENT (PAGE 53)
The Merger Agreement is attached as Appendix A to this document. We
encourage you to read the merger agreement. It is an important legal document
that governs the merger.
THE MERGER (PAGE 45)
In the merger, Genetic MicroSystems will be merged with and into GMS
Acquisition. GMS Acquisition will be the surviving corporation and will remain a
wholly owned subsidiary of Affymetrix. At the effective time of the merger, it
is anticipated that GMS Acquisition will be renamed Genetic MicroSystems, Inc.
Affymetrix will exchange an aggregate of up to 1,070,000 shares of
Affymetrix common stock for all the Genetic MicroSystems common and convertible
preferred shares:
- - issued and outstanding immediately prior to the effective time of the merger;
and
- - subject to options or warrants immediately prior to the effective time of the
merger, whether vested or unvested or currently exercisable or unexercisable.
EXCHANGE RATIO
The number of Affymetrix shares to be received by each Genetic MicroSystems
stockholder will be calculated immediately prior to the effective time of the
merger by dividing 1,070,000 by the aggregate number of the Genetic MicroSystems
shares issued and outstanding and Genetic MicroSystems shares subject to options
or warrants.
Each outstanding option or warrant to purchase Genetic MicroSystems common
stock or convertible preferred stock, will be converted into an option or
warrant to acquire the number of shares of Affymetrix common stock that the
holder would have received in the merger if the holder had exercised the option
or warrant immediately prior to the closing of the merger and the exercise price
will be adjusted appropriately.
You will not receive fractional shares of Affymetrix common stock. Instead,
you will receive the cash value, without interest, of any fractional share of
Affymetrix common stock you might otherwise have been entitled to receive.
For example, if you are entitled to receive 100.10 shares of Affymetrix
common stock, you will receive a certificate for 100 shares of Affymetrix common
stock, and cash representing the value of a tenth of a share of Affymetrix
common stock. To obtain this cash amount, the exchange agent will sell all
fractional shares shortly after the merger so the amount of money to be
distributed in lieu of
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fractional shares will depend on the trading price of Affymetrix common stock at
that time.
CONDITIONS TO THE MERGER
(PAGE 55)
We will complete the merger only if we satisfy or waive several conditions,
including the following:
- - The merger agreement must be approved by vote of the holders of:
- two-thirds of the shares of Genetic MicroSystems common stock outstanding
and entitled to vote as of the record date for the special meeting,
- two-thirds of the shares of Genetic MicroSystems convertible preferred
stock outstanding and entitled to vote as of the record date for the
special meeting, and
- a majority of the shares of Genetic MicroSystems Series A convertible
preferred stock outstanding and entitled to vote as of the record date
for the special meeting;
- - the affirmative vote of a majority of the shares of Genetic MicroSystems
Series A convertible preferred stock outstanding and entitled to vote as of
the record date for the special meeting shall have been obtained to the effect
that the merger does not constitute a liquidation, dissolution or winding up
of Genetic MicroSystems;
- - the appropriate notification form for quotation of Affymetrix common stock to
be issued in the merger shall have been filed with the NASDAQ National Market
and the applicable fee shall have been paid by Affymetrix;
- - the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act shall have expired or been
terminated and all notices or other filings required to be made prior to the
effective time with any governmental entity, and all consents, permits and
authorizations required to be obtained prior to the effective time from any
governmental entity in connection with the execution and delivery of the
merger agreement and the consummation of the merger shall have been made or
obtained;
- - there must be no court order or law in effect that prohibits the merger or
makes the merger illegal;
- - each of Affymetrix and Genetic MicroSystems must receive a letter, dated as of
the closing date, from Ernst & Young LLP regarding the appropriateness of
pooling-of-interests accounting for the merger under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with the merger
agreement;
- - each of Affymetrix and Genetic MicroSystems must certify to the other that its
representations and warranties contained in the merger agreement are true and
correct except for breaches of representations and warranties as of the
closing date of the merger that do not relate to matters that are reasonably
likely to have a material adverse effect on the representing party;
- - each of Genetic MicroSystems and Affymetrix must certify to each other that it
has performed in all material respects all obligations required to be
performed under the merger agreement;
- - Affymetrix and Genetic MicroSystems must each receive a legal opinion
confirming that the merger will qualify as a tax-free reorganization;
- - Affymetrix and Genetic MicroSystems must obtain the consent or approval of
each person whose consent or approval is required under any material contract
to which Affymetrix, its subsidiaries or Genetic MicroSystems is a party; and
- - Affymetrix must have received the resignations of each director of Genetic
MicroSystems.
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TERMINATION, AMENDMENT OR WAIVER
(PAGE 62)
Affymetrix and Genetic MicroSystems can agree to terminate the merger
agreement without completing the merger, and either company can terminate the
merger agreement if any of the following occurs:
- - the merger is not completed by February 15, 2000, provided that the right to
terminate after such date will not be available to any party that has breached
in any material respect its obligations under the merger agreement in any
manner that shall have proximately contributed to the occurrence of the
failure of the merger to be consummated;
- - the requisite approval of the Genetic MicroSystems stockholders has not been
obtained at a meeting duly convened for such purpose; or
- - any order permanently restraining, enjoining or otherwise prohibiting the
merger shall become final and non-appealable.
In addition, Genetic MicroSystems may terminate the merger agreement as a
result of an acquisition proposal from a potential acquiror if:
- - Genetic MicroSystems is not in breach of any of the terms of the merger
agreement; and
- The board of directors of Genetic MicroSystems authorizes, subject to the
terms of the merger agreement, Genetic MicroSystems to enter into a
binding written agreement concerning a superior proposal, and Genetic
MicroSystems notifies Affymetrix in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement
to such notice; and
- Affymetrix does not make, within five business days of receipt of Genetic
MicroSystems' written notification of its intention to enter into such an
agreement, an offer that the Genetic MicroSystems board of directors
determines is at least as favorable, from a financial point of view, to
the stockholders of Genetic MicroSystems as the proposal as to which
Genetic MicroSystems gave notice; and
- Genetic MicroSystems pays to Affymetrix, prior to such termination, in
immediately available funds the termination and expense fees that are
discussed below under the heading "The Merger -- The Merger Agreement:
Termination Fee and Expense Reimbursement" on page 63.
- - if there has been a material breach by Affymetrix or GMS Acquisition of any
representation, warranty, covenant or agreement of Affymetrix or GMS
Acquisition contained in the merger agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by Genetic MicroSystems to the party committing such breach.
In addition, Affymetrix may terminate the merger agreement if:
- - the Genetic MicroSystems board of directors shall have withdrawn or adversely
modified its approval or recommendation of the merger agreement or failed to
reconfirm its recommendation of the merger agreement within five business days
after a written request by Affymetrix to do so;
- - there has been a material breach by Genetic MicroSystems of any
representation, warranty, covenant or agreement of Genetic MicroSystems
contained in the merger agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by
Affymetrix to Genetic MicroSystems; or
- - Genetic MicroSystems or any of the other persons set forth under the heading
"The Merger -- The Merger Agreement: No Solicitation of Acquisition Proposals"
takes any of the actions that are proscribed by the covenant described under
the that heading. See "The Merger -- The Merger Agreement: No
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Solicitation of Acquisition Proposals" on page 59.
TERMINATION FEE AND EXPENSE REIMBURSEMENT (PAGE 63)
Genetic MicroSystems has agreed to pay to Affymetrix a termination fee
equal to $2,500,000 and to reimburse Affymetrix' expenses up to $1,000,000 if
the merger agreement is terminated under the following circumstances:
- - Genetic MicroSystems terminates the merger agreement because:
- Genetic MicroSystems is not in breach of any of the terms of the merger
agreement; and
- The board of directors of Genetic MicroSystems authorizes, subject to the
terms of the merger agreement, Genetic MicroSystems to enter into a
binding written agreement concerning a superior proposal, and Genetic
MicroSystems notifies Affymetrix in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement
to such notice; and
- Affymetrix does not make, within five business days of receipt of Genetic
MicroSystems' written notification of its intention to enter into such an
agreement, an offer that the Genetic MicroSystems board of directors
determines is at least as favorable, from a financial point of view, to
the stockholders of Genetic MicroSystems as the proposal as to which
Genetic MicroSystems gave notice.
- - Affymetrix terminates the merger agreement because:
- the Genetic MicroSystems board of directors, in connection with a
superior proposal, has withdrawn or adversely modified its approval or
recommendation of the merger agreement or failed to reconfirm its
recommendation of the merger agreement within five business days after a
written request by Affymetrix to do so; or
- Genetic MicroSystems or any of the other persons delineated under the
heading "The Merger -- The Merger Agreement: No Solicitation of
Acquisition Proposals" takes any of the actions that are proscribed by
the covenant described under that heading. See page 59 for additional
information.
APPOINTMENT OF STOCKHOLDER REPRESENTATIVE (PAGE 63)
As provided by the terms of the Merger Agreement, each holder of shares of
Genetic MicroSystems capital stock who votes in favor of the merger or who
receives or accepts shares of Affymetrix common stock as the merger
consideration will be deemed to have consented to the appointment of Jean
Montagu as stockholder representative and will be deemed to have consented to
the performance by the stockholder representative of all rights and obligations
conferred on the stockholder representative under the merger agreement and the
escrow agreement. For more detailed information on the escrow arrangements, see
"Escrow Agreement" on page 68.
INDEMNIFICATION AND LIABILITY OBLIGATIONS
(PAGE 64)
10% of the aggregate number of shares of Affymetrix common stock to be
delivered by Affymetrix at the closing of the merger will be deposited with an
escrow agent, for a period not to exceed one year, for purposes of indemnifying
Affymetrix. For more detailed information on the escrow arrangements, see
"Escrow Agreement" on page 68. For a period of one year after the effective time
of the merger, the stockholders of Genetic MicroSystems will jointly and
severally indemnify and hold harmless Affymetrix and its affiliates for any
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damages directly or indirectly arising or
resulting from or in connection with:
- - any breach of any representation or warranty made by Genetic MicroSystems, the
stockholders of Genetic MicroSystems set forth on the signature pages of the
merger agreement or the stockholder representative in the merger agreement or
in any certificate delivered by Genetic MicroSystems pursuant to the merger
agreement;
- - any breach by Genetic MicroSystems of any covenant or obligation of Genetic
MicroSystems in the merger agreement; or
- - any breach of, or failure to assign to Affymetrix or any affiliate of
Affymetrix all of the rights under and terms of, any contract to which Genetic
MicroSystems is a party directly or indirectly arising or resulting from or in
connection with Genetic MicroSystems' ceasing to exist by virtue of the
merger.
For a period of one year after the effective time of the merger, Affymetrix
will indemnify and hold harmless the stockholders of Genetic MicroSystems, and
shall pay to such stockholders the amount of any damages arising, directly or
indirectly, from or in connection with:
- - any breach of any representation or warranty made by Affymetrix in the merger
agreement or in any certificate delivered by Affymetrix pursuant to the merger
agreement; or
- - any breach by Affymetrix of any covenant or obligation of Affymetrix in the
merger agreement.
Certain limitations on indemnification apply to Genetic MicroSystems'
stockholders and to Affymetrix. The indemnification provisions of the merger
agreement are not the exclusive remedy for Affymetrix. Affymetrix will have the
right to recover damages from the Genetic MicroSystems' stockholders pursuant to
a judgment from any court of competent jurisdiction for damages subject to
certain limitations.
STOCK OPTION AGREEMENT (PAGE 66)
Affymetrix and Genetic MicroSystems have entered into a stock option
agreement granting Affymetrix an option to purchase approximately 19.9% of
Genetic MicroSystems' outstanding capital stock at $21.50 per share. The stock
option is exercisable under the same circumstances under which the termination
fee referred to in the previous section would be payable. The stock option
agreement is attached as Appendix B to this document.
If the stock option is exercised, Genetic MicroSystems may, under certain
circumstances, repurchase all or any portion of the Genetic MicroSystems common
stock issued pursuant to the stock option. Affymetrix' total profit allowed
under the stock option agreement is $5 million.
Affymetrix and Genetic MicroSystems believe that the exercisability of the
stock option could prohibit any other acquiror of Genetic MicroSystems during
the next two years from accounting for any such acquisition as a
pooling-of-interests. In addition, Affymetrix would have a significant stake in
Genetic MicroSystems if it exercised the stock option and held the stock. See
"Stock Option Agreement -- Effect of Stock Option Agreement" on page 67 for a
discussion of the effect of the stock option agreement.
ESCROW AGREEMENT (PAGE 68)
Pursuant to the terms of an escrow agreement, at the effective time,
Affymetrix will deposit 10% of the aggregate number of shares of Affymetrix
common stock to be delivered by Affymetrix at the closing of the merger, with
Bank One Trust Company, NA, as escrow agent on a pro-rata per stockholder basis
for a period not to exceed one year. These shares of Affymetrix common stock are
for the purpose of satisfying the indemnification obligations owed to Affymetrix
by the stockholder representative and the other stockholders of
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Genetic MicroSystems. Shares that have not been used to satisfy claims will be:
- - distributed by the escrow agent to the stockholders of Genetic MicroSystems
pro rata in accordance with the relative ownership percentage of each
stockholder.
- - released five business days after the one-year anniversary of the effective
date of the merger.
The escrow agreement also provides that Affymetrix can instruct the escrow
agent not to distribute the escrowed shares until any unsatisfied
indemnification claim has been resolved. A copy of the escrow agreement is
attached to this document as Appendix C. We encourage you to read the escrow
agreement as it is the legal document that governs the disposition of the escrow
fund.
STOCKHOLDER VOTING AGREEMENTS (PAGE 69)
Affymetrix has entered into stockholder voting agreements with Jean
Montagu, the Chairman, Chief Executive Officer and founder of Genetic
MicroSystems, and with five other stockholders of Genetic MicroSystems who are
all either family members of Jean Montagu or executive officers or directors of
Genetic MicroSystems. These six stockholders, who together beneficially own and
have voting control over approximately 69.5% of the shares of Genetic
MicroSystems common stock and approximately 72% of the shares of Genetic
MicroSystems convertible preferred stock, have agreed to vote for adoption of
the merger proposals and their shares represent more than the number of votes
necessary to adopt the merger agreement and approve the merger.
A form of the stockholder voting agreement is attached to this document as
Appendix D.
REGULATORY APPROVALS (PAGE 51)
The Hart-Scott-Rodino Antitrust Improvements Act prohibits Affymetrix and
Genetic MicroSystems from completing the merger until Affymetrix and Genetic
MicroSystems have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and the
required waiting period has ended. On October 6, 1999, Affymetrix and Genetic
MicroSystems each filed the required notification and report forms. The required
waiting period expires on November 5, 1999, unless extended.
APPRAISAL RIGHTS (PAGE 43)
Under Massachusetts law, Genetic MicroSystems stockholders who file written
notice of their intention to exercise dissenters' rights before the taking of
the vote and who do not vote to approve the merger agreement and otherwise
comply with Sections 86 to 98 of the Massachusetts Business Corporation Law may
elect to have the "fair value" of their shares judicially appraised in
accordance with Massachusetts law and paid to them if the merger is completed.
This amount may be more or less than the value of what these holders would
otherwise receive in the merger. Genetic MicroSystems stockholders wishing to
exercise appraisal rights must take the steps described in the section entitled
"Appraisal Rights" and set forth in full in Appendix E. Failure to comply
strictly with the statutory requirements may result in the loss of appraisal
rights.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 49)
The merger has been structured with the intent that you will not recognize
gain or loss for federal income tax purposes on your receipt of Affymetrix
common stock in exchange for your shares of Genetic MicroSystems stock. To
review the tax consequences to stockholders in greater detail, see "The
Merger -- Material Federal Income Tax Consequences" on page 49.
ACCOUNTING TREATMENT (PAGE 51)
Affymetrix and Genetic MicroSystems expect the merger to qualify as a
pooling-of-
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interests for accounting and financial reporting purposes, which means that
Affymetrix and Genetic MicroSystems will be treated as if they had always been
combined for accounting and financial reporting purposes.
RISK FACTORS & CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS (PAGES
21 THROUGH 39)
Both companies have made forward-looking statements in this document and,
in the case of Affymetrix, in the documents that are incorporated by reference.
Forward-looking statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of Affymetrix, Genetic MicroSystems or the combined
company. When words such as "believes," "expects," "anticipates" or similar
expressions are used, we are making forward-looking statements.
You should note that an investment in securities of Affymetrix involves
risks and uncertainties. These risk factors should be considered by you in
evaluating how to vote at the special meeting. Such risk factors include the
following:
- - Affymetrix common stock could experience fluctuations in price which could
affect the value of the shares issued to Genetic MicroSystems stockholders;
- - Affymetrix and Genetic MicroSystems may not be able to realize fully the cost
savings and other benefits they expect to be realized in connection with the
merger, which may adversely affect Affymetrix' earnings or financial
condition;
- - Affymetrix is in the early stages of development and commercialization of
Affymetrix technology;
- - Affymetrix has a history of operating losses, and expects to incur future
losses and cannot be certain that it will become a profitable company;
- - Affymetrix quarterly operating results may fluctuate significantly, and these
fluctuations may cause Affymetrix' stock price to fall;
- - Affymetrix currently has limited manufacturing capacity and continues to
experience variability in manufacturing yields;
- - circumstances beyond Affymetrix' control may result in manufacturing
interruptions which could cause Affymetrix' business to suffer;
- - Affymetrix has a limited history in manufacturing its products and Affymetrix
may encounter problems as it increases its manufacturing efforts;
- - Affymetrix quality control procedures may not be sufficient to ensure proper
performance of its products;
- - Affymetrix may have to rely on licenses from third parties for certain
technology;
- - Affymetrix' business may be harmed by significant outstanding litigation
asserting that its products infringe third party intellectual property rights;
- - Affymetrix' litigation against others generates significant counterclaims;
- - Affymetrix' intellectual property is the subject of significant administrative
actions;
- - the markets in which Affymetrix competes are rapidly changing, and Affymetrix
must develop and introduce new products and technologies to remain
competitive;
- - Affymetrix' business substantially depends upon the success of its products as
an alternative to current technologies;
- - the markets in which Affymetrix operates are highly competitive, and it may be
unable to compete successfully against new entrants and established companies
with greater resources;
- - the loss of a key customer could adversely affect Affymetrix' revenues and be
perceived as a loss of momentum in its business;
10
<PAGE> 21
- - Affymetrix' efforts to increase its presence in markets outside of the United
States may be unsuccessful and could result in losses;
- - Affymetrix' existing products may not be commercially viable;
- - if Affymetrix is unable to maintain its relationships with collaborative
partners, Affymetrix may have difficulty selling our products and services;
- - Affymetrix' failure to protect its intellectual property rights could
adversely affect its ability to compete;
- - Affymetrix depends on a limited number of suppliers, and Affymetrix may not be
able to ship products on time if it is unable to obtain an adequate supply of
manufacturing equipment, raw materials and product components on a timely
basis;
- - Affymetrix may need to raise additional capital that may not be available;
- - Affymetrix may not be able to develop or access new technologies necessary to
stay competitive;
- - Affymetrix has limited sales, marketing and technical support experience,
which may hurt its efforts at selling its products;
- - changes in government funding of research institutions could adversely effect
Affymetrix' business;
- - Affymetrix' business may be threatened by serious ethical, legal and social
implications of genetic testing;
- - Affymetrix may not be able to recruit and retain the personnel it needs to
succeed;
- - Affymetrix may be exposed to liability due to product defects;
- - Glaxo owns a substantial portion of Affymetrix' outstanding capital stock;
- - Affymetrix has various mechanisms in place to discourage takeover attempts;
- - Affymetrix is at risk of securities class action litigation due to stock price
volatility;
- - if Affymetrix' products or the products upon which it depends malfunction
because of year 2000 problems, its business could be adversely affected;
- - compliance with government regulation is critical to Affymetrix' business;
- - Affymetrix' success depends on its ability to expand its sales and support
organizations;
- - substantial leverage and debt service obligations may adversely affect
Affymetrix' cash flow; and
- - Affymetrix depends on reimbursement by health care organizations.
COMPARISON OF RIGHTS OF GENETIC
MICROSYSTEMS STOCKHOLDERS AND
AFFYMETRIX STOCKHOLDERS (PAGE 84)
Genetic MicroSystems' charter and bylaws and Massachusetts law currently
govern your rights as Genetic MicroSystems' stockholders. Affymetrix' charter
and bylaws and Delaware corporate law will govern your rights as a stockholder
of Affymetrix. Your rights as a Affymetrix stockholder will differ in some
respects from your rights as a Genetic MicroSystems stockholder.
11
<PAGE> 22
RECENT DEVELOPMENTS
AFFYMETRIX
On September 17, 1999, we announced the private placement of $125 million
principal amount of 5% Convertible Subordinated Notes due 2006 and that the
initial purchaser of the Notes has exercised its option and purchased an
additional $25 million of Notes. The Notes are convertible, subject to
adjustment in certain circumstances, into Affymetrix common stock at a price
equal to $123.00 per share. Gross proceeds from the private placement, including
exercise of the option, totaled $150 million.
On September 10, 1999, the Board of Patent Appeals and Interferences of the
United States Patent and Trademark Office, or USPTO, entered judgments in our
favor in two interference proceedings relating to claims on two patents issued
to Affymetrix. In both interference proceedings, the USPTO determined that
Incyte/Synteni did not meet the burden of proof required to establish a case
that the claims should be further evaluated in a full interference proceeding.
Incyte/Synteni has indicated its interest to appeal this USPTO decision.
On September 7, 1999, we announced the first commercial shipment of
GeneChip probe arrays from our newest manufacturing facility in West Sacramento,
California. Additional production equipment will be installed in our existing
facility in Sunnyvale, California and plans are being developed to further
expand the new West Sacramento facility in the remainder of 1999, 2000 and 2001.
Our new facility will expand total production capacity and serve to mitigate
risk associated with yield fluctuations as well as potential losses that may
occur at our existing Sunnyvale production facility which sits in a seismically
active location.
On September 1, 1999, we introduced the GeneChip HuSNP(TM) Mapping Assay,
an integrated solution for generating genotypes needed for genetic linkage
mapping.
12
<PAGE> 23
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION OF AFFYMETRIX
Affymetrix is providing the following information to aid you in your
analysis of the financial aspects of the merger. Affymetrix derived this
information from audited financial statements for 1994 through 1998 and
unaudited financial statements for the six months ended June 30, 1998 and 1999.
In the opinion of Affymetrix, this information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial condition for the six
months ended June 30, 1998 and 1999. Results for interim periods should not be
considered indicative of results for any other periods or for the year. This
information is only a summary and you should read it in conjunction with
Affymetrix' historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Affymetrix' annual reports, quarterly reports and other information
on file with the Securities and Exchange Commission and incorporated by
reference in this document. See "Where You Can Find More Information" on page
94.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Total revenue................ $ 1,574 $ 4,625 $ 11,972 $ 19,765 $ 52,025 $ 20,823 $ 39,514
Loss from operations......... (10,212) (11,628) (16,537) (27,659) (28,549) (14,197) (15,571)
Net loss..................... (9,680) (10,747) (12,227) (22,526) (23,130) (11,826) (13,243)
Preferred stock dividends.... - - - - (2,321) (695) (1,626)
Net loss attributable to
common stockholders........ (9,680) (10,747) (12,227) (22,526) (25,451) (12,512) (14,869)
Basic and diluted net loss
per common share........... $ (0.55) $ (0.61) $ (0.61) $ (0.99) $ (1.11) $ (0.55) $ (0.63)
Shares used in computing
basic and diluted net loss
per common share........... 17,563 17,664 20,131 22,644 22,915 22,859 23,744
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 17,805 $ 38,883 $108,982 $ 71,573 $ 80,568 $89,261
Working capital.......................... 15,677 36,070 107,668 71,553 80,387 95,076
Total assets............................. 19,945 44,594 118,900 101,170 136,428 158,185
Long-term liabilities, net of current
portion(1)............................. 7,135 948 741 513 5,261 5,135
Convertible redeemable preferred
stock(2)............................... - - - - 49,857 49,857
Total stockholders' equity............... 9,254 38,561 112,533 91,036 66,750 85,113
</TABLE>
- -------------------------
(1) Excludes $150 million of 5% Convertible Subordinated Notes due 2006, issued
by Affymetrix in September 1999.
(2) Convertible redeemable preferred stock was converted into 1,257,229 shares
of common stock in August 1999.
13
<PAGE> 24
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION OF GENETIC MICROSYSTEMS
Genetic MicroSystems is providing the following information to aid you in
your analysis of the financial aspects of the merger. Genetic MicroSystems
derived this information from audited financial statements for the year ended
December 31, 1998 and for the period from August 7, 1997 (date of inception) to
December 31, 1997 and unaudited financial statements for the six months ended
June 30, 1998 and July 3, 1999. In the opinion of Genetic MicroSystems, this
information reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations and
financial condition for the six months ended June 30, 1998 and July 3, 1999.
Results for interim periods should not be considered indicative of results for
any other periods or for the year. This information is only a summary and you
should read it in conjunction with Genetic MicroSystems' historical financial
statements and related notes included elsewhere in this document. See Appendix F
to this document.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 7, 1997
(DATE OF SIX MONTHS ENDED
INCEPTION) TO YEAR ENDED -------------------
DECEMBER 31, DECEMBER 31, JUNE 30, JULY 3,
1997 1998 1998 1999(1)
-------------- ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ -- $ 388 $ -- $5,082
Loss from operations........................ (481) (4,337) (1,776) (1,437)
Net loss.................................... (254) (3,670) (1,614) (1,371)
Basic and diluted net loss per share........ $(25.38) $ (6.21) $(10.35) $(1.36)
Shares used in computing basic and diluted
net loss per share........................ 10 591 155 1,009
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
---------------- JULY 3,
1997 1998 1999
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $1,552 $4,365 $ 2,527
Working capital............................................. 718 4,544 3,744
Total assets................................................ 1,658 5,758 6,393
Long-term liabilities....................................... -- 3,050 3,038
Convertible redeemable preferred stock...................... -- 2,951 3,672
Total shareholders' equity.................................. 812 (786) (2,169)
</TABLE>
- ---------------
(1) Effective January 1, 1999, for quarterly interim periods, Genetic
MicroSystems adopted a fiscal quarter ending on the Saturday nearest the end
of the calendar quarter.
14
<PAGE> 25
PRO FORMA COMBINED FINANCIAL INFORMATION OF AFFYMETRIX
The following describes the pro forma effect of the merger on
- Affymetrix' unaudited statement of operations for the six months
ended June 30, 1998 and 1999 and the years ended December 31, 1997
and 1998; and
- its unaudited balance sheet as of June 30, 1999, based on the
historical financial statements of Affymetrix and Genetic
MicroSystems.
For purposes of the pro forma combined financial information, Genetic
MicroSystems' results of operations for the six month period ended July 3, 1999
have been combined with Affymetrix' results of operations for the six month
period ended June 30, 1999.
The unaudited pro forma combined financial information and the accompanying
notes should be read in conjunction with the historical financial information
and related notes of Affymetrix, incorporated by reference in this document, and
of Genetic MicroSystems included elsewhere in this document.
The unaudited pro forma combined financial information is provided for
informational purposes only and does not purport to represent what Affymetrix'
financial position and results of operations would actually have been had the
merger and other pro forma adjustments in fact occurred at the dates indicated.
The unaudited pro forma combined statement of operations data and combined
balance sheet data of Affymetrix illustrate the estimated effects of the merger
as if that transaction had occurred at the beginning of the periods presented
and end of the periods presented, respectively.
Management of Affymetrix and Genetic MicroSystems intend to receive a
letter, as a condition to closing, from their respective independent auditors
regarding the appropriateness of pooling-of-interests accounting for the merger
if closed and consummated in accordance with the merger agreement. Under this
method of accounting, the recorded historical cost basis of the assets and
liabilities of Affymetrix and Genetic MicroSystems will be carried forward to
the operations of the combined company at their historical recorded amounts.
Results of operations of the combined company will include the results of
operations of Affymetrix and Genetic MicroSystems for the entire fiscal period
in which the combination occurs, and the historical results of operations of the
separate companies for fiscal years prior to the merger will be combined and
reported as the results of operations of the combined company. No adjustments
have been made to the unaudited condensed pro forma financial statement data of
Affymetrix and Genetic MicroSystems to conform the accounting policies of the
combined company as the nature and amounts of such adjustments are not expected
to be significant.
Some of the conditions to be met for pooling-of-interests accounting cannot
be fully assessed until the passage of specified periods of time after the
effective time of the merger, as certain of the conditions for
pooling-of-interests accounting address transactions occurring within these
specified periods of time. Certain events, including certain transactions in
Affymetrix or Genetic MicroSystems common stock by affiliates of Affymetrix and
Genetic MicroSystems, respectively, could prevent the merger from qualifying as
a pooling-of-interests for accounting purposes.
Because Genetic MicroSystems is not considered a "significant subsidiary"
of Affymetrix for purposes of the Securities and Exchange Commission's
accounting rules, unaudited pro forma combined financial statements that give
effect to the merger using the pooling-of-interests accounting method are not
presented in this document.
15
<PAGE> 26
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS DATA:
Total revenue.............................. $ 19,765 $ 52,413 $ 20,823 $ 44,596
Loss from operations....................... (28,140) (32,886) (15,973) 17,008
Net loss................................... (22,780) (26,800) (13,440) (14,615)
Preferred Stock dividends.................. -- (2,321) (695) (1,626)
Net loss attributable to common
stockholders............................. (22,780) (29,121) (14,135) (16,242)
Basic and diluted net loss per common
share.................................... $ (1.01) $ (1.23) $ (0.61) $ (0.66)
Shares used in computing basic and diluted
net loss per common share................ 22,647 23,636 23,106 24,725
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------------------
GENETIC
AFFYMETRIX MICROSYSTEMS ADJUSTMENTS COMBINED
---------- ------------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED BALANCE
SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 89,261 $ 2,527 $ -- $ 91,788
Working capital.......................... 95,076 3,744 (2,500) (A) 96,320
Total assets............................. 158,185 6,393 -- 64,578
Long-term liabilities, net of current
portion................................ 5,135 3,038 -- (B) 8,173
Convertible redeemable preferred stock... 49,857 3,672 (3,672) (C) 49,857
Stockholders' equity (deficit)........... 85,113 (2,169) (2,500) (A) 80,444
</TABLE>
- -------------------------
(A) Affymetrix and Genetic MicroSystems estimate they will incur direct
transaction costs of approximately $2.5 million associated with the merger
for professional fees, financial printing and other related charges. These
transaction costs will be charged to operations in the quarter in which the
transaction closes. The pro forma condensed combined balance sheet gives
effect to these costs as if they had been incurred as of June 30, 1999. The
costs are not included in the pro forma condensed combined statement of
operations data as they are nonrecurring.
Affymetrix expects to incur additional costs which have not yet been
determined following the consummation of the merger associated with
integrating the two companies, which costs will be expensed as incurred.
(B) Excludes $150 million of 5% Convertible Subordinated Notes due 2006, issued
by Affymetrix in September 1999.
(C) The convertible redeemable preferred stock of Genetic MicroSystems will be
exchanged for shares of Affymetrix common stock upon the consummation of the
merger at the exchange ratio specified in this document.
16
<PAGE> 27
COMPARATIVE PER SHARE INFORMATION
The following table summarizes certain historical financial information and
unaudited pro forma combined and equivalent pro forma financial information on a
per share basis.
The unaudited pro forma combined financial information assumes that the
merger was completed at the beginning of each of the periods presented and gives
effect to the merger as a pooling-of-interests for accounting purposes. The
basic and diluted unaudited pro forma combined per share information for
Affymetrix is based upon the number of outstanding Affymetrix common stock
adjusted to include the number of Affymetrix common shares that would be issued
in the merger based on the number of shares of Genetic MicroSystems common and
preferred stock outstanding on the dates reported.
Historical book value per share is computed by dividing stockholders'
equity (deficit) by the number of shares of common stock outstanding at the end
of the period. Affymetrix pro forma combined book value per share is computed by
dividing pro forma combined stockholders' equity by the pro forma number of
shares of Affymetrix common stock outstanding at the end of the period.
The unaudited equivalent pro forma per share information for Genetic
MicroSystems is based on the unaudited pro forma combined amounts per share for
Affymetrix multiplied by the exchange ratio of 0.2832.
The information set forth on the next page is qualified in its entirety by
reference to, and should be read in conjunction with, the historical financial
information of Affymetrix incorporated by reference and Genetic MicroSystems
included in this document and the pro forma combined financial information
included in this document.
17
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1996 1997 1998 1999
------ ------ ------ ----------
<S> <C> <C> <C> <C>
HISTORICAL -- AFFYMETRIX:
Basic and diluted net loss per common share..... $(0.61) $(0.99) $(1.11) $(0.63)
Book value per common share..................... $ 3.51
Pro forma book value per common share assuming
conversion of convertible redeemable preferred
stock in August 1999.......................... $ 5.29
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 7, 1997
(DATE OF SIX MONTHS
INCEPTION) TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JULY 3,
1997 1998 1999
-------------- ------------ ----------
<S> <C> <C> <C>
HISTORICAL -- GENETIC MICROSYSTEMS:
Basic and diluted net loss per share............ $(25.38) $(6.21) $(1.36)
Book value per common share..................... $(2.15)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------- JUNE 30,
1997 1998 1999
------ ------ ----------
<S> <C> <C> <C>
AFFYMETRIX PRO FORMA COMBINED:
Basic and diluted net loss per common share............... $(1.01) $(1.23) $(0.66)
Book value per common share............................... $ 3.19
Pro forma combined book value per common share assuming
conversion of Affymetrix convertible redeemable
preferred stock into common stock in August 1999........ $ 4.92
GENETIC MICROSYSTEMS EQUIVALENT PRO FORMA COMBINED:
Basic and diluted net loss per common share............... $(0.29) $(0.35) $(0.19)
Book value per common share............................... $ 0.90
Equivalent pro forma combined book value per common share
assuming conversion of Affymetrix convertible preferred
stock into common stock in August 1999.................. $ 1.39
</TABLE>
18
<PAGE> 29
MARKET PRICE AND DIVIDEND INFORMATION
Affymetrix common stock has traded on the NASDAQ National Market under the
symbol "AFFX" since Affymetrix' initial public offering on June 6, 1996. There
is no established trading market for any Genetic MicroSystems securities.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices per share of Affymetrix common stock as quoted on
the NASDAQ National Market.
<TABLE>
<CAPTION>
AFFYMETRIX
COMMON STOCK
----------------
CALENDAR QUARTER HIGH LOW
---------------- ------ ------
<S> <C> <C>
1996
Second Quarter (commencing June 6, 1996)............ $17.38 $14.50
Third Quarter....................................... 17.88 11.25
Fourth Quarter...................................... 22.25 16.25
1997
First Quarter....................................... 36.38 19.75
Second Quarter...................................... 35.25 20.38
Third Quarter....................................... 46.75 29.13
Fourth Quarter...................................... 45.00 29.75
1998
First Quarter....................................... 35.13 24.63
Second Quarter...................................... 34.13 21.13
Third Quarter....................................... 29.31 16.13
Fourth Quarter...................................... 28.38 19.50
1999
First Quarter....................................... 41.50 23.75
Second Quarter...................................... 50.25 32.50
Third Quarter....................................... 127.00 48.00
Fourth Quarter (through October 13)................. 108.00 92.00
</TABLE>
RECENT CLOSING PRICES
The following table sets forth the closing sales price per share of
Affymetrix common stock on the NASDAQ National Market on September 10, 1999, the
last trading day before public announcement of the merger, and on October 13,
1999, the last practicable trading day prior to the date of this document. Since
there has been no public market for Genetic MicroSystems securities, there is no
information as to the market value of shares of Genetic MicroSystems common or
convertible preferred stock.
<TABLE>
<CAPTION>
AFFYMETRIX
COMMON STOCK
------------
<S> <C>
September 10, 1999........................................ $101.13
October 13, 1999.......................................... $102.13
</TABLE>
19
<PAGE> 30
The market price of Affymetrix common stock is likely to fluctuate prior to
the merger. You should obtain current market quotations for Affymetrix common
stock. The future prices or markets for Affymetrix common stock cannot be
predicted.
DIVIDEND INFORMATION
No cash dividends have ever been paid or declared on the shares of
Affymetrix common stock or on the shares of Genetic MicroSystems common or
convertible preferred stock. Affymetrix does not anticipate paying cash
dividends on its common stock for the foreseeable future. Affymetrix' present
intention is to retain its earnings, if any, for the future operation and
expansion of its business. Any future payment of dividends on Affymetrix common
stock will be at the discretion of the board of directors of Affymetrix and will
depend upon, among other things, Affymetrix' earnings, financial condition,
capital requirements, level of indebtedness and other factors that the
Affymetrix board of directors deems relevant.
NUMBER OF STOCKHOLDERS AND NUMBER OF SHARES OUTSTANDING
As of October 12, 1999, there were approximately 394 stockholders of
Affymetrix of record who held an aggregate of approximately 25,759,524 shares of
Affymetrix common stock.
As of October 13, 1999, there were 88 stockholders of Genetic MicroSystems
of record who held an aggregate of approximately 1,006,702 shares of Genetic
MicroSystems common stock and approximately 2,431,977 shares of Genetic
MicroSystems convertible preferred stock.
20
<PAGE> 31
RISK FACTORS
You should consider the following risk factors in determining how to vote
at the special meeting and in connection with ownership of Affymetrix common
stock.
AFFYMETRIX COMMON STOCK COULD EXPERIENCE FLUCTUATIONS IN PRICE WHICH COULD
AFFECT THE VALUE OF THE SHARES ISSUED TO GENETIC MICROSYSTEMS STOCKHOLDERS.
Recently, the stock market and the trading price for Affymetrix common
stock have experienced significant price fluctuations. Market fluctuations may
adversely affect the market price of Affymetrix common stock. This volatility
has been caused and will in the future continue to be caused by, among other
things, the following factors, some of which are beyond Affymetrix' control:
- - Quarterly variations in Affymetrix' operating results;
- - Announcements of new commercial products and initiatives either by Affymetrix
or its collaborative partners or competitors;
- - Developments in litigation initiated against Affymetrix or by Affymetrix; and
- - Developments concerning proprietary rights;
- - Technological innovations by Affymetrix and its competitors;
- - New collaborative agreements;
- - Announcements of Affymetrix' results of research activities;
- - Changes in patent laws;
- - Changes in government regulation or new regulatory actions;
- - Fluctuations in the stock market price and volume of traded shares generally,
especially fluctuations in the traditionally volatile technology and
biotechnology sectors.
The value of Affymetrix common stock at the time of the special meeting of
Genetic MicroSystems stockholders, the date on which the merger is completed,
the date the Genetic MicroSystems stockholders receive shares of Affymetrix
common stock or the date stockholders eventually sell their Affymetrix common
stock may be significantly different from the price of Affymetrix common stock
today.
AFFYMETRIX AND GENETIC MICROSYSTEMS MAY NOT BE ABLE TO REALIZE FULLY THE COST
SAVINGS AND OTHER BENEFITS THEY EXPECT TO BE REALIZED IN CONNECTION WITH THE
MERGER, WHICH MAY ADVERSELY AFFECT AFFYMETRIX' EARNINGS OR FINANCIAL CONDITION.
Affymetrix and Genetic MicroSystems expect certain business synergies and
cost savings including product complementarity and instrument manufacturing
capabilities to result from the merger. The merger, however, involves the
integration of two companies that have previously operated independently of each
other and the successful combination of the two enterprises may result in a
diversion of management attention for an extended period of time. Further, the
parties may not be able to achieve any enhanced cost savings, selling
opportunities, development and marketing of product offerings, and/or
manufacturing synergies. Inability to realize the full extent of, or any of, the
anticipated benefits of the merger, as well as delays encountered in the
integration process, could have an adverse effect upon the revenues, level of
expenses, operating results and financial condition of Affymetrix, which may
affect the value of the Affymetrix common stock.
AFFYMETRIX IS IN THE EARLY STAGES OF DEVELOPMENT AND COMMERCIALIZATION OF
AFFYMETRIX TECHNOLOGY.
For the most part, Affymetrix' technologies are still in the early stages
of development and Affymetrix has just begun to incorporate its technologies
into commercialized products. Affymetrix' GeneChip system has thus far been sold
solely for research use, and the majority of these sales have been for
Affymetrix' expression-monitoring application. In order to further develop and
commercialize the expression-monitoring, genotyping and disease management
21
<PAGE> 32
applications of Affymetrix' GeneChip system
and other potential products, including those of Genetic MicroSystems,
Affymetrix will need to make significant additional investments, including
funding manufacturing scale-up, efforts in bioinformatics, new product, software
and instrument design, and quality testing to ensure Affymetrix' products
perform correctly and are cost-effective. In addition, while Affymetrix' initial
research product sales have either not required regulatory approval or have been
regulated only as analyte-specific reagents, Affymetrix expects that Affymetrix
and its collaborators will need to obtain additional regulatory approvals in the
future. Obtaining such approvals could be costly and time-consuming and
Affymetrix cannot be sure it will be able to obtain all necessary approvals.
Even if Affymetrix develops its products for commercial use and obtains all
necessary regulatory approval, it may not be able to develop products that:
- - are accepted by the research, diagnostic or other marketplaces;
- - are accurate and effective;
- - meet applicable regulatory standards in a timely manner;
- - are protected from competition by others;
- - do not infringe the intellectual proprietary rights of others;
- - can be manufactured in sufficient quantities or at a reasonable cost; or
- - can be marketed successfully.
Any failure to develop these products could have a material adverse effect on
Affymetrix' business, financial condition and results of operations.
AFFYMETRIX HAS A HISTORY OF OPERATING LOSSES, AND EXPECTS TO INCUR FUTURE LOSSES
AND CANNOT BE CERTAIN THAT IT WILL BECOME A PROFITABLE COMPANY.
Affymetrix has experienced significant operating losses each year since its
inception and expects these losses to continue. For example, Affymetrix
experienced net losses of approximately $12.2 million in 1996, $22.5 million in
1997 and $23.1 million in 1998 and approximately $13.2 million for the six
months ended June 30, 1999. Affymetrix had an accumulated deficit of
approximately $92.7 million as of December 31, 1998, and approximately $107.6
million as of June 30, 1999. Affymetrix' losses have resulted principally from
costs incurred in research and development and from sales and marketing and
other general and administrative costs associated with its operations. These
costs have exceeded Affymetrix' revenues and interest income, which, to date,
have been generated principally from product sales and technology access fees,
collaborative research and development agreements, government research grants
and from cash and investment balances. Affymetrix expects to incur substantial
additional operating losses as a result of increases in expenses for
manufacturing, marketing and sales capabilities, research and product
development and general and administrative costs. Affymetrix may never achieve
profitability. Among other things, Affymetrix' ability to manage the transition
to a commercially successful company will depend upon its ability to:
- - develop products that are accepted by the marketplace;
- - create a product mix that is appealing to pharmaceutical and biotechnology
companies, academic research centers and clinical reference laboratories;
- - enter into supply agreements with customers desiring to use Affymetrix'
products;
- - establish and scale up its commercial manufacturing capability for probe
arrays and consistently achieve acceptable yields from those facilities;
- - cost-effectively manufacture components of the GeneChip system;
- - avoid infringing on the intellectual property rights of others;
- - enforce Affymetrix' intellectual property rights against others;
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- - establish sales and distribution capabilities cost-effectively;
- - develop its marketing capabilities cost-effectively;
- - obtain necessary regulatory approvals; and
- - hire and retain qualified key personnel.
In addition, any delays in receipt of any necessary regulatory approvals, delays
in shipment of products from suppliers or any adverse developments with respect
to Affymetrix' ability to enforce its intellectual property relative to its
competitors could seriously harm the successful commercialization of Affymetrix'
technologies and could have a material adverse effect on Affymetrix' business,
financial condition and results of operations.
AFFYMETRIX' QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE
FLUCTUATIONS MAY CAUSE AFFYMETRIX' STOCK PRICE TO FALL.
Affymetrix' quarterly operating results depend upon:
- - the volume and timing of orders for GeneChip products;
- - the timing of probe array, instrument and software shipments and
installations;
- - Affymetrix' manufacturing capabilities;
- - variations in product yields and gross margins;
- - variations in revenue recognized under Affymetrix' supply and collaborative
agreements, including license fees, product sales, design fees, milestones,
royalties and other contract revenues;
- - Affymetrix' mix of products sold;
- - the timing of new product introductions by Affymetrix; and
- - variations in expenses incurred in connection with the operations of
Affymetrix' business, including legal fees, manufacturing facility start-up
costs and capital expenditures.
Affymetrix' quarterly operating results may also fluctuate significantly
depending on factors out of our control, including:
- - the introduction of new products by Affymetrix' competitors;
- - the cost and availability of licenses to third party intellectual property
associated with Affymetrix' products;
- - market acceptance of the GeneChip system and other potential products;
- - the cost, quality and availability of reagents and components required to
manufacture or use Affymetrix' products;
- - changes in commercial and government funding of research using Affymetrix'
products; and
- - regulatory actions;
- - third-party reimbursement policies.
Because Affymetrix' revenues and operating results are volatile and difficult to
predict, Affymetrix believes that period-to-period comparisons of Affymetrix'
results of operations are not a good indication of Affymetrix' future
performance. It is likely that in some future quarter or quarters, Affymetrix'
operating results will be below the expectations of public market analysts or
investors. In such event, the market price of Affymetrix common stock may fall
significantly.
AFFYMETRIX CURRENTLY HAS LIMITED MANUFACTURING CAPACITY AND CONTINUES TO
EXPERIENCE SIGNIFICANT VARIABILITY IN MANUFACTURING YIELDS.
Affymetrix is currently manufacturing limited quantities of probe arrays
for internal and collaborative purposes and for sale to the research market.
Affymetrix currently has two manufacturing facilities, one located in Sunnyvale,
California and the other in West Sacramento, California. The actual number of
probe arrays Affymetrix is able to sell or use depends on the utilization of the
capacity at these facilities, the yield of probe arrays that pass quality
control testing and the number of probe arrays manufactured on each wafer.
Further-
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more, portions of Affymetrix' production capacity are limited to certain types
of probe arrays. Affymetrix has experienced and continues to experience
significant variability in the manufacturing yield of its GeneChip products
which has adversely impacted, and is expected to continue to adversely impact,
its gross margins and business. Affymetrix has also experienced, and anticipates
that it will continue to experience, difficulties in meeting anticipated
customer, collaborator and internal demand for certain of its probe array
products. Affymetrix' inability to deliver products in a timely manner could
seriously harm its relationship with its customers, delay introduction of new
products and have a material adverse effect on Affymetrix' business, financial
condition and results of operations.
CIRCUMSTANCES BEYOND AFFYMETRIX' CONTROL MAY RESULT IN MANUFACTURING
INTERRUPTIONS WHICH COULD CAUSE ITS BUSINESS TO SUFFER.
Affymetrix' manufacturing equipment requires significant capital
investment. Affymetrix presently relies on two manufacturing facilities for our
probe arrays. These manufacturing facilities are subject to circumstances beyond
its control such as fires, earthquakes, floods, power failures, unauthorized
intrusions into our facilities and similar events. Earthquakes are of particular
significance since the Sunnyvale, California manufacturing facility is located
in an earthquake-prone area. Although Affymetrix has built a second
manufacturing facility in West Sacramento, California, which Affymetrix expects
will mitigate earthquake risks when it becomes fully operational and capacity is
increased at that facility, in the event that Affymetrix' existing manufacturing
facilities are affected by circumstances beyond its control, Affymetrix could be
unable to manufacture products for sale or its capacity could be significantly
decreased until the facilities are replaced or restored to operation. If
manufacturing operations were curtailed or ceased, such curtailment or cessation
would have a material adverse effect on Affymetrix' business, financial
condition and results of operations.
AFFYMETRIX HAS A LIMITED HISTORY IN MANUFACTURING ITS PRODUCTS, AND IT MAY
ENCOUNTER PROBLEMS AS IT INCREASES ITS MANUFACTURING EFFORTS.
There are certain aspects of Affymetrix' manufacturing processes that are
not fully understood and that may not be readily scalable to allow for
production of probe arrays in larger volumes. As a result, manufacturing and
quality control problems have arisen and are expected to continue to arise as
Affymetrix attempts to scale-up its manufacturing facilities. Affymetrix may not
be able to scale-up these facilities in a timely and cost-effective manner or at
commercially reasonable cost. If Affymetrix is unable to consistently
manufacture probe arrays on a timely basis because of these or other factors,
its business, financial condition and results of operations could be materially
and adversely affected.
AFFYMETRIX QUALITY CONTROL PROCEDURES MAY NOT BE SUFFICIENT TO ENSURE PROPER
PERFORMANCE OF ITS PRODUCTS.
The GeneChip system is a complex set of products, which are produced in an
innovative and complicated manufacturing process. As part of this manufacturing
process, Affymetrix tests only selected probe arrays from each wafer and only
selected probes on these probe arrays against a number of performance criteria.
Affymetrix therefore relies on limited internal quality control procedures to
verify the correct completion of the manufacturing process. In addition,
Affymetrix and its customers rely on the accuracy of genetic sequence
information contained in databases upon which its products are based. It is
therefore possible that probe arrays that do not meet all of Affymetrix'
performance specifications may not be identified before they are shipped.
Further, after the probe arrays are shipped, a customer may test only selected
probes. Due to the complexity and limited operating history of these products,
Affymetrix has experienced technical problems and anticipates that additional
technical problems will occur and be discovered as more GeneChip systems are
placed into operation. If Affymetrix is unable to deliver products consist-
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ently to its customers that meet their performance expectations, demand for
Affymetrix' products will decline and its business, financial condition and
results of operations will be materially and adversely affected.
AFFYMETRIX MAY HAVE TO RELY ON LICENSES FROM THIRD PARTIES FOR CERTAIN
TECHNOLOGY.
Affymetrix' commercial success also depends in part on it neither
infringing patents or proprietary rights of third parties nor breaching any
licenses that may relate to its technologies and products. For example,
Affymetrix or its collaborators and customers may need to acquire a license for
an amplification technology to use the GeneChip system in certain applications.
Such license may not be available on commercially reasonable terms. Furthermore,
Affymetrix is aware of third-party patents that may relate to its technology. In
addition, Affymetrix has received and may in the future receive notices claiming
that it infringes third party rights as well as invitations to take licenses
under third party patents. Affymetrix cannot guarantee that it will not be
determined to infringe on patents or proprietary rights of third parties or that
Affymetrix, its collaborative partners or its customers would be able to obtain
a license to such patents or proprietary rights on commercially acceptable
terms, if at all.
Affymetrix is aware of U.S. and European Union patents and patent
applications owned by Oxford Gene Technology that have issued or that are
pending and may issue that may relate to Affymetrix' technology. Affymetrix has
opposed two such allowed European Union patents. Several of the applications
have broad claims to certain array related technologies. In August 1998,
Affymetrix entered into a series of agreements with Beckman Coulter designed to
provide Affymetrix with a path to obtain a license to these patents and patent
applications. On June 4, 1999, Oxford Gene Technology filed patent infringement
suits against Affymetrix in the U.S. and in the United Kingdom asserting that
Oxford Gene Technology is not obligated to grant Affymetrix a license under a
consortium clause in Oxford Gene Technology's 1996 license agreement with
Beckman Coulter. On June 5, 1999, pursuant to the series of agreements
Affymetrix entered with Beckman Coulter, the license agreement between Beckman
Coulter and Oxford Gene Technology was assigned to Affymetrix. This series of
agreements and their interpretation may be challenged and, if interpreted
adversely, Affymetrix could be subject to an injunction or damages that could
delay or preclude sales of some or all of its products. Any such delay or
constraint would have a material adverse effect on Affymetrix' business,
financial condition and results of operations.
Affymetrix has various option, supply and license agreements with third
parties that give it rights to use certain technologies. If Affymetrix fails to
maintain rights to these types of technology this failure could have a material
adverse effect on its business, financial condition and results of operations.
For example, Affymetrix' inability to exercise an option for University of
California technology relating to miniaturized polymerase chain reaction devices
or other option agreements under reasonable terms, or at all, could seriously
harm its ability to sell integrated device products.
AFFYMETRIX' BUSINESS MAY BE HARMED BY SIGNIFICANT OUTSTANDING LITIGATION
ASSERTING THAT ITS PRODUCTS INFRINGE THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
Affymetrix is a party to significant litigation, which will consume
substantial financial and managerial resources and which could adversely affect
its business, financial condition and results of operations. Further, because of
the substantial amount of discovery required in connection with any such
litigation, there is a risk that confidential information could be compromised
by disclosure.
On March 3, 1997, Hyseq filed a lawsuit in United States District Court for
the Northern District of California (San Jose Division) alleging that
Affymetrix' products infringe United States Patents 5,202,231 and 5,525,464. In
addition, in December 1997, Hyseq filed a second action claiming that
Affymetrix' products infringe a related patent, United States
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Patent 5,695,940. On August 18, 1998, Affymetrix filed a lawsuit in Federal
District Court in the Northern District of California (San Francisco Division)
against Hyseq alleging infringement of U.S. Patent Nos. 5,795,716 and 5,744,305,
or '305. On September 1, 1998, Affymetrix added its U.S. Patent No. 5,800,992,
or '992, to the complaint of infringement against Hyseq.
On June 4, 1999, Oxford Gene Technology filed suit against Affymetrix in
the United States District Court for the District of Delaware and in the United
Kingdom alleging infringement of United States Patent 5,700,637 and European
Patent 0-373-203, respectively. On June 5, 1999, an asset transfer agreement
with Beckman Coulter became effective, giving Affymetrix access to various
assets, including licenses to United States Patent 5,700,637 and European Patent
0-373-203. On June 17, 1999, Affymetrix filed a complaint in the United States
District Court for the Northern District of California asking for, among other
things, a declaration that Affymetrix has a valid license to use the patents and
that, in light of this license, Affymetrix is not infringing on these patents.
The Hyseq and the Oxford Gene Technology actions seek damages based on the
sale of Affymetrix' products and processes and seek to enjoin commercial
activities relating to those products and processes. In addition to subjecting
Affymetrix to potential liability for damages, these actions, and any other
similar legal actions against Affymetrix or its collaborative partners, could
require Affymetrix or its collaborative partners to obtain a license in order to
continue to manufacture, market or use the affected products and processes.
While Affymetrix believes that the Hyseq and Oxford Gene Technology complaints
are without merit, Affymetrix may not prevail in the these actions and
Affymetrix or its collaborative partners may not prevail in any other related
action. Moreover, in the event Affymetrix does not prevail in the Hyseq and
Oxford Gene Technology actions and Affymetrix, its partners or its customers are
required to obtain a license to continue to manufacture, market or use the
affected products and processes, Affymetrix, its partners or its customers may
not be able to obtain such a license on commercially acceptable terms, if at
all. Furthermore, Affymetrix has expended and is likely to continue to expend
substantial financial and managerial resources in defending against the claims
filed by Hyseq and Oxford Gene Technology.
AFFYMETRIX' INTELLECTUAL PROPERTY IS THE SUBJECT OF SIGNIFICANT LITIGATION.
On January 6, 1998, Affymetrix filed a patent infringement action in the
United States District Court for the District of Delaware (No. 98-6) alleging
that certain of Incyte's and Synteni's products infringe United States Patent
5,445,934, or '934. On September 1, 1998, Affymetrix filed a complaint against
Incyte and Synteni in Federal District Court in Delaware alleging infringement
of the '305 Patent and the '992 Patent. These actions were transferred to the
United States District Court for the Northern District of California on November
18, 1998, as case numbers C98-4507 and C98-4508, respectively. The actions seek
to enjoin commercial activities of Incyte and Synteni relating to Affymetrix'
patents and, in regard to the '992 Patent, sought a preliminary injunction.
Incyte and Synteni moved for summary judgment that certain claims of the '992
Patent were invalid. On May 4, 1999, the Court denied Affymetrix' motion for
preliminary injunction and denied Incyte/Synteni's motion for summary judgment.
Affymetrix may not prevail in asserting its patent rights against Hyseq,
Incyte, Synteni or others. Affymetrix has expended and is likely to continue to
expend substantial financial and managerial resources in asserting its patent
rights against Hyseq, Incyte, Synteni and others. Affymetrix' failure to
successfully enforce its patent rights or the loss of these patent rights or
others would remove a legal obstacle to competitors in designing probe array
systems with similar competitive advantages to Affymetrix' GeneChip technology.
The removal of such barriers could have a material adverse effect on Affymetrix'
business, financial condition and results of operations.
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AFFYMETRIX' LITIGATION AGAINST OTHERS GENERATES SIGNIFICANT COUNTERCLAIMS.
On April 17, 1998, Incyte filed a response and counterclaim to case number
C98-4507, asserting that the '934 Patent is invalid and not infringed. On April
17, 1998, Incyte also filed a counterclaim alleging that a patent license
agreement Affymetrix entered into in December 1997 with Molecular Dynamics
interfered with an agreement between Incyte and Molecular Dynamics. In the
counterclaim, Incyte alleges that the terms of Affymetrix' patent license to
Molecular Dynamics prevented Molecular Dynamics from meeting its obligations to
Incyte. Incyte seeks damages from Affymetrix. On September 21, 1998, Incyte and
Synteni filed an answer asserting various defenses to the lawsuits in relation
to the '992 Patent and the '305 Patent, and asserted several counterclaims,
including:
- - a request for declaration of non-infringement and invalidity;
- - an assertion of unfair competition;
- - a request for a declaration that Synteni and Dari Shalon (a one-time employee
of Synteni) have not misappropriated any of Affymetrix' trade secrets;
- - a claim of tortious interference with Incyte's and Synteni's economic
advantage;
- - a claim of slander of title of a patent and a claim of trade libel.
Affymetrix believes that the counterclaims are without merit. However,
Affymetrix has expended and is likely to continue to expend significant
financial and managerial resources defending against these and any other
counterclaims filed by Incyte and Synteni and others. Affymetrix' failure to
successfully enforce its patent rights or defend against counterclaims of
Incyte, Synteni, or others could result in a material adverse effect on
Affymetrix' business, financial condition and results of operations.
AFFYMETRIX' INTELLECTUAL PROPERTY IS THE SUBJECT OF SIGNIFICANT ADMINISTRATIVE
ACTIONS.
The United States Patent and Trademark Office, or USPTO, notified
Affymetrix that Stanford University presented claims that relate to
substantially the same subject matter as certain claims from the '992 Patent and
all of the claims of the '305 Patent. The Stanford application is alleged to be
exclusively licensed to Incyte. The USPTO notified Affymetrix on April 2, 1999
that it had declared an interference proceeding relating to these patents and
claims of patents. The USPTO conducted proceedings to determine the priority of
these claims and determined that Incyte/Synteni did not meet the burden of proof
required to establish a case that the claims should be further evaluated in a
full interference proceeding. Incyte/Synteni has indicated that it will appeal
this decision. Affymetrix has expended, and expects in the future to continue to
expend, substantial financial and managerial resources as a result of these
proceedings. Moreover, Affymetrix may not prevail in such proceedings or in
similar proceedings relating to those or other patents. Affymetrix may not
prevail in the appeal of the Incyte/Synteni interference. A failure to prevail
could result in Affymetrix' inability to commercialize its products and also
would enable others to copy aspects of Affymetrix' products.
Affymetrix' intellectual property outside of the United States is expected
to may be subject to significant additional administrative and litigation
actions. For example, in Europe and Japan, third parties are expected to oppose
significant patents owned or controlled by Affymetrix. Affymetrix expects in the
future to expend substantial financial and managerial resources as a result of
these proceedings. A failure to prevail could result in an inability to
commercialize its products and also would enable others to copy aspects of its
products.
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THE MARKETS IN WHICH AFFYMETRIX COMPETES ARE RAPIDLY CHANGING, AND AFFYMETRIX
MUST DEVELOP AND INTRODUCE NEW PRODUCTS AND TECHNOLOGIES TO REMAIN COMPETITIVE.
Expression monitoring, polymorphism analysis and disease management
technologies have undergone and are expected to continue to undergo rapid and
significant change. Affymetrix future success will depend in large part on its
ability to maintain a competitive position with respect to these and future
technologies. Rapid technological development by Affymetrix or others may result
in Affymetrix' products or technologies becoming obsolete. In addition, products
offered by Affymetrix could be made obsolete by less expensive or more effective
tests based on other technologies or by new therapeutic or prophylactic agents
that obviate the need for the information Affymetrix' products generate.
Moreover, Affymetrix efforts to develop research and disease management products
based on its technologies will be subject to the risks of failure inherent in
the development of products based on new technologies. These risks include:
- - the potential discovery that these technologies will be found to be
ineffective, unreliable or unsafe;
- - difficulties in manufacturing Affymetrix' products cost effectively;
- - difficulties in marketing Affymetrix' products on a large scale;
- - the existence of third party proprietary rights precluding Affymetrix or its
collaborative partners from manufacturing, using or selling products;
- - the development of superior products by third parties; or
- - the failure to receive necessary regulatory clearances.
If Affymetrix is unable to develop the enhancements to its technology
necessary to compete successfully with newly emerging technologies, or if
Affymetrix is unable to develop products based on these technologies, its
business, financial condition and results of operations will be materially and
adversely affected.
AFFYMETRIX' BUSINESS SUBSTANTIALLY DEPENDS UPON THE SUCCESS OF ITS PRODUCTS AS
AN ALTERNATIVE TO CURRENT TECHNOLOGIES.
The commercial success of Affymetrix' GeneChip system will depend upon
market acceptance by pharmaceutical and biotechnology companies, academic
research centers and clinical reference laboratories. Market acceptance will
depend on many factors, including:
- - convincing researchers that the GeneChip system is an attractive alternative
to other technologies for the acquisition, analysis and management of genetic
information;
- - Affymetrix' ability to manufacture products with acceptable variations in
quality or performance;
- - Affymetrix' ability to provide its customers with software that enables the
integration and analysis of large volumes of genetic and other experimental
data;
- - the cost of Affymetrix' GeneChip system and access to probe arrays, which may
deter certain potential customers of its products;
- - any failure by Affymetrix in placing and servicing sufficient quantities of
the GeneChip system;
- - limitations in funding for commercial and academic research organizations that
are the potential customers for the GeneChip system;
- - the receipt of regulatory clearances in the United States, Europe, Japan and
elsewhere;
- - the availability of genetic content including proprietary markers that may be
important for incorporation into Affymetrix' probe arrays;
- - ethical concerns, which may limit the use of the GeneChip system for certain
disease management applications or the analysis of genetic information;
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- - the ability of laboratories to license other technologies, such as
amplification technologies that may be required to use the GeneChip system for
certain applications; and
- - the inability of potential customers to employ skilled laboratory technicians
necessary to operate the GeneChip system.
Because of these and other factors, Affymetrix' products may not gain
market acceptance.
THE MARKETS IN WHICH AFFYMETRIX OPERATES ARE HIGHLY COMPETITIVE, AND IT MAY BE
UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS AND ESTABLISHED COMPANIES
WITH GREATER RESOURCES.
Affymetrix competes in markets that are new, intensely competitive, highly
fragmented and rapidly changing. Affymetrix has experienced and expects to
continue to experience increased competition from current and potential
competitors, many of which have significantly greater financial, technical,
marketing and other resources.
Currently, Affymetrix' principal competition comes from existing
technologies and other DNA array technologies that are used to perform many of
the same functions for which Affymetrix markets its GeneChip systems. In order
to compete against existing and newly developed technologies and maintain
pricing and gross margins, Affymetrix will need to be successful in asserting
Affymetrix patents in the DNA array field and in demonstrating to potential
customers that the GeneChip system provides improved performance and
capabilities.
In the expression monitoring and polymorphism analysis fields, existing
competitive technologies include gel-based sequencing performed using
instruments provided by companies such as the Applied Biosystems division of
Perkin-Elmer and Amersham Pharmacia Biotech. A large number of publicly traded
and privately held companies including CuraGen, Gene Logic, General Scanning,
Inc., Corning, Genome Solutions, Hewlett Packard, Hitachi, Incyte/Synteni, Lynx
and Motorola also are developing or have developed DNA probe based assays or
other products and services, some of which may be competitive with Affymetrix'.
Affymetrix' competitors may able to respond more quickly to new or emerging
technologies and changes in customer requirements than Affymetrix can. In
addition, current and potential competitors have greater name recognition, more
extensive customer bases and access to proprietary content.
THE LOSS OF A KEY CUSTOMER COULD ADVERSELY AFFECT AFFYMETRIX' REVENUES AND BE
PERCEIVED AS A LOSS OF MOMENTUM IN ITS BUSINESS.
Affymetrix' customers are concentrated in a small number of pharmaceutical
and biotechnology companies, academic research centers and clinical reference
laboratories. For example, in 1998, two of Affymetrix' customers accounted for
20% and 16% of total revenues, respectively. Affymetrix expects that a small
number of customers will continue to account for a substantial portion of
revenues for the foreseeable future. As a result, if Affymetrix loses a major
customer, its business, financial condition and results of operations may be
adversely affected.
Consolidation in the pharmaceutical and biotechnology industries may
continue to occur. Planned or future consolidation among Affymetrix' current and
potential customers could decrease or slow aggregate sales of its technology and
shrink the research market or products target. Any such consolidation could have
a material adverse effect on Affymetrix business, financial condition and
results of operations.
In addition, Affymetrix believes that the sales cycle for the GeneChip
system will be lengthy due to the need to educate potential customers about its
characteristics. Affymetrix' failure to gain additional customers, the loss of
any customer or a significant reduction in the level of sales to any customer
could have a material adverse effect on its business, financial condition and
results of operations.
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Furthermore, there are two major reference laboratories in the United
States, one which is associated with a large pharmaceutical company. A decision
by these reference laboratories not to purchase Affymetrix' GeneChip technology
could adversely affect its business, results of operations and financial
condition. In addition, Affymetrix' dependence on sales to a few customers may
strengthen the negotiating position of its potential customers, which, in turn,
could reduce the sales price of the GeneChip system and have a material adverse
effect on Affymetrix' business, financial condition and results of operations.
AFFYMETRIX' EFFORTS TO INCREASE ITS PRESENCE IN MARKETS OUTSIDE OF THE UNITED
STATES MAY BE UNSUCCESSFUL AND COULD RESULT IN LOSSES.
Affymetrix intends to expand its international presence in order to
increase its export sales. Export sales to international customers entail a
number of risks, each of which could have a material adverse effect on
Affymetrix' business, financial condition and results of operations. These risks
include:
- - unexpected changes in, or impositions of, legislative or regulatory
requirements;
- - delays resulting from difficulty in obtaining export licenses for certain
technology, tariffs, quotas and other trade barriers and restrictions;
- - longer payment cycles and greater difficulty in accounts receivable
collection;
- - potentially adverse taxes;
- - currency exchange fluctuations;
- - the burdens of complying with a variety of foreign laws; and
- - other factors beyond Affymetrix' control.
Affymetrix is also subject to general geopolitical risks in connection with
international operations, such as political, social and economic instability,
potential hostilities and changes in diplomatic and trade relationships.
Although Affymetrix has not to date experienced any negative impact on its
operations as a result of such regulatory, geopolitical and other factors, such
factors could have a material adverse effect on its business, financial
condition and results of operations in the future or require it to modify its
current business practices.
AFFYMETRIX' EXISTING PRODUCTS MAY NOT BE COMMERCIALLY VIABLE.
Because Affymetrix' products and systems have been in operation for a
limited period of time, their accuracy and effectiveness have not been fully
established. Accordingly, any of the following events may occur, each of which
would have a material adverse effect on Affymetrix's business, financial
condition and results of operations:
- - the accuracy of the probe arrays in providing genetic information may not be
equal to or better than current technologies, such as gel-based sequencing
techniques;
- - the probe arrays may not provide commercially useful information;
- - the probe arrays or the GeneChip system may experience operational
difficulties;
- - Affymetrix may experience manufacturing problems or marketing difficulties
selling the probe arrays to pharmaceutical and biotechnology companies,
academic research centers and clinical reference laboratories;
- - cost containment pressures for biomedical research and patient management may
limit the price Affymetrix may be able to charge potential customers for its
probe arrays;
- - newly identified genetic information or incorrect genetic information
deposited in the sequence databases upon which Affymetrix and its customers
rely may require Affymetrix to redesign its current probe arrays or develop
new probe arrays;
- - technicians may not have adequate training to use the GeneChip system or
interpret the results generated from the system; or
- - the probe arrays and associated reagents may not gain regulatory approval for
clinical use.
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IF AFFYMETRIX IS UNABLE TO MAINTAIN ITS RELATIONSHIPS WITH COLLABORATIVE
PARTNERS, AFFYMETRIX MAY HAVE DIFFICULTY SELLING ITS PRODUCTS AND SERVICES.
Affymetrix believes that its success in penetrating its target markets
depends in part on Affymetrix' ability to develop and maintain collaborative
relationships with key pharmaceutical, diagnostic, biotechnology,
bioinformatics, analytical instrument and reagent companies as well as with
academic researchers, all in an effort to help develop, test, manufacture, sell
and service our GeneChip technology. Affymetrix has significant relationships
with Hewlett Packard, bioMerieux, Amersham Pharmacia Biotech KK and Roche
Molecular Systems and Affymetrix has entered into a consortium with the
Whitehead Institute, Millennium Pharmaceuticals and Bristol-Myers Squibb.
Affymetrix has received a material portion of its revenue since inception from
these and other collaborative partners. Affymetrix also intends to enter into
collaborative arrangements with other companies to expand Affymetrix'
operations, apply its technology, and commercialize potential future products.
Affymetrix' present or future collaborative partners may not be able to perform
their obligations as expected or devote sufficient resources to the development,
clinical testing, supply or marketing of Affymetrix' potential products
developed under these collaborations. Moreover, any of the following
developments could have a material adverse effect on Affymetrix' business,
financial condition and results of operations:
- - one of Affymetrix' partners develops technologies or components competitive
with Affymetrix' GeneChip system;
- - Affymetrix' existing collaborations preclude it from entering into additional
arrangements;
- - failure of Affymetrix' partners to obtain timely regulatory approvals;
- - premature termination of an agreement;
- - one of Affymetrix' partners' failure to devote sufficient resources to the
development and commercialization of its products; or
- - inability of one of Affymetrix' partners to supply products to it.
In addition, Affymetrix' agreements with its collaborators may have
provisions that allow for termination or give rise to disputes regarding the
rights and obligations of the parties. These and other possible disagreements
could lead to termination of the agreement or delays in collaborative research,
development, supply or commercialization of certain products, or could require
or result in litigation or arbitration. Any such delay, litigation or
arbitration could have a material adverse effect on Affymetrix' business,
financial condition and results of operations. Any of Affymetrix' collaborations
may prove to be unsuccessful. Likewise, Affymetrix may not be able to negotiate
future collaborative arrangements on acceptable terms, if at all.
AFFYMETRIX' FAILURE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY
AFFECT ITS ABILITY TO COMPETE.
Affymetrix' competitive position in the future will depend in large part on
its ability to do the following:
- - strengthen and defend its patent position;
- - preserve its copyrights and trade secrets;
- - operate without infringing the proprietary rights of third parties; and
- - acquire licenses related to enabling technology or products used with its
GeneChip technology.
Affymetrix' failure to successfully do any of these things will have a
material adverse effect on its business, financial condition and results of
operations.
Moreover, the patent positions of pharmaceutical and biotechnology
companies are generally uncertain and involve complex legal and factual
questions. Affymetrix believes that there will continue to be significant
litigation in the industry regarding patent and other intellec-
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tual property rights. As a result, Affymetrix
cannot guarantee:
- - that any of Affymetrix' pending patent applications will result in issued
patents;
- - that Affymetrix will develop additional technologies that are patentable;
- - that any patents issued to Affymetrix or its strategic partners will provide a
basis for commercially viable products;
- - that any patents issued to Affymetrix or its strategic partners will provide
it with any competitive advantages;
- - that any patents issued to Affymetrix or its strategic partners will not be
challenged by third parties; or
- - that the patents of others will not have a negative impact on Affymetrix'
ability to do business.
In addition, patent law relating to the scope of claims in the technology
fields in which Affymetrix operates is still evolving and the extent of future
protection for Affymetrix' proprietary rights is uncertain.
Others may independently develop similar or alternative technologies,
duplicate any of Affymetrix' technologies, or design around or invalidate
Affymetrix' patented technologies. In addition, Affymetrix has and expects to
continue to incur substantial costs in litigation to defend against the patent
suits brought by third parties and when Affymetrix initiates such suits. In
addition, administrative proceedings, such as interferences, in the United
States Patent Office could substantially impact the scope of Affymetrix' patent
protection as well as result in the expenditure of substantial funds in legal
fees. Affymetrix has been notified that third parties are attempting to copy
certain claims from two of its issued U.S. patents. As a result of these
attempts, two interferences were declared with respect to two patents, '305 and
'992. In both interference proceedings, the USPTO determined that Incyte/Synteni
did not meet the burden of proof required to establish a case that the claims
should be further evaluated in a full interference proceeding. Incyte/Synteni
has indicated its intent to appeal this USPTO decision. Affymetrix may not
prevail in such proceedings. A failure to prevail could result in Affymetrix'
inability to commercialize its products and also would enable others to copy
aspects of Affymetrix' products.
Others have filed, and in the future are likely to file, patent
applications that are similar or identical to those of Affymetrix or those of
Affymetrix' licensors. To determine the priority of inventions, Affymetrix will
have to participate in interference proceedings declared by the United States
Patent and Trademark Office that could result in substantial cost to Affymetrix.
Affymetrix cannot assure you that any such patent applications will not have
priority over Affymetrix' patent applications.
AFFYMETRIX DEPENDS ON A LIMITED NUMBER OF SUPPLIERS, AND AFFYMETRIX MAY NOT BE
ABLE TO SHIP PRODUCTS ON TIME IF IT IS UNABLE TO OBTAIN AN ADEQUATE SUPPLY OF
MANUFACTURING EQUIPMENT, RAW MATERIALS AND PRODUCT COMPONENTS ON A TIMELY BASIS.
Affymetrix relies on Hewlett-Packard to manufacture, install and service
its scanners and on Enzo to manufacture certain reagents used with probe arrays.
Affymetrix' scanner, introduced in April 1997, is obtained from Hewlett-Packard
under a supply agreement that expires in 2003. Affymetrix is dependent on
Hewlett-Packard for quality testing, installation and service of this
instrument. Certain labeling kits needed to process samples on GeneChip probe
arrays are supplied to Affymetrix by Enzo under a supply agreement that expires
in 2001. Affymetrix is obligated to purchase certain labeling kits from Enzo or
compensate Enzo for any lost sales of these reagents.
Certain key parts of the GeneChip system, such as the scanner, certain
reagents kits and lithographic masks as well as certain equipment and raw
materials used in the synthesis of probe arrays, are currently available only
from a single source or a limited number of sources. In addition, components of
Affymetrix' manufacturing equipment are available from one of only a few
suppliers. No assurance can be given that
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manufacturing equipment, scanners, reagents, lithographic masks or other
components of the GeneChip system will be available in a timely fashion and in
commercial quantities under acceptable terms. Even if alternative sources of
supply are available, it could be time consuming and expensive for Affymetrix to
qualify new vendors. In addition, Affymetrix is dependent on its vendors to
provide components of appropriate quality and reliability and to meet applicable
regulatory requirements. Consequently, in the event that supplies from these
vendors were delayed or interrupted for any reason, Affymetrix could be delayed
in its ability to develop and deliver products to its customers. Any such delay
could have a material adverse effect on Affymetrix' business, financial
condition and results of operations.
AFFYMETRIX MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
Affymetrix anticipates that its existing capital resources will enable it
to maintain currently planned operations. However, this expectation is based on
Affymetrix' current operating plan, which is expected to change as a result of
many factors, and it may need additional funding sooner than anticipated. In
addition, Affymetrix may choose to raise additional capital due to market
conditions or strategic considerations even if it believes it has sufficient
funds for its current or future operating plans. To the extent that additional
capital is raised through the sale of other securities convertible into equity,
the issuance of such securities could result in dilution to Affymetrix'
stockholders.
Affymetrix has no credit facility or other committed sources of capital. To
the extent operating and capital resources are insufficient to meet future
requirements, Affymetrix will have to raise additional funds to continue the
development and commercialization of its technologies. Moreover, such funds may
not be available on favorable terms, or at all. If adequate funds are not
available on reasonable terms, Affymetrix may be required to curtail operations
significantly or to obtain funds by entering into financing, supply or
collaboration agreements on unattractive terms. Affymetrix' inability to raise
capital could have a material adverse effect on its business, financial
condition and results of operations.
AFFYMETRIX MAY NOT BE ABLE TO DEVELOP OR ACCESS NEW TECHNOLOGIES NECESSARY TO
STAY COMPETITIVE.
As Affymetrix' technologies evolve, new manufacturing techniques and
systems will be required. For example, it is anticipated that additional
automated processing systems will be needed to meet Affymetrix' future probe
array demand. Further, as products requiring increased density are developed,
miniaturization of the features on the arrays will be necessary. This will
require new or modified manufacturing equipment and processes. Affymetrix cannot
be sure that it will be able to develop or access new manufacturing
technologies. The failure to develop or access new technologies would have a
material adverse effect on Affymetrix' business, financial condition and results
of operations.
AFFYMETRIX HAS LIMITED SALES, MARKETING AND TECHNICAL SUPPORT EXPERIENCE, WHICH
MAY HURT ITS EFFORTS AT SELLING ITS PRODUCTS.
Affymetrix currently has a limited direct sales, marketing and technical
support organization and it has entered into a non-exclusive distribution
agreement with Amersham Pharmacia Biotech KK covering Japan and a service
agreement with Hewlett-Packard for its GeneArray scanner. Affymetrix' existing
organization and relationships may not be sufficient and Affymetrix may be
required to expand its organization and enter into additional collaboration or
distribution arrangements to commercialize its products both inside and outside
the United States. Affymetrix cannot assure you that:
- - Affymetrix will be able to establish a sufficiently sized sales, marketing or
technical support organization;
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- - Amersham Pharmacia Biotech KK will be successful in distributing Affymetrix'
products;
- - Amersham Pharmacia Biotech KK will not sell competitive products in Japan;
- - Hewlett-Packard will be successful in servicing Affymetrix' instruments and
not become its competitor; or
- - Affymetrix will be able to establish additional collaborative or distribution
arrangements to sell, market and service its products.
The failure to develop Affymetrix' sales, market and technical support
capabilities, or the development of competing products by its collaborators,
would have a material adverse effect on its business, financial condition and
results of operations.
CHANGES IN GOVERNMENT FUNDING OF RESEARCH INSTITUTIONS COULD ADVERSELY AFFECT
AFFYMETRIX' BUSINESS.
A significant portion of Affymetrix products for research use are sold to
universities, government research laboratories, private foundations and other
institutions whose funding is dependent upon grants from government agencies,
such as the National Institute of Health. Research funding by the government,
however, may be significantly reduced in the future. Any such reduction may have
a negative impact on the ability of Affymetrix existing and prospective research
customers to purchase Affymetrix' products for research use.
AFFYMETRIX' BUSINESS MAY BE THREATENED BY SERIOUS ETHICAL, LEGAL AND SOCIAL
IMPLICATIONS OF GENETIC TESTING.
Affymetrix' success will depend in part upon its ability to develop tests
for specific genetic information discovered by Affymetrix and others. These
genetic tests have given rise to some difficult issues, including:
- - once available, these tests may be subject to ethical concerns or reluctance
to administer or pay for tests for conditions that are not treatable; and
- - the possibility that specific gene-based diagnostic tests marketed by other
companies could encounter public resistance, thereby resulting in societal and
governmental concerns regarding genetic testing in general.
The prospect of broadly available genetic predisposition testing has raised
issues regarding the appropriate utilization and the confidentiality of
information provided by this testing.
Governmental authorities could limit the use of genetic testing or prohibit
testing for genetic predisposition to certain conditions which could adversely
affect the use of Affymetrix' products. As a result, ethical concerns about
genetic testing may seriously affect market acceptance of Affymetrix' GeneChip
system or give rise to legislative restrictions in some countries adversely
affecting markets, thereby having a material adverse effect on Affymetrix'
business, financial condition and results of operations.
AFFYMETRIX MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL IT NEEDS TO
SUCCEED.
Affymetrix is highly dependent on the principal members of its management
and scientific staff. The loss of services of any of these persons could have a
negative impact on Affymetrix' product development and commercialization
efforts. In addition, research, product development and commercialization will
require additional skilled personnel in areas such as bioinformatics, organic
chemistry, information services, regulatory affairs, manufacturing, sales,
marketing and technical support.
There is a shortage of skilled personnel, which is likely to continue for
some time. As a result, competition for these people, particularly for employees
with technical expertise, is intense and the turnover rate for these people is
high. If Affymetrix is unable to hire, train and retain a sufficient number of
qualified employees, its business, financial condition and results of operations
could be materially and adversely affected. This inability could also hinder the
planned expansion of its business.
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In addition, Affymetrix relies on its scientific advisors and consultants
to assist it in formulating its research, development and commercialization
strategy. All of the scientific advisors and consultants are engaged by
employers other than Affymetrix and have commitments to other entities that may
limit their availability to Affymetrix. Some of Affymetrix' scientific advisors
and consultants also consult for companies that may be its competitors. If
Affymetrix is unable to retain its scientific advisors and consultants, its
business, financial condition and results of operations could be materially and
adversely affected.
AFFYMETRIX MAY BE EXPOSED TO LIABILITY DUE TO PRODUCT DEFECTS.
Affymetrix' business exposes it to potential product liability claims that
are inherent in the testing, manufacturing, marketing and sale of human
diagnostic and therapeutic products. Affymetrix intends to acquire additional
insurance, should it be desirable, for clinical liability risks. Affymetrix may
not be able to obtain this insurance or general product liability insurance on
acceptable terms or at reasonable costs. In addition, this insurance may not be
in sufficient amounts to provide it with adequate coverage against potential
liabilities. A product liability claim or recall could have a material adverse
effect on Affymetrix' business, financial condition and results of operations.
GLAXO OWNS A SUBSTANTIAL PORTION OF AFFYMETRIX' OUTSTANDING CAPITAL STOCK.
Glaxo Wellcome, plc and its affiliates currently beneficially own
approximately 31% of the outstanding Affymetrix common stock. On August 2, 1999,
Glaxo sold 1,000,000 shares of Affymetrix' common stock. On August 5, 1999,
Glaxo Wellcome Americas, a wholly owned subsidiary of Glaxo, elected to convert
all of the shares of Affymetrix' Series AA preferred stock that it held into
1,257,229 shares of Affymetrix' common stock at a conversion price of
approximately $40 per share. Following the completion of these transactions,
Glaxo's beneficial ownership of Affymetrix' capital stock fell from
approximately 32% to approximately 31%. Although Affymetrix has executed a
governance agreement with Glaxo, Glaxo nevertheless may be able to influence the
outcome of shareholder votes, including votes concerning the election of
directors, adoption of amendments to Affymetrix' certificate of incorporation
and bylaws and approval of mergers and other significant corporate transactions.
In addition, future sales by Glaxo may have an adverse effect on the price of
Affymetrix common stock.
AFFYMETRIX HAS VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS.
In October 1998, Affymetrix adopted a stockholder rights plan and change of
control policy. The purpose of the stockholder rights plan is to allow
Affymetrix and its board of directors an opportunity to deal responsibly with
parties that attempt to gain a control position in Affymetrix without the
approval of the board of directors. The purpose of the change of control policy
is to ensure that Affymetrix' employees are treated fairly in the event of a
change of control. Affymetrix' stockholder rights plan and change of control
policy may discourage, delay or prevent a change in control of Affymetrix that a
stockholder may consider favorable.
In addition, certain provisions of Affymetrix' certificate of incorporation
and bylaws may discourage, delay or prevent a change in control of it that a
stockholder may consider favorable. These provisions include:
- - authorizing the issuance of "blank check" preferred stock;
- - prohibiting cumulative voting in the election of directors;
- - requiring super-majority voting to effect certain amendments to Affymetrix'
certificate of incorporation and bylaws;
- - limiting the persons who may call special meetings of stockholders;
- - prohibiting stockholder action by written consent; and
- - establishing advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be
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acted upon by stockholders at stockholder meetings.
In addition, relevant provisions of Delaware law and Affymetrix' stock
incentive plans may discourage, delay or prevent a change in control.
AFFYMETRIX IS AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO STOCK PRICE
VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of its stock price, Affymetrix may
be the target of this type of litigation in the future. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could have a material adverse effect on Affymetrix' business,
financial condition and results of operations.
IF AFFYMETRIX' PRODUCTS OR THE PRODUCTS UPON WHICH IT DEPENDS MALFUNCTION
BECAUSE OF YEAR 2000 PROBLEMS, AFFYMETRIX' BUSINESS COULD BE ADVERSELY AFFECTED.
Affymetrix is assessing the potential impact of the year 2000 computer
problem on its products (including GeneChip systems and software), information
systems, embedded systems (including computers used in its manufacturing
process) and on the ability of certain third parties to supply critical
materials and services as well as the readiness of certain customers. Affymetrix
completed the assessment of its products, computer systems, embedded systems,
certain third party suppliers and major customers in the second quarter of 1999,
and plans to take necessary remediation action by the end of 1999. While
Affymetrix does not anticipate a material business interruption to result from
the year 2000 problem, it cannot guarantee that its products or systems will be
year 2000 ready. In addition, Affymetrix could be adversely affected by the lack
of year 2000 readiness of key third party suppliers and service providers and
major customers. Affymetrix cannot guarantee that it or third parties will be
year 2000 ready. Affymetrix has implemented a year 2000 contingency plan that
involves purchasing and building inventory over the remainder of 1999 so that it
will be able to continue to operate in the event of a modest and short-term
supply shortage resulting from any year 2000 problems experienced by its
suppliers. Finally, Affymetrix is also subject to external forces that might
generally affect industry and commerce, such as utility and transportation
failures. If any of Affymetrix' products, information systems, embedded systems,
key third party suppliers and services providers and major customers are not
year 2000 ready, Affymetrix may experience a business interruption which would
have a material adverse effect on its business, results of operations and
financial condition.
COMPLIANCE WITH GOVERNMENT REGULATION IS CRITICAL TO AFFYMETRIX' BUSINESS.
Affymetrix must comply with the Food and Drug Administration's regulations
for sale of analyte-specific reagents, or ASRs, in the United States, ISO
standards for sale of products in Europe, as well as other standards prescribed
by various federal, state and local regulatory agencies in the United States and
other countries. Although Affymetrix has filed an application for the
registration of its manufacturing sites for its arrays as ASRs, Affymetrix
cannot guarantee that it will be able to comply with the regulations at
reasonable costs.
In addition, many of Affymetrix' products, including its diagnostic
products, will be regulated as medical devices and therefore be subject to
approval by the United States Food and Drug Administration. Unless exempted by
government regulation, there are two primary methods for securing FDA approval.
First, the FDA determines that the proposed medical device can be marketed
in the United States because it is substantially equivalent to an existing
medical device already in the United States market and issues what is known as a
510(k) pre-market notification clearance. Second, the FDA may require that the
new device satisfy a more in depth approval process, known as pre-market
approval, or PMA. Both the 510(k) clearance and the PMA processes may require
the presentation of a
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substantial volume of clinical data, as well as a substantial review, thereby
delaying the introduction of the new device into the market. Moreover, the PMA
process requires extensive clinical studies, manufacturing information
(including demonstration of compliance with quality systems requirements) and
likely review by a panel of experts outside the FDA. FDA review of a PMA
application could take significantly longer than that for a 510(k) application,
thereby further delaying the introduction of the new medical device into the
market. Finally, even if the FDA approves the new device, it may impose
restrictions on Affymetrix' ability to market the device.
Affymetrix cannot assure you that it will or its collaborators will be able
to meet the FDA's requirements or receive FDA clearance for Affymetrix'
products. Moreover, even if Affymetrix is exempt from approval or even if
Affymetrix receives clearance, the FDA may impose restrictions on Affymetrix'
marketing efforts. Finally, delays in the approval process may cause Affymetrix
to introduce its products into the market later than anticipated. Any failure to
obtain regulatory approval, restrictions on Affymetrix' ability to market its
products, or delay in the introduction of Affymetrix' products to the market
could have a material adverse effect on its business, financial condition and
results of operations.
Moreover, medical device manufacturers are subject to periodic inspections
by the FDA and state agencies. If the FDA believes that a company is not in
compliance with applicable laws or regulations, it can take any of the following
actions:
- - issue a warning or other letter notifying the particular manufacturer of
improper conduct;
- - impose civil penalties;
- - detain or seize products;
- - issue a recall;
- - ask a court to seize products;
- - enjoin future violations;
- - withdraw clearances or approvals; or
- - assess civil and criminal penalties against Affymetrix, its officers or its
employees.
If Affymetrix fails to comply with the FDA's requirements and is subject to
any of the actions mentioned above, its business, financial condition or results
of operations would be materially and adversely affected.
Medical device laws and regulations are also in effect in many of the
countries in which Affymetrix may do business outside the United States. These
laws and regulations range from comprehensive device approval requirements for
some or all of Affymetrix' medical device products to requests for product data
or certifications. The number and scope of these requirements are increasing.
Affymetrix may not be able to obtain regulatory approvals in these countries and
it may be required to incur significant costs in obtaining or maintaining its
foreign regulatory approvals. In addition, the export of certain of Affymetrix'
products which have not yet been cleared for domestic commercial distribution
may be subject to FDA export restrictions. Any failure to obtain product
approvals in a timely fashion or to comply with state or foreign medical device
laws and regulations may seriously harm Affymetrix' business, financial
condition or results of operations.
Affymetrix is also subject to numerous environmental and safety laws and
regulations, including those governing the use, storage and disposal of
hazardous and biological materials, and construction of new facilities.
Affymetrix may not be able to obtain the necessary permits to operate new
facilities. Any violation of, and the cost of compliance with, these regulations
or permit requirements could have a material adverse effect on Affymetrix'
business, financial condition and results of operations.
AFFYMETRIX' SUCCESS DEPENDS ON ITS ABILITY TO EXPAND ITS SALES AND SUPPORT
ORGANIZATIONS.
Affymetrix has expanded the distribution of its products in recent years.
This expansion has placed new and increased demands on its direct sales force
and technical and sales support staff, including accounting controls.
Affymetrix' ability to achieve revenue growth in the future
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will depend, in part, on its success in recruiting and training sufficient
direct sales, technical and support personnel. Although Affymetrix invests
significant resources to expand its direct sales force and its technical and
support staff, there is only a limited number of qualified personnel in these
areas. Therefore, Affymetrix may not be able to expand its direct sales force
and technical support staff as necessary to support its growing operations. In
addition, such expansion may not result in increased revenues. Any failure to
expand Affymetrix' direct sales force or technical and support staff or to
expand its distribution channels could materially and adversely affect its
business, operating results and financial condition.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT
AFFYMETRIX' CASH FLOW.
Affymetrix has substantial amounts of outstanding indebtedness. There is
the possibility that Affymetrix may be unable to generate cash sufficient to pay
the principal of, interest on and other amounts due in respect to its
indebtedness when due. Affymetrix also expects to add additional equipment loans
and lease lines to finance capital expenditures and may obtain additional long
term debt, working capital lines of credit and lease lines. There can be no
assurance that any financing arrangements will be available.
Affymetrix' substantial leverage could have significant negative
consequences, including:
- - increasing its vulnerability to general adverse economic and industry
conditions;
- - limiting its ability to obtain additional financing;
- - requiring the dedication of a substantial portion of its expected cash flow
from operations to service its indebtedness, thereby reducing the amount of
its expected cash flow available for other purposes, including working capital
and capital expenditures;
- - limiting its flexibility in planning for, or reacting to, changes in its
business and the industry in which it competes; or
- - placing Affymetrix at a possible competitive disadvantage compared to less
leveraged competitors and competitors that have better access to capital
resources.
AFFYMETRIX DEPENDS ON REIMBURSEMENT BY HEALTH CARE ORGANIZATIONS.
Affymetrix' ability to commercialize certain products and services
successfully may depend on the extent to which Affymetrix is able to secure
reimbursement from government authorities, such as Medicare and Medicaid,
private health insurers, and other organizations, such as health maintenance
organizations. These third-party payors are increasingly likely to challenge the
prices charged for health care products and services. The cumulative effect of
the trend towards managed health care in the United States, legislative
proposals to reform health care or reduce government insurance programs, and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care products and services, may
result in lower prices for health care products and services commercialized by
Affymetrix, Affymetrix' customers and its collaborative partners. This reduction
in turn could reduce the amount of Affymetrix' future revenues or royalty
payments that may be due to it. The lower prices could also harm Affymetrix'
profits and the profits of its customers and collaborative partners. As a
result, pharmaceutical, diagnostic and biotechnology companies may choose to
reduce or eliminate certain research and development programs that utilize
Affymetrix' products. Any such reduction of Affymetrix' revenues or royalty
payments or the reduction or cancellation of research programs that utilize
Affymetrix' products could seriously harm its business, financial condition and
results of operations.
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
In addition to historical information, this document and, in the case of
Affymetrix, the documents incorporated by reference in this document, contain
forward-looking statements concerning Affymetrix and Genetic MicroSystems. These
statements relate to future events or Affymetrix' or Genetic MicroSystems'
future financial performance. In some cases, you can identify forward-looking
statements by language such as "may," "will," "should," "expects,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other similar expressions. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors" that may cause
Affymetrix', Genetic MicroSystems', or Affymetrix' and Genetic MicroSystems'
industry's actual results, levels of activity, performance or achievements to
differ from results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements. You should carefully consider
the risks described in the "Risk Factors" section, in addition to the other
information set forth in this document and the documents incorporated by
reference in this document.
Although Affymetrix and Genetic MicroSystems believe that the expectations
reflected in the forward-looking statements are reasonable, Affymetrix and
Genetic MicroSystems cannot guarantee future results, levels of activity,
performance or achievements. Moreover, none of Affymetrix, Genetic MicroSystems
or any other person assumes responsibility for the accuracy and completeness of
such statements. Affymetrix and Genetic MicroSystems are under no duty to update
any of the forward-looking statements after the date of this document to conform
such statements to actual results. Affymetrix claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
THE COMPANIES
AFFYMETRIX
Affymetrix is recognized as a leader in developing and commercializing DNA
chip probe array technology and systems. We have developed and presently market
GeneChip systems, our proprietary probe array platform, which is used for
acquiring, analyzing and managing complex genetic information to facilitate and
improve the understanding, diagnosis, monitoring and treatment of disease.
Our GeneChip system consists of disposable DNA probe arrays containing gene
sequences on a glass chip, reagents for use with the probe arrays, a scanner and
other instruments that process the arrays and software that analyzes and manages
genetic information from the probe arrays. Commercial sales of our GeneChip
system began in April 1996, and we currently sell our products to pharmaceutical
and biotechnology companies, academic research centers and clinical reference
laboratories.
Affymetrix is a Delaware corporation and the shares of Affymetrix common
stock trade on the NASDAQ National Market under the symbol "AFFX".
Affymetrix' principal executive offices are located at 3380 Central
Expressway, Santa Clara, California 95051, and its telephone number is (408)
731-5000.
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Additional information concerning Affymetrix is included in Affymetrix'
reports filed under the Securities Exchange Act of 1934, as amended, that are
incorporated by reference in this document. See "Where You Can Find More
Information" on page 94.
GENETIC MICROSYSTEMS
Genetic MicroSystems is a privately held corporation with fewer than ninety
stockholders and no subsidiaries. Genetic MicroSystems was incorporated in
Massachusetts in 1997 to develop innovative products for DNA microarray
analysis. Genetic MicroSystems' goal is to advance genomics research and drug
discovery by providing systems that enable scientists to make and use DNA
microarrays in their own labs, in experiments of their own design. Along with an
increase in the use of microarray technology, Genetic MicroSystems believes that
its microarray analysis systems will facilitate a fundamental paradigm shift in
genomics research and drug discovery, as scientists move from the study of
individual reactions to the analysis of complex systems and pathways.
The GMS(TM) Microarray Analysis System consists of two benchtop modules,
the GMS 417(TM) Arrayer and the GMS 418(TM) Array Scanner, along with a software
package that enables sample tracking and data analysis.
Genetic MicroSystems currently has more than 60 employees. Genetic
MicroSystems occupies approximately 30,000 square feet of office, R&D and
manufacturing space in Woburn, Massachusetts.
Genetic MicroSystems' principal executive offices are located at 34
Commerce Way, Woburn, Massachusetts 01801, and its telephone number is (781)
932-9333.
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THE GENETIC MICROSYSTEMS SPECIAL MEETING
GENERAL; DATE, PLACE AND TIME
This document is being furnished to holders of Genetic MicroSystems stock
in connection with the solicitation of proxies by the Genetic MicroSystems board
of directors for use at the special meeting of stockholders of Genetic
MicroSystems to be held on --, 1999, at 10:00 a.m. local time, at the offices of
Genetic MicroSystems located at 34 Commerce Way, Woburn, Massachusetts 01801,
and at any adjournment or postponement of the meeting.
MATTERS TO BE CONSIDERED
At the special meeting, Genetic MicroSystems stockholders will be asked to
consider and vote upon the following:
- a proposal to adopt the merger agreement;
- the appointment of Jean Montagu as Stockholder Representative under the
merger agreement and the escrow agreement; and
- such other matters as may properly be brought before the special meeting
or any adjournment or postponement thereof.
In addition, at the special meeting, holders of Genetic MicroSystems Series
A convertible preferred stock will be asked to vote on the proposal that the
merger does not constitute a liquidation, dissolution or winding up of Genetic
MicroSystems.
BOARD OF DIRECTORS' RECOMMENDATION
The Genetic MicroSystems board has unanimously approved the merger
agreement and recommends a vote FOR: adoption of the merger agreement and
approval of the merger; the proposal that the merger does not constitute a
liquidation, dissolution or winding up of Genetic MicroSystems; and appointment
of Jean Montagu as stockholder representative.
RECORD DATE
The board of directors of Genetic MicroSystems fixed the close of business
on --,1999 as the record date for the special meeting. Accordingly, only holders
of Genetic MicroSystems capital stock of record at the close of business on --,
1999, will be entitled to notice of, and to vote at, the special meeting.
STOCKHOLDERS ENTITLED TO VOTE
As of the close of business on the record date, there were 1,006,702 shares
of common stock, 2,000,000 shares of Series A convertible preferred stock and
431,977 shares of Series B convertible preferred stock of Genetic MicroSystems
outstanding and entitled to vote. The holders of common stock are entitled to
cast one vote for each share of common stock they hold on each matter submitted
to the common stockholders for a vote at the special meeting. The holders of
Series A convertible preferred stock and Series B convertible preferred stock
are entitled to cast one vote for each share of common stock into which their
Series A convertible preferred stock or Series B convertible preferred stock, as
the case may be, could then be converted on each matter submitted to a vote at
the special meeting. However, with respect to the proposal that the merger does
not
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constitute a liquidation, which only holders of Genetic MicroSystems Series A
convertible preferred stock will be entitled to vote on such proposal at the
special meeting. The presence in person or by proxy of the holders of a majority
of the shares of Genetic MicroSystems stock entitled to vote is necessary to
constitute a quorum for the transaction of business at the special meeting.
Shares of Genetic MicroSystems capital stock represented in person or by
proxy will be counted for the purpose of determining whether a quorum is present
at the special meeting. Shares that abstain from voting will also be treated as
shares that are present and entitled to vote at the special meeting for purposes
of determining whether a quorum exists. If a stockholder abstains from voting,
that abstention will have the practical effect of voting against the adoption of
the merger agreement.
REQUIRED VOTE
Approval of the merger agreement under Genetic MicroSystems' restated
articles of organization requires the affirmative vote of the holders of:
- at least two-thirds of the outstanding shares of common stock;
- a majority of the outstanding shares of Series A convertible preferred
stock, voting as a separate class; and
- at least two-thirds of the outstanding shares of Series A convertible
preferred stock and Series B convertible preferred stock voting, together
as a single class.
A majority of the holders of Series A convertible preferred stock, voting
as a separate class, must elect not to treat the merger as a liquidation,
dissolution, or winding up of Genetic MicroSystems.
Lastly, a majority of the holders of Genetic MicroSystems common stock and
convertible preferred stock, voting together as a single class, must appoint
Jean Montagu as stockholder representative.
PROXIES
This document is being furnished to Genetic MicroSystems stockholders in
connection with the solicitation of proxies by the Genetic MicroSystems board of
directors for use at the Genetic MicroSystems special meeting, and is
accompanied by a form of proxy.
All shares of Genetic MicroSystems stock that are entitled to vote and are
represented at the Genetic MicroSystems special meeting by properly executed
proxies received before or at the meeting, and not revoked, will be voted at the
meeting in accordance with the instructions indicated on the proxies. If a proxy
is properly executed but no vote is specified, the proxy will be voted for
adoption of the merger agreement and approval of the merger, except for proxies
submitted by record holders of shares of Genetic MicroSystems stock who indicate
that they have not received voting instructions from the beneficial holders of
those shares.
If any other matters are properly presented for consideration at the
Genetic MicroSystems special meeting, the persons named in the enclosed form of
proxy will have the discretion to vote on those matters using their best
judgment. Additional matters which may come before the meeting include
consideration of a motion to adjourn the meeting to another time and/or place,
which may be necessary for the purpose of soliciting additional proxies from
Genetic MicroSystems stockholders. The proxy holders will not adjourn the
meeting if there are insufficient votes to approve the proposals at the date of
the meeting.
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REVOCABILITY OF PROXIES
Any person who gives a proxy pursuant to this solicitation may revoke it at
any time before it is voted. To revoke a proxy, you must:
- submit a later dated proxy with respect to the same shares at any time
before the vote on the adoption of the merger agreement,
- deliver written notice of revocation to the Clerk of Genetic MicroSystems
at any time before the vote, or
- attend the special meeting and vote in person.
Your attendance at the special meeting alone is not sufficient to revoke a
proxy.
Any written notice of revocation or subsequent proxy must be delivered at
or before the taking of the vote at the special meeting to Genetic MicroSystems,
Inc., 34 Commerce Way, Woburn, Massachusetts 01801, Attention: Peter Lewis,
Corporate Clerk.
SOLICITATION OF PROXIES
The expenses of the solicitation of proxies for the special meeting will be
borne by Affymetrix, including the cost of printing and mailing this document.
In addition to solicitation by mail, directors, officers and employees of
Genetic MicroSystems may solicit proxies in person or by telephone, fax or other
means of communication. These directors, officers and employees will not receive
additional compensation.
GENETIC MICROSYSTEMS STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
APPRAISAL RIGHTS
If the merger is completed, holders of Genetic MicroSystems capital stock
who object to the merger are entitled to appraisal rights under Massachusetts
law. In order to exercise appraisal rights, Genetic MicroSystems stockholders
must strictly adhere to the provisions of Massachusetts law governing appraisal
rights. The following is a summary of the relevant provisions of Massachusetts
law. The description below is only a summary and is qualified by reference to
the relevant provisions of Massachusetts law, a copy of which is attached hereto
as Appendix E.
In order to exercise your appraisal rights, you must take the following
steps:
- send a written objection to the merger to Genetic MicroSystems before the
special meeting stating your intention to demand payment for your shares
of Genetic MicroSystems capital stock if the merger is approved and the
merger occurs;
- DO NOT vote in favor of the merger; and
- send a written demand to Genetic MicroSystems for payment for your
Genetic MicroSystems shares within twenty days after you receive notice
from Genetic MicroSystems that the merger has occurred (Genetic
MicroSystems will send the notice within 10 days after the merger is
completed).
The written objection and written demand should be delivered to Genetic
MicroSystems, Inc., 34 Commerce Way, Woburn, Massachusetts 01801, Attention:
Peter Lewis, Corporate Clerk. We
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recommend that you send the objection and demand by registered or certified
mail, return receipt requested.
Please note that, if you file a written objection with Genetic MicroSystems
prior to the special meeting, you do not need to vote against the merger.
However, if you file a written objection with Genetic MicroSystems prior to the
special meeting and vote in favor of the merger, you will be deemed to have
waived your right to exercise appraisal rights.
If you have followed the procedures set forth above and the merger is
completed, Genetic MicroSystems will contact you within 10 days after the
effective time of the merger in order to determine the fair value of your
Genetic MicroSystems capital stock. The "fair value" of your Genetic
MicroSystems capital stock will be determined as of the day before approval of
the merger by the Genetic MicroSystems stockholders and will exclude any value
arising from the expectation of the merger. If Genetic MicroSystems and you have
not agreed as to the fair value of your stock within 30 days after you receive
notice from Genetic MicroSystems that the merger has occurred, both you and
Genetic MicroSystems will have the right to have the court determine the fair
value by filing a bill in equity in the Superior Court Department of Middlesex
County, Massachusetts no later than four months after the expiration of the
negotiation period.
After filing the bill in equity, the court or a special master will hold a
hearing and enter a decree determining the fair value of your Genetic
MicroSystems capital stock and ordering Genetic MicroSystems to make payment to
you of such value. You will also be paid interest from the date of the special
meeting to the time that you surrender your certificates representing your
shares of Genetic MicroSystems capital stock to the exchange agent. The
determination of fair value made by the court or special master will be binding
on and enforceable by you and the other Genetic MicroSystems stockholders who
have properly executed their appraisal rights.
The fair value of the Genetic MicroSystems capital stock could be worth
more than, the same as or less than the value of the Affymetrix common stock you
would otherwise have received by exchanging your shares of Genetic MicroSystems
capital stock for shares of Affymetrix common stock.
Your appraisal rights are your only remedy if you object to the merger,
unless the merger is determined to have been illegal, fraudulent or in breach of
the fiduciary duties of the Genetic MicroSystems board of directors.
If you exercise your appraisal rights, after the merger is completed you
will not have any rights as a Genetic MicroSystems or Affymetrix stockholder,
including the right to receive notices of meetings, vote at meetings or receive
dividends, if any.
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THE MERGER
The discussion in this document of the merger and the material terms of the
merger agreement is subject to, and qualified in its entirety by reference to,
the merger agreement, a copy of which is attached to this document as Appendix
A, and is incorporated in this document by reference. A summary of the material
terms of the merger agreement may be found in this document under the heading
"Merger Agreement," however, we urge you to read the merger agreement in its
entirety for a more complete description of the terms and conditions upon which
the merger is to be effected.
GENERAL
If the merger agreement is adopted by the holders of two-thirds of the
outstanding shares of Genetic MicroSystems common stock and convertible
preferred stock entitled to vote at the special meeting and the other conditions
to closing are satisfied or waived, Genetic MicroSystems will be merged with and
into GMS Acquisition, a wholly owned subsidiary of Affymetrix. As a result of
the merger, Genetic MicroSystems will become a wholly owned subsidiary of
Affymetrix. In the merger each holder of Genetic MicroSystems stock will be
entitled to receive from Affymetrix, in exchange for each share of Genetic
MicroSystems stock, an amount of Affymetrix common stock equal to an exchange
ratio calculated as described below.
MERGER CONSIDERATION
As provided in the merger agreement, Affymetrix will exchange an aggregate
of up to 1,070,000 shares of Affymetrix common stock for all the Genetic
MicroSystems common and convertible preferred shares:
- issued and outstanding immediately prior to the effective time of the
merger; and
- subject to options or warrants immediately prior to the effective time of
the merger, whether vested or unvested or currently exercisable or
unexercisable.
The number of Affymetrix shares to be received by each Genetic MicroSystems
stockholder will be calculated immediately prior to the effective time of the
merger by dividing 1,070,000 by the aggregate number of Genetic MicroSystems
shares issued and outstanding and Genetic MicroSystems shares subject to Genetic
MicroSystems options or warrants. Based on the number of shares, options and
warrants outstanding as of October 13, 1999, stockholders of Genetic
MicroSystems will receive approximately 0.2832 of a share of Affymetrix common
stock for each share of Genetic MicroSystems common stock or convertible
preferred stock. This exchange ratio, however, is subject to reduction if
Genetic MicroSystems issues or grants additional shares, options or warrants in
the ordinary course of business prior to the effective time of the merger. In
addition, pursuant to the terms of the merger agreement and the escrow
agreement, 10% of the aggregate number of shares of Affymetrix common stock to
be delivered by Affymetrix at the closing of the merger will be placed in an
escrow fund to satisfy certain indemnification obligations of Genetic
MicroSystems. See "The Merger Agreement -- Indemnification and Liability
Obligations" on page 64 and "Escrow Agreement" on page 68.
Each outstanding option or warrant to purchase Genetic MicroSystems common
stock or convertible preferred stock, will be converted into an option or
warrant to acquire the number of shares of Affymetrix common stock that the
holder would have received in the merger if the holder had exercised the option
or warrant immediately prior to the closing of the merger and the exercise price
will be adjusted appropriately.
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Genetic MicroSystems stockholders will not receive fractional shares of
Affymetrix common stock. Instead, a stockholder will receive the cash value,
without interest, of any fractional share of Affymetrix common stock that a
stockholder might otherwise have been entitled to receive, which payment
represents the stockholder's proportionate interest in the net proceeds from the
sale by the exchange agent of the aggregate fractional shares of Affymetrix
common stock.
SCHEDULE OF IMPORTANT DAYS
The following schedule shows important dates and events in connection with
the special meeting and the merger:
<TABLE>
<CAPTION>
DATES EVENTS
- ----- ------
<S> <C>
- --..................................... Record date for the Genetic
MicroSystems special meeting
- --..................................... Genetic MicroSystems special meeting
and target date for consummation of the
merger
</TABLE>
BACKGROUND OF THE MERGER
In September 1998, representatives of Genetic MicroSystems and Affymetrix
met informally at an industry conference in Miami, Florida. At this meeting, the
parties discussed the possibility of a license to Genetic MicroSystems of
certain Affymetrix intellectual property.
By spring of 1999, the parties had entered into a confidentiality agreement
and discussions moved to a possible collaborative relationship between the
companies, ranging from collaboration on instrument development to the
possibility of Affymetrix' acquiring Genetic MicroSystems.
At various times between June and July of 1999, Affymetrix made proposals
to Genetic MicroSystems for a stock-for-stock merger. Genetic MicroSystems
rejected these proposals and made counteroffers, concluding that in each case
the Affymetrix proposal was inadequate in light of the circumstances existing at
the time the proposal was made.
On July 6, 1999, Affymetrix and Genetic MicroSystems discussed an
acquisition price valued at $85 million in Affymetrix common stock, pending
additional financial and legal due diligence. On July 8, 1999, at a telephonic
meeting of Affymetrix' board, Stephen Fodor, the Chief Executive Officer of
Affymetrix, updated Affymetrix' directors on the state of negotiations with
Genetic MicroSystems.
During the months of July and August, both Affymetrix and Genetic
MicroSystems engaged in financial and legal due diligence. During this time,
Genetic MicroSystems engaged Palmer & Dodge, LLP as its legal advisor and
Affymetrix engaged Sullivan & Cromwell as its legal advisor. Neither Genetic
MicroSystems nor Affymetrix engaged any investment bankers or financial advisors
in connection with the Merger.
On August 18, 1999, Affymetrix management provided a summary document of
the acquisition proposals, due diligence progress and outstanding negotiation
points to Affymetrix' board of directors.
On August 19, 1999, Sue Siegel, the then Senior Vice President of Marketing
and Sales and currently the President of Affymetrix, provided a revised proposal
for a stock-for-stock merger to Jean Montagu, President and Chief Executive
Officer of Genetic MicroSystems. Based on the average closing price of
Affymetrix common stock for the 40 consecutive trading days prior to the date of
the proposal, the proposal had a value of $70 million in Affymetrix common
stock.
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Mr. Montagu agreed to consider the new proposal and to discuss it with Genetic
MicroSystems' senior management and board.
Mr. Montagu met with Genetic MicroSystems' senior managers, as well as its
legal advisor. After extensive discussions regarding the strategic benefits of
the merger, technology leveraging, synergies and other financial and operating
benefits that could be obtained through a merger between the two companies,
Genetic MicroSystems decided to meet again with Affymetrix to discuss its
proposal.
On August 24, 1999, in a conference call between the senior managers and
legal advisors of each of Affymetrix and Genetic MicroSystems, the parties
agreed to proceed based upon an acquisition price of up to 1,070,000 shares of
Affymetrix common stock for all the issued and outstanding Genetic MicroSystems
stock and all of the shares of Genetic Microsystems stock subject to stock
options and warrants. Shortly thereafter, the parties executed an exclusivity
agreement and began negotiating the terms of the proposed merger.
On August 25, 1999, at an Affymetrix telephonic board meeting, various
members of Affymetrix' management team provided information to the board of
directors of Affymetrix regarding results of the due diligence review, technical
parameters of Genetic MicroSystems' product line and its performance, the
potential structure of an acquisition, the business risks involved with an
acquisition of Genetic MicroSystems and certain other issues relating to the
merger.
On September 8, 1999 and September 9, 1999, the senior managers and legal
advisors of both Affymetrix and Genetic MicroSystems met at the offices of
Sullivan & Cromwell in New York City to discuss and negotiate the terms of the
proposed merger.
On September 9, 1999, Affymetrix' board held a telephonic board meeting to
consider approval of the merger agreement, the stock option agreement and
certain voting agreements and the transactions contemplated by those agreements.
After questions by and discussion among Affymetrix' board, the Affymetrix board,
by a unanimous vote of directors present and voting, adopted the merger
agreement and approved entering into the merger agreement, stock option
agreement, certain voting agreements and the transactions contemplated by those
agreements.
Also on September 9, 1999, the board of Genetic MicroSystems held a
telephonic board meeting to consider the merger agreement and the stock option
agreement and the transactions contemplated by those agreements. After hearing
presentations from its legal advisors and discussing the matter, Genetic
MicroSystems' board unanimously approved entering into the merger agreement and
the stock option agreement and the transactions contemplated by those
agreements.
On September 10, 1999, Affymetrix and Genetic MicroSystems entered into the
merger agreement, the stock option agreement and a letter of intent to negotiate
the terms of an escrow agreement. Also on that date, certain significant
stockholders of Genetic MicroSystems executed voting agreements granting
Affymetrix sufficient voting power to effect the merger. The transaction was
publicly announced on September 13, 1999.
Shortly after the execution of the merger agreement and the stock option
agreement and as contemplated by the merger agreement, Genetic MicroSystems,
Affymetrix, Mr. Montagu and Bank One, as escrow agent, entered into an escrow
agreement dated as of September 10, 1999.
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GENETIC MICROSYSTEMS' REASONS FOR THE MERGER; RECOMMENDATION OF THE GENETIC
MICROSYSTEMS BOARD
In reaching its decision to approve the merger agreement and to recommend
approval of the merger agreement by the Genetic MicroSystems stockholders, the
Genetic MicroSystems board of directors consulted with its management team and
legal advisors. Genetic MicroSystems did not employ the services of any
investment bankers or financial advisors in connection with the merger. Genetic
MicroSystems' board of directors also independently considered the proposed
merger agreement and the transactions contemplated by the merger agreement. The
following factors considered by the Genetic MicroSystems board of directors in
making its decision is not intended to be exhaustive but includes all material
factors considered.
Genetic MicroSystems' board believes the following factors are reasons that
the merger will be beneficial to Genetic MicroSystems and its stockholders:
- the markets addressed by Genetic MicroSystems and Affymetrix are
complementary and that customers would be beneficially served by a broad
solution to their microarray needs and through expansion of the total
market;
- synergies exist between Genetic MicroSystems and Affymetrix with regard
to instrumentation development as well as expansion of the sales, service
and customer support network;
- Affymetrix owns and has rights to considerable intellectual property that
Genetic MicroSystems could obtain rights to, thus enabling a greater
freedom to serve its customers efficiently;
- the merger would provide access to capital resources needed to compete in
this rapidly expanding marketplace; and
- through a tax free reorganization, the opportunity to own stock of the
combined entity would provide stockholders with greater liquidity and a
possibility of a better return on stockholder investment.
In the course of its deliberations, the Genetic MicroSystems board of
directors and senior managers reviewed a number of other factors relevant to the
merger. In particular, the Genetic MicroSystems board of directors considered,
among other things:
- information relating to the business, assets, management, competitive
position, operating performance, trading performance and prospects of
each of Genetic MicroSystems and Affymetrix, including the prospects of
Genetic MicroSystems if it were to continue as an independent company;
- the current and historical market prices of the Affymetrix common stock
and the risks associated with ownership of Affrymetrix common stock;
- the possibility of strategic alternatives to the merger for enhancing
long-term stockholder value;
- the impact of the merger on Genetic MicroSystems' and Affymetrix'
customers, suppliers and employees;
- the likelihood that the merger would be completed;
- the terms of the merger agreement, including balanced representations and
warranties, balanced conditions to closing and rights of termination, and
provisions permitting the Genetic MicroSystems board of directors to
terminate the merger agreement in response to a third
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party proposal which the Genetic MicroSystems board of directors
determines in its good faith judgment to be more favorable to Genetic
MicroSystems stockholders than the merger; and
- the expected qualification of the merger as a reorganization under
Section 368(a) of the Internal Revenue Code.
The Genetic MicroSystems board of directors also identified and considered
a number of potentially negative factors in its deliberations concerning the
merger, including:
- the risk that the operations of Affymetrix and Genetic MicroSystems might
not be successfully integrated;
- the risk that, despite the efforts of Affymetrix and Genetic MicroSystems
after the merger, key personnel might leave the combined company;
- the difficulty of managing operations in the different geographic
locations in which Genetic MicroSystems and Affymetrix operate and will
continue to operate; and
- the risk that the potential benefits of the merger might not be fully
realized.
The Genetic MicroSystems board of directors believes that certain of these
risks are unlikely to occur, that Genetic MicroSystems can avoid or mitigate
others, and that, overall, these risks are outweighed by the potential benefits
of the merger.
In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, Genetic MicroSystems' board
of directors did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in making its
determination. In addition, individual members of Genetic MicroSystems' board of
directors may have given different weight to different factors.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the merger. This summary is limited to United States Persons
(as defined below) who hold their Genetic MicroSystems stock as a "capital
asset" and whose "functional currency" is the U.S. dollar ("U.S. Holders"). This
summary is based on the Internal Revenue Code of 1986, Treasury regulations,
administrative rulings and court decisions, all as in effect as of the date
hereof and all of which are subject to change at any time, possibly with
retroactive effect, or different interpretation. This summary is not a complete
description of all of the considerations that may be relevant to a decision
whether to approve the merger and, in particular, may not address U.S. federal
income tax considerations applicable to stockholders subject to special
treatment under U.S. federal income tax law, which would include, for example,
non-U.S. persons, financial institutions, regulated investment companies, real
estate investment trusts, real estate mortgage investment conduits, financial
asset securitization investment trusts, dealers in securities or currencies,
traders in securities that elect to mark to market, insurance companies,
tax-exempt entities, holders owning Genetic MicroSystems stock as part of a
hedge, straddle, short sale or conversion transaction, and holders who acquired
their Genetic MicroSystems stock as a result of the exercise of an employee
option or otherwise as compensation. In addition, no information is provided
herein with respect to the tax consequences of the merger under applicable
foreign, state or local laws. HOLDERS OF GENETIC MICROSYSTEMS STOCK ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF STATE, LOCAL AND
FOREIGN TAX LAWS.
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"United States Person" means:
- a citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or any state thereof;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust or a trust
that has made a valid election to be taxed as a domestic trust for United
States federal income tax purposes.
Affymetrix and Genetic MicroSystems have not requested and do not plan to
request any rulings from the IRS concerning the tax treatment of the merger. The
statements in this document and the opinions of counsel referred to herein are
not binding on the IRS or a court. As a result, neither Affymetrix nor Genetic
MicroSystems can assure you that the tax considerations or opinions contained in
this summary will not be challenged by the IRS or sustained by a court if
challenged by the IRS.
This summary is based upon the opinion of Sullivan & Cromwell, counsel to
Affymetrix, and Palmer & Dodge LLP, counsel to Genetic MicroSystems. These
opinions, which are attached as Exhibits 8.1 and 8.2 to this Registration
Statement, are based upon certain facts, assumptions and representations,
including the assumption that the merger will be consummated as described in
this document and that the representations contained in certificates of officers
of Affymetrix, GMS Acquisition and Genetic MicroSystems delivered in connection
with the tax opinions will be accurate through the closing of the merger. Based
on the foregoing, the merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. As a "reorganization,"
the merger will have the following principal U.S. federal income tax
consequences:
- no gain or loss will be recognized by Affymetrix, GMS Acquisition, Inc.
or Genetic MicroSystems by reason of the merger;
- no gain or loss will be recognized by U.S. Holders of Genetic
MicroSystems stock who exchange their Genetic MicroSystems stock for
Affymetrix common stock pursuant to the merger, except with respect to
any cash received in lieu of a fractional share of Affymetrix common
stock (as discussed below);
- the aggregate tax basis of the Affymetrix common stock received in the
merger by each U.S. Holder of Genetic MicroSystems stock will be the same
as the aggregate tax basis of the Genetic MicroSystems stock surrendered
in exchange therefor, reduced by any amount of tax basis allocable to a
fractional share interest in Affymetrix common stock for which cash is
received; and
- the holding period of Affymetrix common stock received in the merger will
include the holding period for the Genetic MicroSystems stock surrendered
in exchange therefor.
Cash received by a U.S. Holder of Genetic MicroSystems stock in lieu of a
fractional share of Affymetrix common stock will be treated as received in
disposition of such fractional share. Such holder will generally recognize
capital gain or loss measured by the difference between the amount of cash
received and the portion of the tax basis of such holder's Genetic MicroSystems
stock allocable to the fractional share interest. In addition, a U.S. Holder of
Genetic MicroSystems stock who exercises appraisal rights and receives solely
cash in exchange for such holder's Genetic MicroSystems stock will generally
recognize capital gain or loss measured by the difference between
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the amount of cash received therefor and the tax basis of such holder's Genetic
MicroSystems stock surrendered. However, dissenters that also own Affymetrix
stock (directly or constructively) could possibly be subject to dividend
treatment on this cash payment. Such capital gain or loss, in either case, will
be long-term capital gain or loss if such holder has held its Genetic
MicroSystems stock for more than one year. In the case of individuals, the
maximum federal income tax rate applicable to long-term capital gains is
generally 20%.
In addition, the obligations of the parties to consummate the merger are
conditioned upon the receipt by Affymetrix of an opinion from Sullivan &
Cromwell, and the receipt by Genetic MicroSystems of an opinion from Palmer &
Dodge LLP, in each case based upon certain facts, assumptions and
representations, that the merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code and that Affymetrix,
Genetic MicroSystems and GMS Acquisition, Inc. will be "parties to the
reorganization" within the meaning of Section 368(b) of the Internal Revenue
Code.
BACKUP WITHHOLDING. Unless a holder of Genetic MicroSystems stock complies
with certain reporting and/or certification procedures or establishes that it is
an exempt recipient, cash payments in exchange for such holder's Genetic
MicroSystems stock in the merger may be subject to "backup withholding" at a
rate of 31% for federal income tax purposes. Any amounts withheld under the
backup withholding rules may be allowed as a refund or a credit against the
holder's federal income tax liability, provided the required information is
furnished to the IRS.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL OF
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS DISCUSSION IS
INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED AS
LEGAL OR TAX ADVICE. THIS SUMMARY MAY NOT APPLY TO A PARTICULAR STOCKHOLDER IN
LIGHT OF SUCH STOCKHOLDER'S PARTICULAR CIRCUMSTANCES.
ACCOUNTING TREATMENT
Completion of the merger is conditioned on receipt by Affymetrix and
Genetic MicroSystems of a letter from Ernst & Young LLP, their respective
independent auditors, regarding the appropriateness of "pooling-of-interests"
accounting for the merger if closed and consummated in accordance with the
merger agreement. Under this method of accounting, Affymetrix will retroactively
restate its consolidated financial statements at the effective time of the
merger to include the assets, liabilities, stockholders' equity and results of
operations of Genetic MicroSystems as if the companies had always been combined.
See "The Merger Agreement -- Conditions of the Merger" on page 55 and "The
Merger Agreement -- Additional Covenants -- Pooling-of-Interests" on page 60.
The unaudited pro forma financial information contained in this document has
been prepared using the "pooling-of-interests" method of accounting.
REGULATORY APPROVALS
HART-SCOTT-RODINO
The Federal Trade Commission, or the FTC, and the Antitrust Division of the
Department of Justice, or the DOJ, frequently scrutinize the legality under the
antitrust laws of transactions such as the merger. At any time before or after
the merger, the DOJ or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the merger of seeking divestiture of substantial assets of Affymetrix or
Genetic MicroSystems or their subsidiaries. Private parties and state attorneys
general may also bring an action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
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On October 6, 1999, Affymetrix and Genetic MicroSystems filed their
respective Pre-Merger Notification and Report Forms with the FTC and the DOJ
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
otherwise known as the HSR Act. The HSR Act, and the rules and regulations
thereunder, provide that certain merger transactions, including the merger, may
not be consummated until required information and materials have been furnished
to the DOJ and the FTC and certain waiting periods have expired or been
terminated. Pursuant to the HSR Act, Affymetrix and Genetic MicroSystems
requested early termination of the 30-day HSR Act waiting period. There can be
no assurances given, however, that the 30-day HSR Act waiting period will be
terminated early. If either the FTC or the DOJ were to request additional
information or documentary material from Affymetrix or Genetic MicroSystems, the
waiting period would expire at 11:59 p.m., Eastern time, on the tenth calendar
day after the date of substantial compliance by Affymetrix and Genetic
MicroSystems with such request. Thereafter, the waiting period could be extended
only by agreement or by court order. Only one extension of the waiting period
pursuant to a request for additional information is authorized by the rules
promulgated under the HSR Act, except by agreement or by court order.
OTHER REGULATORY APPROVALS
The merger is conditioned on all filings required to be made prior to the
effective time of the merger by Affymetrix and Genetic MicroSystems, and all
consents, approvals and authorizations required to be obtained prior to the
effective time by Affymetrix and Genetic MicroSystems from any governmental
entity in connection with the execution and delivery of the merger agreement and
the consummation of the transactions contemplated hereby by Affymetrix and
Genetic MicroSystems having been made or obtained.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Affymetrix common stock received by Genetic MicroSystems
stockholders in the merger who are not affiliates of Genetic MicroSystems prior
to the merger will be freely transferable. However, shares of Affymetrix common
stock received by persons who are deemed to be affiliates of Genetic
MicroSystems prior to the merger may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act of 1933,
or Rule 144 promulgated under the Securities Act in the case of such persons who
become affiliates of Affymetrix, or as otherwise permitted under the Securities
Act. Persons deemed to be affiliates of Genetic MicroSystems are those
individuals or entities that control, are controlled by, or are under common
control with, Genetic MicroSystems. Affiliates generally include executive
officers and directors of Genetic MicroSystems as well as certain principal
stockholders of Genetic MicroSystems. This document does not cover any resales
of Affymetrix common stock received by affiliates of Genetic MicroSystems in the
merger.
NASDAQ NATIONAL MARKET TRADING
It is a condition to the merger that Affymetrix file the appropriate
notification form for quotation of Affymetrix common stock to be issued in the
merger with the NASDAQ and pay the applicable fee. Therefore, prior to
consummation of the merger, Affymetrix common stock to be issued in connection
with the merger will be approved for quotation on the NASDAQ National Market. If
we complete the merger, stockholders will be able to trade the shares of
Affymetrix common stock they receive in the merger on the NASDAQ National
Market. Genetic MicroSystems is a privately held company with fewer than ninety
stockholders and is not listed on any exchange, quoted on any trading market or
subject to reporting requirements under the Securities Exchange Act.
Consequently, Genetic MicroSystems does not need to make any filings under the
Securities Exchange Act or any stock exchange with respect to the merger.
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THE MERGER AGREEMENT
The following describes certain aspects of the proposed merger, including
material provisions of the merger agreement. The following description of the
merger agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the merger agreement, which is
attached as Appendix A to this document and is incorporated in this document by
reference. All Genetic MicroSystems stockholders are urged to read the merger
agreement carefully and in its entirety.
INTRODUCTION
The merger agreement provides, among other things, for a merger of Genetic
MicroSystems with and into GMS Acquisition, Inc., a wholly owned subsidiary of
Affymetrix. The transaction is intended to qualify as a "pooling-of-interests"
for accounting and financial reporting purposes and is intended to qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code for federal income tax purposes.
CLOSING AND EFFECTIVE TIME OF THE MERGER
CLOSING
The closing of the merger will take place on the later of:
- January 14, 2000 or such earlier date as selected by Affymetrix; or
- the first business day on which all closing conditions have been
satisfied or waived or such other time as agreed to in writing by
Affymetrix and Genetic MicroSystems.
Alternatively, the merger may take place at such other time as Affymetrix and
Genetic MicroSystems may agree in writing. The closing is expected to take place
shortly after the approval of the merger by the Genetic MicroSystems
stockholders.
EFFECTIVE TIME
The merger will be effective upon the filing articles of merger with the
Secretary of State of the Commonwealth of Massachusetts, unless such articles of
merger specify a later effective date, in which case the merger will be
effective on such later date. We anticipate that such filing will be made
simultaneously with, or as soon as practicable after, the closing of the merger.
See "The Merger Agreement -- Conditions to the Merger" on page 55.
EXCHANGE OF STOCK CERTIFICATES
GENETIC MICROSYSTEMS STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARD AND SHOULD NOT SURRENDER STOCK CERTIFICATES PRIOR TO THE
ADOPTION OF THE MERGER AGREEMENT AND THE RECEIPT OF A TRANSMITTAL FORM.
FRACTIONAL SHARES
No fractional shares of Affymetrix common stock will be issued to any
Genetic MicroSystems stockholder in connection with the merger. Each Genetic
MicroSystems stockholder who would otherwise have been entitled to receive a
fraction of a share of Affymetrix common stock will receive cash, without
interest, in an amount equal to such stockholder's proportionate interest in the
net
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proceeds from the sale by the exchange agent on behalf of all such stockholders
of the aggregate fractional shares of Affymetrix common stock that such
stockholders otherwise would be entitled to receive.
EXCHANGE PROCEDURES
Promptly after the effective time, transmittal forms and exchange
instructions will be mailed to each holder of record of Genetic MicroSystems
common or convertible preferred stock to be used to surrender and exchange
certificates formerly evidencing shares of Genetic MicroSystems common or
convertible preferred stock for certificates evidencing the shares of Affymetrix
common stock and any other distributions and cash in lieu of fractional shares
to which such holder has become entitled. After receiving such transmittal
forms, each holder of Genetic MicroSystems common or convertible preferred stock
certificates will be able to surrender such certificates to the exchange agent.
Each certificate surrendered shall be canceled, and each such holder will
receive in exchange therefor certificates evidencing the number of whole shares
of Affymetrix common stock to which such holder is entitled, any cash which may
be payable in lieu of a fractional share of Affymetrix common stock and any
dividends or other distributions with respect to Affymetrix common stock with a
record date at or after the effective time of the merger.
DIVIDENDS AND DISTRIBUTIONS
All shares of Affymetrix common stock to be issued pursuant to the merger
shall be deemed issued and outstanding as of the effective time of the merger.
Whenever a dividend or other distribution is declared in respect of Affymetrix
common stock, and the record date for such dividend or distribution is at or
after the effective time of the merger, that declaration shall include dividends
or other distributions in respect of all shares of Affymetrix common stock
issuable pursuant to the merger agreement. No dividends or other distributions
in respect of the Affymetrix common stock shall be paid to any holder of any
unsurrendered certificate formerly representing Genetic MicroSystems common or
convertible preferred stock until the certificate is surrendered for exchange.
EXCHANGE AND CANCELLATION OF GENETIC MICROSYSTEMS STOCK OPTIONS
At the effective time, automatically and without any action on the part of
the holder thereof, each outstanding Genetic MicroSystems stock option, whether
vested or unvested, shall be deemed to constitute an option to acquire, on
substantially the same terms and conditions as were applicable under such
Genetic MicroSystems stock option, the same number of shares of Affymetrix
common stock as the holder of such Genetic MicroSystems stock option would have
been entitled to receive pursuant to the merger had such holder exercised such
option in full immediately prior to the effective time of the merger, at an
exercise price per share equal to the aggregate exercise price for the common
stock otherwise purchasable pursuant to such Genetic MicroSystems stock option
divided by the number of full shares of Affymetrix common stock deemed
purchasable pursuant to such Genetic MicroSystems stock option.
EXCHANGE OF GENETIC MICROSYSTEMS WARRANTS
Pursuant to the terms of the merger agreement and certain outstanding
warrants to purchase Genetic MicroSystems convertible preferred stock, at the
effective time, automatically and without any action on the part of the holder
thereof, certain outstanding warrants to purchase Genetic MicroSystems
convertible preferred stock will be deemed to constitute warrants to acquire, on
substantially the same terms and conditions as were applicable under the Genetic
MicroSystems warrants, the same number of shares of Affymetrix common stock the
holder of such Genetic
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MicroSystems warrant would have been entitled to receive pursuant to the merger
agreement had such holder exercised such Genetic MicroSystems warrant in full
immediately prior to the effective time of the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of Genetic MicroSystems, Affymetrix and GMS
Acquisition to effect the merger are subject to the satisfaction or waiver, at
or prior to the effective time of the merger, of each of the following
conditions:
- STOCKHOLDER APPROVAL. The merger agreement shall have been approved by
vote (i) of the holders of two-thirds of the shares of Genetic
MicroSystems common stock outstanding and entitled to vote as of the
record date for the special meeting, (ii) of the holders of two-thirds of
the shares of Genetic MicroSystems convertible preferred stock
outstanding and entitled to vote as of the record date for the special
meeting, (iii) of the holders of a majority of the shares of Genetic
MicroSystems Series A convertible preferred stock outstanding and
entitled to vote as of the record date for the special meeting and (iv)
of Affymetrix as sole stockholder of GMS Acquisition. The affirmative
vote of a majority of the shares of Genetic MicroSystems Series A
convertible preferred stock outstanding and entitled to vote as of the
record date for the special meeting shall have been obtained to the
effect that the merger does not constitute a liquidation, dissolution or
winding up of Genetic MicroSystems;
- NASDAQ QUOTATION. The appropriate notification form for quotation of
Affymetrix common stock to be issued in the merger shall have been filed
with the NASDAQ and the applicable fee shall have been paid by
Affymetrix;
- HART-SCOTT-RODINO ACT. The waiting period applicable to the consummation
of the merger under the Hart-Scott-Rodino Antitrust Improvements Act
shall have expired or been terminated and, other than the filing of the
articles of merger, all notices other filings required to be made prior
to the effective time with, and all consents, permits and authorizations
required to be obtained prior to the effective time from, any
governmental entity in connection with the execution and delivery of the
merger agreement and the consummation of the merger shall have been made
or obtained;
- LITIGATION. No court or governmental entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
law, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise prohibits consummation of the merger or
the other transactions contemplated by the merger agreement
(collectively, an "Order"), and no governmental entity or any other
Person shall have instituted any proceeding or threatened to institute
any proceeding seeking any such Order;
- ACCOUNTANT LETTER. Affymetrix and Genetic MicroSystems shall have
received a letter, dated as of the closing date, from Ernst & Young LLP
regarding the appropriateness of pooling-of-interests accounting for the
merger under Accounting Principles Board Opinion No. 16 if the merger is
closed and consummated in accordance with the merger agreement;
- S-4 REGISTRATION STATEMENT. The registration statement of which this
document is a part shall have become effective under the Securities Act.
No stop order suspending the effectiveness of the registration statement
shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened, by the Securities and Exchange Commission;
and
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- TAX OPINIONS. Affymetrix and Genetic MicroSystems shall each have
received substantially identical written opinions from their counsel,
Sullivan & Cromwell and Palmer & Dodge LLP, respectively, dated the
closing date, to the effect that the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, and that each of Affymetrix, GMS
Acquisition, Inc. and Genetic MicroSystems will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
ADDITIONAL CONDITIONS TO AFFYMETRIX' OBLIGATIONS
The obligations of Affymetrix and GMS Acquisition, Inc. to effect the
merger are also subject to the satisfaction or waiver by Affymetrix at or prior
to the effective time of the merger of the following additional conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Genetic MicroSystems, the stockholders set forth on the signature pages
of the merger agreement, and the Stockholder Representative (on behalf of
the stockholders of Genetic MicroSystems) set forth in the merger
agreement being true and correct in all respects as of the date of the
merger agreement and as of the closing date as though made on and as of
the closing date (except to the extent any such representation or
warranty speaks as of an earlier date); unless the failure of any such
representation or warranty to be so true and correct, has not had or is
not reasonably likely to have, a material adverse effect on Genetic
MicroSystems, and Affymetrix shall have received a certificate signed on
behalf of Genetic MicroSystems to such effect.
- PERFORMANCE OF OBLIGATIONS OF GENETIC MICROSYSTEMS. Genetic MicroSystems
shall have performed in all material respects all obligations required to
be performed by it under the merger agreement at or prior to the closing
date, and Affymetrix shall have received a certificate signed on behalf
of Genetic MicroSystems to such effect.
- CONSENTS UNDER AGREEMENTS. Genetic MicroSystems shall have obtained the
consent or approval of each person whose consent or approval shall be
required under any material contract to which Genetic MicroSystems is a
party.
- LEGAL OPINION. Affymetrix shall have received an opinion of Palmer &
Dodge LLP, counsel to Genetic MicroSystems, dated the closing date,
addressing certain transaction-related matters.
- RESIGNATIONS. Affymetrix shall have received the resignations of each
director of Genetic MicroSystems.
- NONCOMPETITION AGREEMENTS. Affymetrix and/or GMS Acquisition, Inc. shall
have entered into a noncompetition agreement with certain employees of
Genetic MicroSystems.
- AFFILIATES LETTERS. Affymetrix shall have received an affiliates letter
from each person identified as an affiliate of Genetic MicroSystems.
ADDITIONAL CONDITIONS TO GENETIC MICROSYSTEMS' OBLIGATIONS
The obligations of Genetic MicroSystems to effect the merger is also
subject to the satisfaction or waiver by Genetic MicroSystems at or prior to the
effective time of the merger of the following additional conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Affymetrix and GMS Acquisition, Inc. set forth in the merger agreement
shall be true and correct in all respects as
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of the date of the merger agreement and as of the closing date as though
made on and as of the closing date (except to the extent any such
representation or warranty speaks as of an earlier date); unless the
failure of any such representation or warranty to be so true and correct,
has not had or is not reasonable likely to have, a material adverse
effect on Affymetrix, and Genetic MicroSystems shall have received a
certificate signed on behalf of Affymetrix to such effect.
- PERFORMANCE OF OBLIGATIONS OF AFFYMETRIX AND GMS ACQUISITION, INC. Each
of Affymetrix and GMS Acquisition, Inc. shall have performed in all
material respects all obligations required to be performed by it under
the merger agreement at or prior to the closing date, and Genetic
MicroSystems shall have received a certificate signed on behalf of
Affymetrix and GMS Acquisition to such effect.
- CONSENTS UNDER AGREEMENTS. Affymetrix shall have obtained the consent or
approval of each person whose consent or approval shall be required in
order to consummate the transactions contemplated by this Agreement under
any material contract to which Affymetrix or any of its subsidiaries is a
party.
- LEGAL OPINION. Genetic MicroSystems shall have received an opinion of
the General Counsel of Affymetrix, dated the closing date, addressing
certain transaction-related matters.
REPRESENTATIONS AND WARRANTIES OF AFFYMETRIX, GMS ACQUISITION, GENETIC
MICROSYSTEMS, THE STOCKHOLDER REPRESENTATIVE AND CERTAIN STOCKHOLDERS OF GENETIC
MICROSYSTEMS
The merger agreement contains various customary representations and
warranties of Affymetrix, GMS Acquisition, Inc., Genetic MicroSystems, the
Stockholder Representative and Certain Stockholders of Genetic MicroSystems
relating to, among other things:
- corporate organization, good standing and qualification;
- capital structure;
- corporate power and authority to execute, deliver and perform its
obligations, and to consummate the merger;
- governmental consents and regulatory approvals necessary to compete the
merger;
- the fact that the transactions contemplated by the merger agreement will
not violate Affymetrix' or Genetic MicroSystems' organizational
documents, the contracts to which Affymetrix or Genetic MicroSystems is a
party or any law, rule or regulation;
- the absence of certain material adverse changes or events;
- financial statements;
- accounting and tax matters, including qualification of the merger as a
"pooling-of-interests" transaction; and
- brokers and finders.
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In addition, the merger agreement contains additional representations and
warranties of Genetic MicroSystems, the Stockholder Representative and Certain
Stockholders of Genetic MicroSystems relating to, among other things:
- litigation;
- employee benefit plans;
- compliance with applicable laws and required licenses and permits;
- antitakeover statutes;
- environmental matters;
- tax matters;
- labor matters;
- insurance;
- intellectual property matters;
- year 2000 compliance;
- title to property and leases;
- contracts;
- disclosure of material facts; and
- books and records.
CONDUCT OF THE BUSINESS OF GENETIC MICROSYSTEMS PRIOR TO THE MERGER
Pursuant to the terms of the merger agreement, Genetic MicroSystems has
agreed that, prior to the effective time of the merger, unless Affymetrix
otherwise consents in writing and except as otherwise expressly contemplated in
the merger agreement:
- it will carry out its business in the ordinary and usual course, and will
use its commercially reasonable best efforts to preserve its business
organization substantially intact and maintain its existing relations and
goodwill with customers, suppliers, distributors, creditors, lessors,
employees and business associates;
- it will not amend its organizational documents;
- it will not split, combine or reclassify its outstanding shares of
capital stock;
- it will not declare, set aside or pay any dividend payable in cash, stock
or other property in respect of any capital stock;
- it will not repurchase, redeem or otherwise acquire any shares of its
capital stock or any securities convertible into or exchangeable for any
shares of its capital stock;
- it will not issue, sell, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable or exercisable for, or
options, warrants, calls, commitments or rights of any kind to acquire,
any shares of its capital stock of any class or any voting debt or any
other property or assets, with certain exceptions;
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- it will not, other than in the ordinary and usual course of business,
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of
or encumber any other property or assets or incur or modify any material
indebtedness or other liability, subject to certain exceptions;
- it will not make or authorize or commit for any capital expenditures,
subject to certain exceptions or, by any means, make any acquisition of,
or investment in, assets or stock of any other person or entity;
- it will not terminate, establish, adopt, enter into, make any new grants
or awards under (except pursuant to normal advancement and promotion
procedure consistent with past practice), amend or otherwise modify, any
compensation and benefit plans or increase or accelerate the salary,
wage, bonus or other compensation of any employees;
- it will not settle or compromise any material claims or litigation or,
except in the ordinary and usual course of business, modify, amend or
terminate any of its material contracts or waive, release or assign any
material rights or claims;
- it will not make any material tax election or permit any insurance policy
naming it as a beneficiary or loss-payable payee to be canceled or
terminated except in the ordinary and usual course of business;
- it will not, except as may be required as a result of a change in
generally accepted accounting principles and in accordance with the
written advice of its accountants, change any of the accounting practices
or principles used by it;
- it will not adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization, or other
reorganization of it;
- it will not take any action or omit to take any action that would cause
any of its representations and warranties to become untrue in any
material respect; and
- it will not authorize or enter into an agreement to do any of the
foregoing.
NO SOLICITATION OF ACQUISITION PROPOSALS
The merger agreement provides that Genetic MicroSystems and its officers
and directors shall not, and that Genetic MicroSystems shall direct and use its
best efforts to cause its employees and representatives and agents of Genetic
MicroSystems (including any investment banker, attorney or accountant retained
by Genetic MicroSystems) not to, directly or indirectly:
- initiate, solicit, encourage or otherwise facilitate any inquiries or the
making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving Genetic
MicroSystems, or any purchase of 10% or more of the assets or any equity
securities of Genetic MicroSystems (any such proposal is referred to in
this document as an "acquisition proposal"); and
- engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating
to an acquisition proposal, or otherwise facilitate any effort or attempt
to make or implement an acquisition proposal.
However, Genetic MicroSystems may:
- provide information in response to a request therefor by a person who has
made an unsolicited bona fide written acquisition proposal if Genetic
MicroSystems receives from the person so requesting such information an
executed confidentiality agreement, if and only to the extent
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that, Genetic MicroSystems determines in good faith after consultation
with outside legal counsel that such action is necessary in order for its
directors to comply with their respective fiduciary duties under
applicable law;
- engage in any negotiations or discussions with any person who has made an
unsolicited bona fide written acquisition proposal, if and only to the
extent that, Genetic MicroSystems determines in good faith after
consultation with outside legal counsel that such action is necessary in
order for its directors to comply with their respective fiduciary duties
under applicable law and Genetic MicroSystems determines in good faith
(after consultation with its financial advisor) that such acquisition
proposal, if accepted, is reasonably likely to be consummated, taking
into account all legal, financial and regulatory aspects of the proposal
and the person making the proposal and would, if consummated, result in a
transaction more favorable to Genetic MicroSystems' stockholders from a
financial point of view than the transaction contemplated by the merger
agreement (any such more favorable acquisition proposal is referred to in
this document as a "superior proposal"); and
- recommend such an acquisition proposal to the stockholders of Genetic
MicroSystems, if and only to the extent that, Genetic MicroSystems
determines in good faith after consultation with outside legal counsel
that such action is necessary in order for its directors to comply with
their respective fiduciary duties under applicable law and Genetic
MicroSystems determines in good faith (after consultation with its
financial advisor) that such acquisition proposal is a superior proposal.
The merger agreement also requires that Genetic MicroSystems:
- will notify Affymetrix immediately if any such inquiries, proposals or
offers are received by, any such information is requested from, or any
such discussions or negotiations are sought to be initiated or continued
with Genetic MicroSystems; and
- indicate to Affymetrix the identity of the offeror and the terms and
conditions of any such acquisition proposal and thereafter keep
Affymetrix informed of the status and terms of such proposals and the
status of such negotiations or discussions.
ADDITIONAL COVENANTS
INFORMATION SUPPLIED
Affymetrix and Genetic MicroSystems have agreed that none of the
information they supply for inclusion in the registration statement on Form S-4
filed with the Securities and Exchange Commission to register the common shares
of Affymetrix to be issued in the merger, of which this document is a part, will
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
POOLING-OF-INTERESTS
The merger agreement provides that neither Affymetrix nor Genetic
MicroSystems will take or cause to be taken any action, whether before or after
the effective time of the merger that would disqualify the merger as a
"pooling-of-interests" for accounting purposes. For more detailed information,
see "Accounting Treatment" on page 51.
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OTHER AGREEMENTS
The merger agreement contains additional covenants relating to the conduct
of the parties prior to the merger, including among other things:
- in the case of Genetic MicroSystems, to take all action necessary to
convene a meeting of Genetic MicroSystems stockholders as promptly as
practicable after the registration statement, of which this document is a
part, is declared effective by the Securities and Exchange Commission, in
order to approve the merger agreement;
- to use commercially reasonable best efforts to cause to be delivered to
the other party "comfort letters" from such party's independent
accountants;
- to use commercially reasonable best efforts to take or cause to be taken
all actions, and do or cause to be done all things, necessary, proper or
advisable to consummate and make effective the merger, including promptly
making filings with applicable governmental entities and obtaining all
necessary regulatory approvals and consents;
- not to take or cause to be taken, whether before or after the effective
time of the merger, any action that would disqualify the merger as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code;
- in the case of Genetic MicroSystems, to afford Affymetrix reasonable
access to information pertaining to Genetic MicroSystems and its
business;
- to deliver to the other party, no later than 10 days prior the date of
the special meeting in the case of Genetic MicroSystems, and no later
than the effective time of the merger in the case of Affymetrix, a list
of all individuals that such party believes to be "affiliates" of such
party at the time, in the case of Genetic MicroSystems, the merger
agreement is submitted for approval to the Genetic MicroSystems
stockholders, and in the case of Affymetrix, prior to the effective time
of the merger and to use commercially reasonable best efforts to cause
such persons to deliver "affiliates" letters' to the other party;
- in the case of Affymetrix, to file with the NASDAQ National Market the
appropriate notification form for the quotation of additional shares
together with the applicable fee covering Affymetrix common stock to be
issued in the merger;
- in the case of Affymetrix, at the effective time of the merger, assume
the Genetic MicroSystems stock option plan and reserve a sufficient
number of shares of Affymetrix common stock for issuance pursuant to such
options;
- in the case of Affymetrix, for one year after the effective time of the
merger, provide continuing Genetic MicroSystems employees benefits under
employee benefit plans that are no less favorable in the aggregate than
those currently provided by Genetic MicroSystems to such employees; and
- in the case of Genetic MicroSystems, at the effective time of the merger,
assign those noncompetition and nonsolicitation contracts that Genetic
MicroSystems has entered into with its employees, as Affymetrix may
request.
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TERMINATION, AMENDMENT OR WAIVER
TERMINATION
The merger agreement may be terminated at any time prior to the closing
date:
- whether before or after the approval by the stockholders of Genetic
MicroSystems, by the mutual written consent of Genetic MicroSystems and
Affymetrix, by action of their respective boards of directors;
- by either Affymetrix or Genetic MicroSystems if:
- the merger is not completed by February 15, 2000, provided that the
right to terminate after such date will not be available to any party
that has breached in any material respect its obligations under the
merger agreement in any manner that shall have proximately contributed
to the occurrence of the failure of the merger to be consummated;
- the requisite approval of the Genetic MicroSystems stockholders has not
been obtained at a meeting duly convened for such purpose; or
- any order permanently restraining, enjoining or otherwise prohibiting
the merger shall become final and non-appealable.
- by Genetic MicroSystems under the following circumstances:
- Genetic MicroSystems is not in breach of any of the terms of the merger
agreement; and
- The board of directors of Genetic MicroSystems authorizes, subject to
the terms of the merger agreement, Genetic MicroSystems to enter into a
binding written agreement concerning a superior proposal, and Genetic
MicroSystems notifies Affymetrix in writing that it intends to enter
into such an agreement, attaching the most current version of such
agreement to such notice; and
- Affymetrix does not make, within five business days of receipt of
Genetic MicroSystems' written notification of its intention to enter
into such an agreement, an offer that the Genetic MicroSystems board of
directors determines is at least as favorable, from a financial point
of view, to the stockholders of Genetic MicroSystems as the proposal as
to which Genetic MicroSystems gave notice; and
- Genetic MicroSystems pays to Affymetrix, prior to such termination, in
immediately available funds the termination and expense fees that are
discussed below under the heading "Termination Fee and Expense
Reimbursement."
- if there has been a material breach by Affymetrix or GMS Acquisition of
any representation, warranty, covenant or agreement of Affymetrix or GMS
Acquisition contained in the merger agreement that is not curable or, if
curable, is not cured within 30 days after written notice of such breach
is given by Genetic MicroSystems to the party committing such breach.
- - by Affymetrix if:
- the Genetic MicroSystems board of directors shall have withdrawn or
adversely modified its approval or recommendation of the merger agreement
or failed to reconfirm its recommendation of the merger agreement within
five business days after a written request by Affymetrix to do so;
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- there has been a material breach by Genetic MicroSystems of any
representation, warranty, covenant or agreement of Genetic MicroSystems
contained in the merger agreement that is not curable or, if curable, is
not cured within 30 days after written notice of such breach is given by
Affymetrix to Genetic MicroSystems; or
- Genetic MicroSystems or any of the other persons delineated under the
heading "No Solicitation of Acquisition Proposals" takes any of the
actions that are proscribed by the covenant described under the heading
"No Solicitation of Acquisition Proposals."
Neither Affymetrix nor Genetic MicroSystems may terminate the merger agreement
or elect not to complete the merger solely because of changes in the price of
shares of Affymetrix common stock.
TERMINATION FEE AND EXPENSE REIMBURSEMENT
Genetic MicroSystems has agreed to pay to Affymetrix a termination fee
equal to $2,500,000 and to reimburse Affymetrix' expenses up to $1,000,000 if
the merger agreement is terminated under the following circumstances:
- Genetic MicroSystems terminates the merger agreement because:
- Genetic MicroSystems is not in breach of any of the terms of the merger
agreement; and
- The board of directors of Genetic MicroSystems authorizes, subject to
the terms of the merger agreement, Genetic MicroSystems to enter into a
binding written agreement concerning a superior proposal, and Genetic
MicroSystems notifies Affymetrix in writing that it intends to enter
into such an agreement, attaching the most current version of such
agreement to such notice; and
- Affymetrix does not make, within five business days of receipt of
Genetic MicroSystems' written notification of its intention to enter
into such an agreement, an offer that the Genetic MicroSystems board of
directors determines is at least as favorable, from a financial point
of view, to the stockholders of Genetic MicroSystems as the proposal as
to which Genetic MicroSystems gave notice.
- Affymetrix terminates the merger agreement because:
- the Genetic MicroSystems board of directors (in connection with a
superior proposal) has withdrawn or adversely modified its approval or
recommendation of the merger agreement or failed to reconfirm its
recommendation of the merger agreement within five business days after
a written request by Affymetrix to do so; or
- Genetic MicroSystems or any of the other persons delineated under the
heading "No Solicitation of Acquisition Proposals" takes any of the
actions that are proscribed by the covenant described under the heading
"No Solicitation of Acquisition Proposals."
APPOINTMENT OF STOCKHOLDER REPRESENTATIVE
Pursuant to the terms of the merger agreement, each holder of shares of
Genetic MicroSystems capital stock who votes in favor of the merger or who
receives or accepts shares of Affymetrix common stock as the merger
consideration will be deemed to have consented to the appointment of Jean
Montagu as stockholder representative and will be deemed to have consented to
the performance by the stockholder representative of all rights and obligations
conferred on the stockholder representative under the merger agreement and the
escrow agreement. The stockholder representative is indemnified by the
stockholders of Genetic MicroSystems for losses and liabilities
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incurred without gross negligence or bad faith on the part of the stockholder
representive. For more detailed information on the escrow arrangements, see
"Escrow Agreement" on page 68.
INDEMNIFICATION AND LIABILITY OBLIGATIONS
GENERAL
Pursuant to the terms of the merger agreement and the escrow agreement, 10%
of the aggregate number of shares of Affymetrix common stock to be delivered by
Affymetrix at the closing of the merger will be deposited on a pro-rata per
stockholder basis with an escrow agent, for a period not to exceed one year, for
purposes of indemnifying Affymetrix. For more detailed information on the escrow
arrangements, see "Escrow Agreement" on page 68. For a period of one year after
the effective time of the merger, the stockholders of Genetic MicroSystems will
jointly and severally indemnify and hold harmless Affymetrix and its affiliates,
for, and shall pay to Affymetrix and its affiliates the amount of, any damages
directly or indirectly arising or resulting from or in connection with:
- any breach of any representation or warranty made by Genetic
MicroSystems, the stockholders of Genetic MicroSystems set forth on the
signature pages of the merger agreement or the stockholder representative
in the merger agreement or in any certificate delivered by Genetic
MicroSystems pursuant to the merger agreement;
- any breach by Genetic MicroSystems of any covenant or obligation of
Genetic MicroSystems in the merger agreement; or
- any breach of, or failure to assign to Affymetrix or any affiliate of
Affymetrix all of the rights under and terms of, any contract to which
Genetic MicroSystems is a party directly or indirectly arising or
resulting from or in connection with Genetic MicroSystems' ceasing to
exist by virtue of the merger.
For a period of one year after the effective time of the merger, Affymetrix
will indemnify and hold harmless the stockholders of Genetic MicroSystems, and
shall pay to such stockholders the amount of any damages arising, directly or
indirectly, from or in connection with:
- any breach of any representation or warranty made by Affymetrix in the
merger agreement or in any certificate delivered by Affymetrix pursuant
to the merger agreement; or
- any breach by Affymetrix of any covenant or obligation of Affymetrix in
the merger agreement.
LIMITATIONS ON INDEMNIFICATION
Genetic MicroSystems stockholders will not have liability for
indemnification as provided by the indemnification procedures in the merger
agreement:
- unless and until the total amount of all damages with respect to such
matters, taken together, exceeds $500,000, in which case Affymetrix will
be entitled to indemnification for the entire amount its damages; and
- for any damages in the aggregate in excess of the 10% escrowed shares of
Affymetrix common stock;
These limitations will not apply to any breach of Genetic MicroSystems'
representations and warranties of which Genetic MicroSystems had knowledge at
any time prior to the date on which
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such representation and warranty is made or any intentional breach by Genetic
MicroSystems of any covenant or obligation.
Affymetrix will not have liability for indemnification or otherwise:
- unless and until the total amount of all damages with respect to such
matters, taken together, exceeds $500,000, in which case Genetic
MicroSystems stockholders will be entitled to indemnification for the
entire amount of their damages; and
- for any damages in the aggregate in excess of an amount equal to 535,000
multiplied by the closing price on the NASDAQ of the shares of Affymetrix
common stock on the closing date;
These limitations will not apply to any breach of Affymetrix'
representations and warranties of which Affymetrix had knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional breach by Affymetrix of any covenant or obligation.
NON-EXCLUSIVE REMEDY
The indemnification provisions of the merger agreement are not the
exclusive remedy for Affymetrix. Affymetrix will have the right to recover
damages from the Genetic MicroSystems stockholders pursuant to a judgment from
any court of competent jurisdiction for damages directly or indirectly arising
or resulting from or in connection with:
- any breach of any representation or warranty made by Genetic
MicroSystems, the stockholders of Genetic MicroSystems set forth on the
signature pages of the merger agreement or the stockholder representative
in the merger agreement or in any certificate delivered by Genetic
MicroSystems pursuant to the merger agreement;
- any breach by Genetic MicroSystems of any covenant or obligation of
Genetic MicroSystems in the merger agreement; or
- any breach of, or failure to assign to Affymetrix or any affiliate of
Affymetrix all of the rights under and terms of, any contract to which
Genetic MicroSystems is a party directly or indirectly arising or
resulting from or in connection with Genetic MicroSystems' ceasing to
exist by virtue of the merger.
However, Genetic MicroSystems stockholders will not have liability for any
damages in the aggregate in excess of the amount equal to 535,000 multiplied by
the closing price on the NASDAQ of the shares of Affymetrix common stock on the
closing date.
AMENDMENT
Subject to the provisions of applicable law, at any time prior to the
effective time of the merger, the parties to the merger agreement may modify or
amend the merger agreement, by written agreement executed and delivered by duly
authorized officers of such parties.
WAIVER
The conditions to each party's obligation to consummate the merger are for
the sole benefit of such party and may be waived by such party in whole or in
part to the extent permitted by law. At any time prior to the effective time of
the merger, any party to the merger agreement may extend in writing the time for
the performance of any of the obligations or other acts of any other party to
the merger agreement or waive in writing compliance with any of the agreements
of any other party or any conditions to its own obligations, to the extent such
obligations, agreements and conditions are intended for its benefit and to the
extent permitted by law.
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STOCK OPTION AGREEMENT
As a condition and inducement to Affymetrix' entering into the merger
agreement, Genetic MicroSystems granted to Affymetrix an option to purchase
shares of its common stock up to 19.9% of its currently outstanding capital
stock pursuant to a stock option agreement that was entered into on September
10, 1999. The following describes certain aspects of the stock option agreement,
including material provisions of the stock option agreement. The following
description of the stock option agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the stock option
agreement, which is attached as Appendix B to this document and is incorporated
in this document by reference. All Genetic MicroSystems stockholders are urged
to read the stock option agreement carefully and in its entirety.
TERMS OF THE OPTION
NUMBER OF SHARES AND EXERCISE PRICE
Under the stock option agreement, Genetic MicroSystems has granted to
Affymetrix an option to purchase shares of its common stock up to 19.9% of the
outstanding capital stock of Genetic MicroSystems at an exercise price per share
equal to $21.50.
In the event of any change in the number of issued and outstanding shares
of capital stock of Genetic MicroSystems (by reason of any stock dividend, stock
split, split-up, recapitalization, merger, issuance of capital stock upon
exercise of warrants or options or any other event), the number of shares
subject to the stock option and the purchase price per share shall be
appropriately adjusted to restore Affymetrix to fully preserve the economic
benefits provided under the stock option agreement.
EXERCISE RIGHTS
Affymetrix may exercise the stock option if:
- any of the three triggering events described in the first paragraph under
"Termination Fee and Expense Reimbursement" occurs; or
- Genetic MicroSystems notifies Affymetrix that it has received a superior
proposal and Affymetrix notifies Genetic MicroSystems that it does not
intend to match such acquisition proposal.
CASH-OUT RIGHT
The stock option agreement further provides that at any time the option is
exercisable, Affymetrix may elect to exercise its "Cash-Out Right." This right
allows Affymetrix to require Genetic MicroSystems to pay to Affymetrix an amount
in cash in exchange for the cancellation of the option with respect to such
number of shares as Affymetrix specifies. This cash amount is equal to such
number of shares multiplied by the difference between the highest price per
share of Genetic MicroSystems common stock paid or proposed to be paid by any
person pursuant to an acquisition proposal and $21.50.
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EXPIRATION
To the extent the stock option has not been exercised, the stock option
agreement will expire upon the earliest of:
- the effective time of the merger;
- twelve months after the date of termination of the merger agreement
pursuant to a superior proposal which is not met by Affymetrix or a
withdrawal or adverse modification or by the Genetic MicroSystems board
of its recommendation of the merger; and
- thirty days following the termination or the merger agreement for any
reason other than those described above.
REPURCHASE AT THE OPTION OF GENETIC MICROSYSTEMS
Pursuant to the stock option agreement, Genetic MicroSystems has the right
to repurchase any shares of Genetic MicroSystems common stock purchased by
Affymetrix pursuant to the stock option for a period of 180 days after each date
on which the stock option is exercised. The price per share Genetic MicroSystems
will pay upon a repurchase event is equal to the purchase price paid by
Affymetrix.
LIMITATION OF PROFIT
Affymetrix' total profit under the stock option agreement together with the
amount of any termination and expense fee paid by Genetic MicroSystems to
Affymetrix pursuant to the merger agreement shall in no event exceed $5,000,000.
EFFECT OF STOCK OPTION AGREEMENT
The stock option agreement increases the likelihood that the merger will be
consummated in accordance with the terms of the merger agreement. The stock
option agreement would have the effect of making an acquisition or other
combination of Genetic MicroSystems by or with a third party more costly because
of the need in any such transaction to acquire, account for or pay the price of
the stock option shares that would be issued under the stock option agreement.
Affymetrix and Genetic MicroSystems also believe that the exercise of the stock
option could prohibit any other acquiror of Genetic MicroSystems during the next
two years from accounting for any such acquisition by using the
pooling-of-interests accounting method. Accordingly, the stock option agreement
may discourage a third party who might be interested in effecting such an
acquisition or combination from considering or proposing the transaction or may
cause such third party to offer to pay a lower price than such party would have
proposed if pooling-of-interest accounting were available. In addition,
Affymetrix would have a significant stake in Genetic MicroSystems if it
exercised the stock option and held the stock.
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ESCROW AGREEMENT
The following describes certain aspects of the escrow agreement, including
material provisions of the escrow agreement. The following description of the
escrow agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the escrow agreement, which is
attached as Appendix C to this document and is incorporated in this document by
reference. All Genetic MicroSystems stockholders are urged to read the escrow
agreement carefully and in its entirety.
Pursuant to the terms of the escrow agreement, Affymetrix will deposit 10%
of the aggregate merger consideration on a pro-rata per stockholder basis, for a
period not to exceed one year, with Bank One Trust Company, NA, as escrow agent.
The shares of Affymetrix common stock are reserved for the purpose of satisfying
the indemnification obligations owed to Affymetrix by Jean Montagu, who will
serve as stockholder representative under the escrow agreement, and the other
stockholders of Genetic MicroSystems. Five business days after the one-year
anniversary of the effective date of the merger, shares of Affymetrix common
stock that have not been used to satisfy claims will be will be distributed by
the escrow agent to the stockholders of Genetic MicroSystems pro rata in
accordance with the relative ownership percentage of each stockholder. The
escrow agreement also provides that Affymetrix can instruct the escrow agent not
to distribute the escrowed shares until any unsatisfied indemnification claim
has been resolved.
Affymetrix must pay to the escrow agent any cash or stock dividends and
other distributions with respect to the shares of Affymetrix common stock held
in the escrow account. The escrow agent will only retain in the escrow account
any dividends and distributions declared by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
Affymetrix common stock. All other cash or stock dividends on the shares of
Affymetrix common stock will be distributed to the stockholders of Genetic
MicroSystems in accordance with the relative ownership percentage of each
stockholder.
If Affymetrix believes it is entitled to payment for an indemnification
claim, it must file a certificate signed by its president or any of its
vice-presidents stating that claim. Unless the stockholder representative
objects within fifteen business days after the escrow agent and stockholder
representative received that certificate, the escrow agent will pay Affymetrix'
claim on the fifteenth business day after its receipt of Affymetrix'
certificate. On that day, the escrow agent will deliver to Affymetrix that
number of shares of Affymetrix stock equal to the amount obtained by dividing
the amount sought under the indemnity by the closing price on the NASDAQ
National Market of Affymetrix stock on the closing date of the merger.
If the stockholder representative objects in a timely manner as detailed in
the escrow agreement, the parties will endeavor in good faith to agree on the
amount that Affymetrix is entitled to recover from the escrow account or have
that amount determined by a court of competent jurisdiction.
Jean Montagu, as stockholder representative, will not receive a fee for his
services. He may resign on thirty days written notice to the parties to the
escrow agreement, or he may be removed by the stockholders of Genetic
MicroSystems. The stockholder representative is indemnified by the stockholders
of Genetic MicroSystems for losses and liabilities incurred without gross
negligence or bad faith on the part of the stockholder representative.
Under the escrow agreement, no action may be taken or omitted to the extent
that such action or omission would result in the merger not qualifying for
pooling-of-interests accounting treatment.
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STOCKHOLDER VOTING AGREEMENTS
As a condition and inducement to Affymetrix' entering into the merger
agreement, Affymetrix entered into stockholder voting agreements with the
following six stockholders of Genetic MicroSystems:
- Jean Montagu, the Chairman of the board of directors, Chief Executive
Officer and founder of Genetic MicroSystems;
- Dominic Montagu, family member of the Chairman of the board of directors,
Chief Executive Officer and founder of Genetic MicroSystems;
- Sasha Montagu, family member of the Chairman of the board of directors,
Chief Executive Officer and founder of Genetic MicroSystems;
- Stanley Rose, executive officer -- Chief Operating Officer of Genetic
MicroSystems;
- Peter Honkanen, executive officer -- Vice President of Engineering of
Genetic MicroSystems; and
- Myles L. Mace, Jr., executive officer -- Vice President of Technology
Developments of Genetic MicroSystems.
The following description sets forth certain aspects of the stockholder
voting agreements, including material provisions of the stockholder voting
agreements. The following description of the stockholder voting agreements does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the form of stockholder voting agreement, which is attached as
Appendix D to this document and is incorporated herein by reference.
GENERAL
On September 10, 1999, contemporaneously with the execution and delivery of
the merger agreement, Affymetrix and the six stockholders listed above entered
into stockholder voting agreements pursuant to which each such stockholder
agreed, among other things:
- to vote all of the shares of Genetic MicroSystems over which the
stockholder has voting power in favor of the merger agreement and the
merger and any other transaction contemplated by the merger agreement;
and
- to vote all of the shares of Genetic MicroSystems over which the
stockholder has voting power against (i) any proposal that would
constitute an acquisition proposal, (ii) any amendment to the
organizational documents of Genetic MicroSystems and (iii) any other
amendment, proposal or transaction involving Genetic MicroSystems, which
amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify the merger or which is reasonably likely to
result in any of the conditions to Genetic MicroSystems' obligations
under the merger agreement not being fulfilled; and
- to grant to Affymetrix, an irrevocable proxy, or, if applicable, a power
of attorney, and to irrevocably appoint Affymetrix, its attorney and
proxy to vote all of the shares of Genetic MicroSystems over which the
stockholder has voting power with respect to approval of the merger
agreement at any meeting of the stockholders of Genetic MicroSystems.
Massachusetts law requires that the merger agreement be approved by the
affirmative vote of two-thirds of the shares of each class of stock of Genetic
MicroSystems. Together, the six stockholders listed above beneficially own and
have voting control over approximately 69.5% of the
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shares of Genetic MicroSystems common stock and approximately 72% of the shares
of Genetic MicroSystems convertible preferred stock. Therefore, their shares
represent more than the number of votes necessary to adopt the merger agreement
and approve the merger.
TERMINATION
The stockholder voting agreements provide that they will terminate upon the
earlier of:
- the effective time of the merger; or
- the termination of the merger agreement.
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE
OFFICERS AND PRINCIPAL STOCKHOLDERS
Information concerning current directors and officers of Affymetrix,
executive compensation and ownership of Affymetrix common stock by management
and principal stockholders is contained in Affymetrix' Proxy Statement, dated
May 5, 1999, and is incorporated in this document by reference. See "Where You
Can Find More Information" on page 94.
Genetic MicroSystems is a privately held corporation with fewer than ninety
stockholders and has no reporting obligation under the Securities Exchange Act
of 1934, as amended, or the rules and regulations of any exchange.
The table on the following page sets forth beneficial ownership of Genetic
MicroSystems' capital stock as of September 30, 1999 by:
- each person or entity known to Genetic MicroSystems to beneficially own
5% or more of the outstanding shares of each class of Genetic
MicroSystems' capital stock;
- each of Genetic MicroSystems' directors;
- Genetic MicroSystems' Chief Executive Officer and each of the other four
most highly compensated executive officers of Genetic MicroSystems whose
salary and bonus was greater than $100,000 in 1998; and
- all directors and executive officers of Genetic MicroSystems as a group.
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<TABLE>
<CAPTION>
SHARES OF SERIES A SHARES OF SERIES B PERCENT OF
SHARES OF COMMON CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED OUTSTANDING
STOCK BENEFICIALLY STOCK BENEFICIALLY STOCK BENEFICIALLY CAPITAL
OWNED (1) OWNED(1) OWNED(1) STOCK(2)
---------------------- ---------------------- ---------------------- ------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS TOTAL SHARES
- ---------------- --------- ---------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jean Montagu................ -- -- 1,500,000 75.00% 36,400(3) 8.43% 44.68%
Stanley D. Rose............. 300,000 29.80% 50,000(4) 2.44% 43,197(4) 9.09% 11.13%
Peter Honkanen.............. 300,000 29.80% -- -- 25,000(4) 5.47% 9.38%
Myles L. Mace, Jr........... 100,000 9.93% 50,000 2.50% -- -- 4.36%
Dominic D. Montagu.......... -- -- 100,000(5) 5.00% 14,260(6) 3.30% 3.32%
823 Mendecino Ave.
Berkeley, CA 94707
John N. Williams............ -- -- 100,000 5.00% -- -- 2.91%
84 Commonwealth Ave #4
Boston, MA 02118
Sasha Montagu............... -- -- 100,000 5.00% -- -- 2.91%
P.O. Box 962
Whitefish, MT 59939
L. Robert Johnson........... 50,000 4.97% 50,000(7) 2.50% -- -- 2.91%
Stewart H. Greenfield....... -- -- 100,000 5.00% -- -- 2.91%
274 Sturges Hwy.
Westport, CT 06880
Gottlieb Knoch.............. -- -- -- -- 35,294 8.17% 1.03%
Taegerhalde 3
Ch-8700
Unsnacht, Switzerland
Jane L. Glassco............. -- -- -- -- 29,411 6.81% *
754 Euclid Avenue
Toronto, Ontario
Canada MGG 2V4
Andre Citroen............... -- -- -- -- 24,000 5.56% *
10 Green Street
London, WIY 3RF
United Kingdom
All current executive
officers and directors as
a group (8 persons)....... 815,833(8) 79.01% 1,650,000(9) 80.49% 104,597(10) 20.91% 71.75%
</TABLE>
- -------------------------
* Indicates less than 1%
(1) Unless otherwise indicated, each stockholder has sole voting and investment
power with respect to the shares listed in the table. The applicable
percentage ownership for each stockholder of each class of capital stock of
Genetic MicroSystems, as shown in this column, is based on (1) 1,006,702
shares of common stock, (2) 2,000,000 shares of Series A convertible
preferred stock, and (3) 431,977 shares of Series B convertible preferred
stock of Genetic MicroSystems outstanding as of September 30, 1999, plus
any shares subject to options or warrants held by the stockholder in
question that are currently exercisable or exercisable within 60 days after
September 30, 1999. Although the Series A convertible preferred stock and
Series B convertible preferred stock is convertible into common stock, it
is not reflected on an as-converted basis in the common stock column
because, as a voting security, it is reflected in its own column.
(2) The applicable percentage ownership for each stockholder, as shown in this
column, is based on an aggregate amount of 3,438,679 shares of Genetic
MicroSystems capital stock outstanding as of September 30, 1999, plus
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any shares subject to options or warrants held by the stockholder in
question that are currently exercisable or exercisable within 60 days after
September 30, 1999. The common stock, Series A convertible preferred stock
and Series B convertible preferred stock vote together as a single class
except as required by law or under Genetic MicroSystems' restated articles
of organization. The merger is treated as a liquidation unless the holders
of a majority of Series A convertible preferred stock, voting as a single
class, elect not to treat it as a liquidation.
(3) Jean Montagu shares voting and investment power with his wife with respect
to the shares of Series B preferred stock held by Jean Montagu.
(4) Represents shares that may be required within 60 days after September 30,
1999 upon the exercise of outstanding warrants.
(5) Consists of shares owned by Dominic Montagu and his wife in a trust for the
benefit of their children, as to which Dominic Montagu disclaims beneficial
ownership.
(6) Includes 14,260 shares of Series B convertible preferred stock owned by or
in trust for members of the immediate family of one stockholder, who
disclaims beneficial ownership thereof.
(7) L. Robert Johnson shares voting and investment power with his wife with
respect to the shares of Series A convertible preferred stock held by L.
Robert Johnson.
(8) Includes 25,833 shares issuable upon exercise of outstanding stock options
exercisable within 60 days after September 30, 1999.
(9) Includes 50,000 shares issuable upon exercise of outstanding warrants
exercisable within 60 days after September 30, 1999.
(10) Includes 68,197 shares issuable upon exercise of outstanding warrants
exercisable within 60 days after September 30, 1999.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Genetic MicroSystems board with
respect to the merger agreement and the transactions contemplated by the merger
agreement, stockholders of Genetic MicroSystems should be aware that certain
members of the management and board of directors of Genetic MicroSystems have
certain interests in the merger that are different from, or in addition to, the
interests of stockholders of Genetic MicroSystems generally. All such interests
are described below, to the extent material, and Genetic MicroSystems believes
that, except as described below, such persons do not have any material interest
in the merger that is different from those of Genetic MicroSystems stockholders
generally. The Genetic MicroSystems board was aware of, and considered the
interests of, its directors and officers when it approved the merger agreement
and the merger.
STOCK OWNERSHIP
As of September 30, 1999, the directors and executive officers of Genetic
MicroSystems beneficially owned approximately 815,833 shares of Genetic
MicroSystems common stock, including 25,833 shares issuable upon exercise of
outstanding stock options exercisable within 60 days after September 30, 1999,
1,650,000 shares of Genetic MicroSystems Series A convertible preferred stock,
including 50,000 shares issuable upon exercise of outstanding warrants
exercisable within 60 days after September 30, 1999, and 104,597 shares of
Genetic MicroSystems Series B convertible preferred stock, including 68,197
shares issuable upon exercise of outstanding warrants exercisable within 60 days
after September 30, 1999. The directors and executive officers of Genetic
MicroSystems will receive the same consideration in connection with the merger
as other holders of
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Genetic MicroSystems common stock and options, Series A convertible preferred
stock and warrants, and Series B convertible preferred stock and warrants,
respectively.
NON-COMPETITION AGREEMENTS
As a condition to closing the merger, certain senior executives of Genetic
MicroSystems will enter into non-competition agreements with Affymetrix prior to
the effective time of the merger. The terms of these agreements have not yet
been agreed to, but these agreements will likely contain provisions whereby
these individuals agree that:
- for a period of time after the end of their employment by Affymetrix they
will not directly or indirectly participate in a business or activity
that competes with the business of Affymetrix or Genetic MicroSystems;
- they will keep confidential commercially valuable information of
Affymetrix; and
- during the time they are employed by Affymetrix and for a period of time
thereafter they will not directly or indirectly solicit employees of
Affymetrix to leave the employ of Affymetrix, hire any former employee of
Affymetrix within twelve months of the end of their employment with
Affymetrix, solicit business from customers of Affymetrix, interfere with
Affymetrix' relationship with any other person or disparage Affymetrix,
its affiliates or employees.
These individuals will not receive any consideration for entering into the
non-competition agreements other than the Affymetrix stock issued to them in the
merger.
1998 STOCK PLAN
As of September 30, 1999, the directors and executive officers of Genetic
MicroSystems held stock options or warrants exercisable within 60 days after
September 30, 1999, to purchase 25,833 shares of Genetic MicroSystems common
stock, 50,000 shares of Genetic MicroSystems Series A convertible preferred
stock, and 68,197 shares of Genetic MicroSystems Series B convertible preferred
stock. At the effective time of the merger, each option and warrant (including
the stock options and warrants held by Genetic MicroSystems executive officers
and directors) will convert into an option or warrant to acquire the number of
shares of Affymetrix common stock that the holder would have received in the
merger if the holder had exercised the option or warrant in full immediately
prior to the closing of the merger and the exercise price will be adjusted
appropriately. The number of shares of Affymetrix common stock that the new
Affymetrix option or warrant will be exercisable for and the exercise price of
the new Affymetrix option or warrant will reflect the exchange ratio. Affymetrix
has agreed to file with the Securities and Exchange Commission, not later than
60 days after the closing of the merger, a registration statement on Form S-8 or
other appropriate form under the Securities Act of 1933, as amended, to register
the shares of Affymetrix common stock issuable upon exercise of the options of
Affymetrix exchanged for Genetic MicroSystems options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On May 19, 1998, Genetic MicroSystems entered into an executive severance
agreement with Peter Lewis, Chief Financial Officer of Genetic MicroSystems. The
severance agreement provides that if within one year of a "change of control,"
Mr. Lewis' employment is terminated without
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"cause," as defined in the severance agreement, or if Mr. Lewis terminates his
employment for "good reason," as defined in the severance agreement, Mr. Lewis
will become entitled to:
- receive severance compensation equal to the amount of his base salary at
the time of termination, and
- will be eligible to continue to participate in all benefit plans he was
entitled to receive before such termination.
The merger constitutes a "change of control" under Mr. Lewis' severance
agreement.
RESTRICTED STOCK AGREEMENTS
Genetic MicroSystems has entered into restricted stock agreements with the
following directors and officers of Genetic MicroSystems:
- Peter Honkanen
- Peter Lewis
- L. Robert Johnson
Under the terms of the restricted stock purchase agreements, some or all of
the shares of Genetic MicroSystems common stock held by these individuals are
subject to repurchase by Genetic MicroSystems in the event that the individual's
employment or involvement with Genetic MicroSystems is terminated. The
restricted stock purchase agreements provide that upon an "acquisition event,"
the number of shares of Genetic MicroSystems common stock then subject to
repurchase by Genetic MicroSystems will become fully vested and released from
any repurchase right by Genetic MicroSystems. Genetic MicroSystems and
Affymetrix believe that the merger constitutes an acquisition event of Genetic
MicroSystems for purposes of the restricted stock agreements. Upon approval of
the merger, the vesting will be accelerated to the extent provided for in the
restricted stock agreements. On September 30, 1999, the above listed persons
held a total of 380,000 shares of Genetic MicroSystems common stock.
OWNERSHIP AND VOTING OF STOCK
As of September 30, 1999, directors and executive officers of Genetic
MicroSystems and their affiliates may be deemed to have beneficial ownership of
approximately 79.01% of the outstanding shares of Genetic MicroSystems common
stock including outstanding stock options exercisable within 60 days after
September 30, 1999, approximately 80.49% of the shares of outstanding Series A
convertible preferred stock including outstanding warrants exercisable within 60
days after September 30, 1999, and approximately 20.91% of the outstanding
shares of Series B convertible preferred stock including outstanding warrants
exercisable within 60 days after September 30, 1999. These directors and
executive officers may be deemed to have beneficial ownership either by
themselves or with others. Certain of the directors and executive officers of
Genetic MicroSystems and/or their affiliates have agreed in stockholder voting
agreements with Affymetrix to vote all of the outstanding shares of Genetic
MicroSystems stock, over which they have voting control, to be voted in favor of
adoption of the merger agreement. For more detailed information concerning the
stockholder voting agreements, see "Stockholder Voting Agreements" on page 69.
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GENETIC MICROSYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Genetic MicroSystems was incorporated on August 7, 1997 to develop,
manufacture and sell a new generation of enabling products for genomics research
and drug discovery. Genetic MicroSystems was a development-stage company until
the commencement of substantial operations in 1998.
IMPACT OF YEAR 2000
Genetic MicroSystems is assessing the potential impact of the year 2000
computer issues with regards to its systems and other aspects of its operations
dependent upon automation or computerized operation. Genetic MicroSystems has
initiated the assessment process and is expected to complete the project by year
end. The assessment will also include an analysis of certain third party
suppliers. Expenditures to date have not been material and are not expected to
be material based upon the information gathered to date. While Genetic
MicroSystems believes that the year 2000 issue will not pose significant
operational problems for its computer systems or other critically dependent
equipment, certain contingency plans may be developed in an attempt to minimize
the potential disruption on business, should an issue be identified.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 3, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues for the first six months of 1999 were $5,081,572 as compared to no
revenue in the previous year's comparable period. The increase in revenue was
due to growing demand for arrayer and array scanner products which Genetic
MicroSystems began to ship during the fourth quarter of 1998.
Genetic MicroSystems' gross margin for the period was $1,928,481 or 38.0 %
of revenues. This percentage was negatively impacted by inefficiencies
associated with the start-up of manufacturing and a mix of market seeding units
at low average unit price.
Total selling, general and administrative expenses were $1,984,137 for the
first six months of 1999 versus $705,615 in the previous period. The growth in
expense is a function of building out of the infrastructure of Genetic
MicroSystems and the hiring of a direct sales force. Direct sales headcount was
8 as of July 3, 1999 as compared to zero in the previous period.
Research and development expenses, for the first six months of 1999 were
$1,381,309, a growth of 29% over the $1,070,532 of spending in 1998. The
increase was primarily due to a continued expansion of the research and
development staff.
During the period Genetic MicroSystems recorded $64,387 of net interest
income compared with $17,975 in the previous period. The growth in interest
income was a function of the larger cash equivalents position in 1999 as a
result of a Series B preferred stock equity offering in December of 1998 and
January of 1999. A loss on the sale of securities of $664,505 was recorded in
the six months ended June 30, 1998. Genetic MicroSystems did not record any
income tax benefit related to its losses in 1999, given the uncertainty
regarding its ability to generate taxable income in future year. The income tax
benefit of $808,411 recorded during the 6 months ended June 30, 1998, reflects
the income tax benefit associated with losses generated during 1998 which were
used to offset income generated from the sale of available for sale securities.
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The net loss and comprehensive net loss for the six months ended July 3,
1999 was $1,372,578 or $(1.36) per basic and diluted share. This compares with a
$1,614,266 net loss and a $972,489 comprehensive net loss in the comparable
period of 1998. The difference between the net loss and comprehensive net loss
in 1998 was due to the unrealized gains on available for sale securities during
the 6 months ended June 30, 1998. During 1998 Genetic MicroSystems sold all of
its investment securities. The net loss per basic and diluted share was $(10.35)
and the comprehensive net loss per basic and diluted share was $ (6.24) for the
six months ended June 30. 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION (AUGUST 7, 1997)
TO DECEMBER 31, 1997
Revenues for 1998 were $387,605 versus no revenue in the previous year's
comparable period. The increase in revenue was due to the initial demand for
arrayer and array scanner products which Genetic MicroSystems began to ship in
the fourth quarter of 1998.
Genetic MicroSystems' gross margin for the period was $20,000 or 5.2% of
revenues. This percentage was negatively impacted by inefficiencies associated
with the start-up of manufacturing.
Total selling general and administrative expenses were $1,877,541 for 1998
versus $59,159 in the previous period. The growth in expense is a function of
building out of the infrastructure of Genetic MicroSystems.
Research and development expenses for 1998 were $2,479,915 compared to
$421,694 of spending in 1997. The increase was primarily due to a continued
expansion of the research and development staff as well as a full year of
operations.
During the period Genetic MicroSystems recorded $63,172 of net interest
income compared with none in the previous period. The growth in interest income
was a function of the larger cash equivalents position in 1998 as a result of
Genetic MicroSystems' sale of available for sale securities and proceeds from
the sale of Series A preferred stock.
A loss on the sale of securities of $ (664,505) was recorded in the year
ended December 31, 1998. The income tax benefit of $1,268,616 recorded during
1998, reflects the income tax benefit associated with losses generated during
1998 which were used to offset income generated from the sale of available for
sale securities.
The net loss for the year ended December 31, 1998 was $(3,670,173) and the
comprehensive net loss was $(3,028,396). This compares with a $(253,771) net
loss and a $(895,548) comprehensive net loss in the comparable period of 1998.
For the year ended December 31, 1998, the net loss per basic and diluted share
was $(6.21) and the comprehensive net loss per basic and diluted share was
$(5.12). This compares to a net loss per basic and diluted share of $(25.38) and
the comprehensive net loss per basic and diluted share of $(89.55) for the 1997
period.
FINANCIAL CONDITION
Since inception Genetic MicroSystems has financed its operations and growth
through the contributions of the founder in the form of equity securities, the
sale of Series A and Series B preferred stock and the sale of common stock
purchase rights to Takara Shuzo, a strategic partner.
In the first six months of 1999, Genetic MicroSystems used $2,311,930 of
cash in operating activities due primarily to the loss from operations as well
as the increase in accounts receivable and inventories as shipments commenced.
The completion of the Series B preferred stock offering in January 1999
generated $709,184 of cash, more than offsetting the capital expenditures of
$237,685 in 1999.
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At July 3, 1999, Genetic MicroSystems had $2,526,577 of cash and cash
equivalents. Genetic MicroSystems believes that these capital resources are
sufficient to finance operations and capital expenditures through the end of the
year. Genetic MicroSystems also believes that it currently has the potential to
access sufficient additional capital resources to finance operations and capital
expenditures for the next 12 months. A deterioration in the business prospects
of Genetic MicroSystems or the financial markets, among other things, could
adversely affect the ability of Genetic MicroSystems to access additional
capital.
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DESCRIPTION OF AFFYMETRIX CAPITAL STOCK
The following summary is a description of the material terms of Affymetrix
capital stock, does not purport to be complete and is subject in all respects to
the applicable provisions of the Delaware General Corporation Law, Affymetrix'
certificate of incorporation and Affymetrix' bylaws, all of which are on file
with the SEC.
AUTHORIZED CAPITAL STOCK
Affymetrix' authorized capital stock consists of 75,000,000 shares of
common stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share, of which 1,634,522 are designated Series AA
preferred stock.
PREFERRED STOCK
As of October 13, 1999, no shares of Series AA preferred stock were issued
and outstanding. Pursuant to the Affymetrix rights agreement referred to below,
Affymetrix may designate a series of preferred securities entitled "Series B
Junior Participating Preferred Stock" for issuance upon the exercise of the
rights distributed to holders of Affymetrix stock pursuant to the Affymetrix
rights agreement. See "Description of the Capital Stock -- Rights Agreement" on
page 81.
SERIES AA PREFERRED STOCK
DESIGNATION AND AMOUNT. The authorized number of shares of Series AA
preferred stock, par value $0.01 per share, is 1,634,522. No shares of Series AA
preferred stock are currently outstanding.
RANK. With respect to dividend rights and rights on liquidation,
dissolution and winding-up, the Series AA preferred stock ranks senior to
Affymetrix common stock and are subject to the rights of any series of preferred
stock that may from time to time come into existence.
DIVIDENDS. The holders of Series AA preferred stock are entitled to
receive cumulative dividends payable in cash prior and in preference to any
dividends paid to holders of common stock at the rate of $1.99 (as adjusted for
any stock splits, stock dividends, combinations, recapitalizations, or the like
with respect to Series AA preferred stock) per share payable in two equal
installments on June 30 and December 31 of each year. These dividends accrue on
each share of Series AA preferred stock whether or not earned or declared from
the date on which the Series AA preferred stock was first issued. Holders of
Series AA preferred stock are also entitled to receive an amount equal to any
cash dividend paid to holders of common stock.
LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or winding
up of Affymetrix, each holder of Series AA preferred stock is entitled to
receive a liquidation preference prior and in preference to any payments made to
holders of common stock. This preference is an amount per share equal to the sum
of:
- $30.59 for each outstanding share of Series AA preferred stock;
- accrued but unpaid dividends on each share of Series AA preferred stock;
and
- a per share amount equal to the difference obtained by subtracting:
- the product of ten percent of the annual per share dividend multiplied
by a fraction, the numerator of which is the number of days elapsed
since the date on which the first share of Series AA preferred stock
was first issued and the denominator of which is 365, from
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- the annual per share dividend.
After the payment, holders of Affymetrix common stock are entitled to
receive an amount per share equal to the quotient obtained by dividing:
- the per share Series AA preferred stock liquidation preference by
- the number of shares of common stock into which one share of Series AA
preferred stock could then be converted.
Any remaining assets would be distributed ratably to the holder of
Affymetrix common stock and holders of Series AA preferred stock.
REDEMPTION. Series AA preferred stock can be redeemed at the election of
Affymetrix or at the election of the holders of the Series AA preferred stock.
Redemption at the Option of Affymetrix
Subject to the rights of series of preferred stock that may from time to
time come into existence:
- On or prior to March 9, 2001, Affymetrix may, at the option of the board
of directors, redeem in whole or in part the Series AA preferred stock by
paying in cash a sum equal to:
- $30.59, as adjusted for any stock splits, stock dividends,
combinations, recapitalizations or the like, plus
- accrued but unpaid dividends on such share;
provided that the closing sale price of this Affymetrix' common stock on
the NASDAQ National Market, or any other national securities exchange on
which the common stock is then listed, has been at or above $52.00, as
adjusted for any stock splits, stock dividends, combinations,
recapitalizations or the like, for twenty of thirty consecutive trading
days prior to the applicable redemption date.
- After March 9, 2001, Affymetrix may, at the option of the board of
directors, redeem in whole or in part the Series AA preferred stock by
paying in cash a sum equal to the Series AA liquidation preference
described above.
These redemptions will be made on a pro rata basis among the holders of the
Series AA preferred stock in proportion to the number of shares of Series AA
preferred stock then held, and each holder of Series AA preferred stock may, at
any time after notice by the corporation of its intention to redeem shares and
up to two trading days prior to the redemption, convert shares of Series AA
preferred stock into shares of Affymetrix common stock pursuant to the
conversion procedures described below. If Affymetrix has insufficient funds to
redeem all outstanding Series AA preferred stock, it must immediately redeem the
remaining shares of Series AA preferred stock as soon as funds become legally
available to effect the redemption.
REDEMPTION AT THE OPTION OF THE STOCKHOLDERS
Subject to the rights of series of preferred stock that may from time to
time come into existence, at any time on or after March 9, 2005, the holders of
not less than a majority of the then outstanding Series AA preferred stock can
request that a specified percentage of the holders' shares of Series AA
preferred stock be redeemed. Concurrently with surrender by the holders of the
certificates representing the shares, Affymetrix will, to the extent it may
lawfully do so, redeem the number of shares specified in the request on a pro
rata basis among the holders of the Series AA preferred stock
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in proportion to the number of shares of Series AA preferred stock proposed to
be redeemed. Affymetrix will pay in cash a redemption price equal to:
- $30.59 per share of Series AA preferred stock, as adjusted for any stock
splits, stock dividends, recapitalizations or the like, plus
- accrued but unpaid dividends on that share.
Affymetrix, however, is not required to redeem more than 817,261 shares of
Series AA preferred stock, as adjusted for any stock splits, stock dividends,
recapitalizations or the like, during any twelve-month period. If Affymetrix has
insufficient funds to redeem all outstanding Series AA preferred stock, it must
immediately redeem the remaining shares of Series AA preferred stock as soon as
funds become legally available to effect the redemption.
CONVERSION RIGHTS. Each share of Series AA preferred stock is convertible
into Affymetrix common stock at the option of the holder of the shares from the
time of issuance up to two days prior to an announced redemption date. Upon an
election to convert, that holder's shares of Series AA preferred stock will be
converted into that number of shares of Affymetrix common stock equal to:
- $30.59, as ratably adjusted for any stock splits, stock dividends,
combinations, recapitalizations or the like with respect to Series AA
preferred stock, divided by
- $39.77, as ratably adjusted for any stock splits, stock dividends,
combinations, recapitalizations or the like with respect to Affymetrix
common stock.
OTHER DISTRIBUTIONS. If Affymetrix declares a distribution payable in
securities of another company, evidences of indebtedness, assets excluding cash,
or other options or rights, the holders of Series AA preferred stock are
entitled to a proportionate share of that distribution as though they were
holders of the number of shares of Affymetrix common stock into which their
Series AA preferred stock is convertible.
RECAPITALIZATION. If the Affymetrix common stock is recapitalized, the
holders of Series AA preferred stock are entitled to receive, upon conversion of
their Series AA preferred stock to Affymetrix common stock, a number of shares
of Affymetrix common stock or other securities or property to which they would
have been entitled had they converted prior to the recapitalization.
VOTING RIGHTS. The holder of each share of Series AA preferred stock has
the right to one vote for each share of common stock into which the Series AA
preferred stock could then be converted at the record date for determination of
the stockholders entitled to vote. With respect to that vote, the holder will
have full voting rights and powers equal to the voting rights and powers of the
holders of common stock, and are entitled, notwithstanding any provision in
Affymetrix' charter, to notice of any stockholders' meeting in accordance with
Affymetrix' bylaws, and will be entitled to vote, together with holders of
common stock, with respect to any question upon which holders of common stock
have the right to vote and otherwise as required by law. Fractional votes will
not, however, be permitted and any fractional voting rights available on an
as-converted basis, after aggregating all shares into which shares of Series AA
preferred stock held by each holder could be converted, will be rounded to the
nearest whole number, with one-half being rounded upward.
OTHER SERIES OF PREFERRED STOCK
Affymetrix' board is authorized to issue shares of preferred stock, in one
or more series, and to fix for each series the rights, privileges, preferences
and restrictions, including dividend rights, conversion rights, voting terms,
terms of redemption, liquidation preferences, and the number of
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shares constituting any series or the designation of series, as are permitted by
the Delaware General Corporation Law.
As of the date hereof, no shares of any other series of Affymetrix
preferred stock are outstanding. Pursuant to the Affymetrix rights agreement
referred to below, Affymetrix may designate a series of preferred securities
entitled "Series B Junior Participating Preferred Stock" for issuance upon the
exercise of the rights distributed to holders of Affymetrix stock pursuant to
the Affymetrix rights agreement. See "Description of the Capital Stock -- Rights
Agreement" on this page.
COMMON STOCK
As of October 12, 1999, approximately 25,759,524 shares of Affymetrix
common stock were outstanding. In addition, no shares of Affymetrix common stock
were held in the treasury of Affymetrix and 4,133,612 shares of Affymetrix were
reserved for issuance pursuant to Affymetrix' employee benefit plans.
Immediately following the merger, we expect approximately -- shares of
Affymetrix common stock will be outstanding and approximately -- shares of
Affymetrix common stock will be reserved for issuance pursuant to Affymetrix'
employee benefit plans.
The holders of Affymetrix common stock are entitled to receive ratably,
from funds legally available for the payment, dividends when and as declared by
resolution of the Affymetrix board, subject to any preferential dividend rights
which may be granted to holders of any preferred stock authorized and issued by
the Affymetrix board. Affymetrix will not be able to pay any dividend or make
any distribution of assets on shares of common stock until dividends on shares
of Affymetrix Series AA preferred stock and on any other shares of Affymetrix
preferred stock then outstanding with dividend or distribution rights senior to
the common stock have been paid. In the event of a liquidation, dissolution or
winding up of Affymetrix, each share of Affymetrix common stock is entitled to
receive, after payment of liabilities and, after payment of a liquidation
preference to the holders of Series AA preferred stock, an amount per share
equal to the quotient obtained by dividing the per share Series AA preferred
stock liquidation preference by the number of shares of common stock into which
one share of Series AA preferred stock could then be converted. After this
payment, any remaining assets would be distributed ratably to the holders of
Affymetrix common stock and holders of Affymetrix Series AA preferred stock.
Each holder of Affymetrix common stock is entitled to one vote for each
share of Affymetrix common stock held of record on the applicable record date on
all matters submitted to a vote of stockholders, including the election of
directors. Holders of Affymetrix common stock have no preemptive or conversion
rights or other subscription rights. No redemption or sinking fund provisions
apply to Affymetrix common stock. The outstanding shares of Affymetrix common
stock are, and the shares of Affymetrix common stock issued in connection with
the merger will be, duly authorized, validly issued, fully paid and
nonassessable.
American Stock Transfer & Trust Company is the transfer agent and registrar
for Affymetrix common stock.
RIGHTS AGREEMENT
On October 15, 1998, the board of directors of Affymetrix declared a
dividend of one right to purchase Series B Junior Participating Preferred Stock
of Affymetrix, par value $0.01 per share, for each outstanding share of common
stock of Affymetrix and a number of rights for each share of Series AA preferred
stock of Affymetrix equal to the number of shares of common stock of Affymetrix
into which such share of Series AA preferred stock was convertible on October
27, 1998. Each right entitles the holder to purchase from Affymetrix
one-thousandth of a share of Series B
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Junior Participating Preferred Stock, at an exercise price of $125.00 per one
one-thousandth of a share of Series B Junior Participating Preferred Stock,
subject to adjustment. The description and terms of the rights are set forth in
a rights agreement, dated as of October 15, 1998, between Affymetrix and
American Stock Transfer & Trust Company, as rights agent. The rights are
initially represented only by the underlying certificates of Affymetrix common
stock or Series AA preferred stock, as the case may be, and do not trade
separately from the common stock or the Series AA preferred stock unless and
until the earlier of:
- ten days following a public announcement that a person or group of
affiliated or associated persons, otherwise known as acquiring persons,
has acquired beneficial ownership of 15% or more in aggregate voting
power of the outstanding shares of Affymetrix common stock and Series AA
preferred stock; or
- ten business days, or such later date as the board of directors of
Affymetrix may fix by resolution, after the date a person or group
commences, or announces an intention to make, a tender or exchange offer
that would result in such person or group becoming the beneficial owners
of 15% or more of the aggregate voting power of the outstanding shares of
Affymetrix common stock and Series AA preferred stock.
The purchase price payable, and the number of shares of Series B Junior
Participating Preferred Stock issuable upon exercise of the rights is subject to
adjustment from time to time to prevent dilution. Because of the nature of the
Series B Junior Participating Preferred Stock's dividend, liquidation and voting
rights, the value of each 1/1000 of a share of Series B Junior Participating
Preferred Stock would have economic and voting terms equivalent to one share of
Affymetrix common stock.
In the event that any person or group either acquires or may acquire 15% of
the aggregate voting power of the Affymetrix common stock and Series AA
preferred stock, the rights attached to this person or group's shares and the
rights attached to shares they beneficially own become void. Each other holder
of a right will have the right to receive upon exercise of a right that number
of shares of Affymetrix common stock having a market value of two times the
exercise price of the right.
In the event that, after a person or group has become an acquiring person
of 15% or more of the voting power of Affymetrix, Affymetrix is acquired in a
merger or similar form of business combination or the acquisition by such
acquiring person of 50% or more in aggregate voting power of the outstanding
shares of Affymetrix common stock and Series AA preferred stock, each holder of
a right, other than rights beneficially owned by an acquiring person which have
become void, will thereafter have the ability to exercise each right for that
number of shares of common stock of that acquiring person equal to two times the
market value of the exercise price.
At any time after any person or group becomes an acquiring person and prior
to a merger or similar form of business combination or the acquisition by an
acquiring person of 50% or more in aggregate voting power of the outstanding
shares of Affymetrix common stock and Series AA preferred stock, the Affymetrix
board may exchange the rights, other than rights owned by acquiring person which
have become void, in whole or in part, for shares of Affymetrix common stock,
Series B Junior Participating Preferred Stock, or a series of Affymetrix'
preferred stock having equivalent rights, preferences and privileges, at an
exchange ratio of one share of Affymetrix common stock, or a fractional share of
Series B Junior Participating Preferred Stock (or other preferred stock) of
equivalent value, per right.
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Shares of Series B Junior Participating Preferred Stock purchasable upon
exercise of the rights will not be redeemable. Each share of Series B Junior
Participating Preferred Stock will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of the greater of:
- $10 per share, and
- an amount equal to one-thousandth of the dividend declared per share of
Affymetrix common stock.
In the event of liquidation, dissolution or winding up of Affymetrix, the
holders of the Series B Junior Participating Preferred Stock will be entitled to
a minimum preferential payment of the greater of:
- $10 per share (plus any accrued but unpaid dividends); or
- an amount equal to one thousandth of the liquidation payment made per
share of Affymetrix common stock.
Each share of Series B Junior Participating Preferred Stock will have
one-thousand votes, voting together with the Affymetrix common stock. Finally,
in the event of any merger, consolidation or other transaction in which
outstanding shares of Affymetrix common stock are converted or exchanged, each
share of Series B Junior Participating Preferred Stock will be entitled to
receive one-thousand times the amount received per share of Affymetrix common
stock.
The rights expire on October 15, 2008, unless this expiration date is
advanced or extended or unless the rights are earlier redeemed or exchanged by
Affymetrix. Prior to the time that a person becomes an acquiring person,
Affymetrix may redeem the rights in whole, but not in part, for $0.01 per right,
or it may amend the rights agreement in any manner without the consent of the
holders of the rights. After the rights are no longer redeemable, however,
Affymetrix may, except with respect to the redemption price, amend the rights
agreement in any manner that does not adversely affect the interests of holders
of the rights.
The rights will not prevent a takeover of Affymetrix. The rights, however,
may cause substantial dilution to a person or group that acquires 15% or more of
the common stock unless the rights are first redeemed by the Affymetrix board of
directors. Until a right is exercised or exchanged, the holder thereof, as such,
will have no rights as an Affymetrix stockholder, including, without limitation,
the right to vote or to receive dividends.
A copy of the rights agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A, dated
October 16, 1998. A description of the rights is available free of charge from
Affymetrix, see "Where You Can Get More Information" on page 94. This summary
description of the rights does not purport to be complete and is qualified in
its entirety by reference to the description of the rights contained in the
Registration Statement on Form 8-A, dated October 16, 1998, which is hereby
incorporated into this document by reference.
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COMPARISON OF STOCKHOLDER RIGHTS
As a result of the merger, holders of Genetic MicroSystems stock will
become holders of Affymetrix common stock. The following is a summary of certain
material differences between the rights of holders of Genetic MicroSystems
convertible preferred stock and common stock and the rights of holders of
Affymetrix common stock.
The rights of Genetic MicroSystems stockholders are currently governed by
Genetic MicroSystems' articles of organization and bylaws and applicable
provisions of the Massachusetts Business Corporation Law. Affymetrix'
stockholders' rights are currently governed by Affymetrix' certificate of
incorporation and bylaws and applicable provisions of the Delaware General
Corporation Law.
The following summary highlights important similarities and differences
between the rights of current holders of Affymetrix common stock and current
holders of Genetic MicroSystems stock. This summary does not purport to be a
complete discussion of the charters and bylaws of Genetic MicroSystems and
Affymetrix or the corporation laws of Massachusetts or Delaware. The discussion
of the Affymetrix charter and bylaws is qualified in its entirety by reference
to the Affymetrix charter and bylaws, copies of which are on file with the
Securities and Exchange Commission. The articles of Genetic MicroSystems are
publicly available from the Secretary of State of the Commonwealth of
Massachusetts.
AUTHORIZED CAPITAL STOCK
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
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<S> <C>
Affymetrix' charter authorizes Genetic MicroSystems' articles authorize
Affymetrix to issue 80,000,000 shares of Genetic MicroSystems to issue 7,636,353
capital stock, of which: shares of capital stock, of which:
- - 75,000,000 shares are designated common - 5,000,000 shares are designated common
stock, $0.01 par value per share; and stock, no par value; and
- - 5,000,000 shares are designated - 2,636,353 shares are designated
preferred stock, $0.01 par value per preferred stock, $0.01 par value per
share; including 1,634,522 shares of share; consisting of 2,054,000 shares of
Series AA preferred stock, $0.01 par Series A convertible preferred stock,
value per share. Pursuant to the $0.01 par value per share, and 582,353
Affymetrix rights agreement referred to shares of Series B convertible preferred
above, Affymetrix may designate a series stock, $0.01 par value per share.
of preferred securities entitled "Series
B Junior Participating Preferred Stock"
for issuance upon the exercise of the
rights distributed to holders of
Affymetrix stock pursuant to the
Affymetrix rights agreement. See
"Description of the Capital
Stock -- Rights Agreement" on page 81.
</TABLE>
PREFERRED STOCK
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Affymetrix' board of directors is Genetic MicroSystems preferred stock may
authorized to issue shares of preferred be issued from time to time in one or more
stock in one or more
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
series, and to fix for each series the series. The board may determine and fix
designations and relative powers, voting powers, full, limited or no voting
preferences, conversion or other rights, powers, and such designations, preferences
voting powers, restrictions, limitations and relative participating, optional or
as to dividends, qualifications, or terms other special rights, and qualifications,
or conditions of redemption, as are limitations or restrictions thereof,
permitted by the Delaware General including without limitation, dividend
Corporation Law. To date, no shares of any rights, special voting rights, conversion
series of Affymetrix preferred stock other rights, redemption privileges and
than Series AA preferred stock are liquidation preferences, as shall be
authorized. Pursuant to the Affymetrix stated and expressed in resolutions all to
rights agreement referred to below, the full extent permitted by the
Affymetrix may designate a series of Massachusetts Business Corporation Law.
preferred securities entitled "Series B The resolutions providing for issuance of
Participating Preferred Stock" for any series of preferred stock may provide
issuance upon the exercise of the rights that a new series is superior or rank
distributed to holders of Affymetrix stock equally or be junior to the preferred
pursuant to the Affymetrix rights stock of any other series to the extent
agreement. See "Description of the Capital permitted by the Massachusetts Business
Stock" beginning on page 78. Corporation Law. Except as otherwise
provided by Genetic MicroSystems, no vote
of the holders of the Genetic MicroSystems
preferred stock or Genetic MicroSystems
common stock is a prerequisite to the
issuance of any shares of any series of
the preferred stock.
</TABLE>
DIVIDENDS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Delaware Law: Corporations generally Massachusetts Law: Corporations generally
are permitted to declare and pay dividends are permitted to pay dividends if the
out of surplus or out of net profits for action is not taken when the corporation
the current and/or immediately preceding is insolvent, does not render the
fiscal year, provided that dividends will corporation insolvent, and does not
not reduce capital below the amount of violate the corporation's articles of
capital represented by all classes of organization. The directors of a
stock having a preference upon the Massachusetts corporation may be jointly
distribution of assets. A corporation may and severally liable to the corporation to
generally redeem or repurchase shares of the extent that the directors authorize a
its stock if the redemption or repurchase dividend when the corporation is insolvent
will not impair the capital of a or where the amount of the dividend
corporation. The directors of a Delaware exceeds the permissible amounts and is not
corporation may be jointly and severally repaid to the corporation.
liable to the corporation for a willful or
negligent violation of these provisions of
Delaware law.
Affymetrix common stock: Subject to Genetic MicroSystems common stock: Genetic
all the rights of the preferred stock, MicroSystems' articles provide that
except as may be expressly provided with dividends may be declared and paid on the
respect to the preferred stock, by law or Genetic MicroSystems common stock from
by the board pursuant to Paragraph 5(1)(a) funds lawfully available as determined by
of Article FIFTH of the charter, dividends the board of directors. Dividends paid to
may be declared and paid or set apart for holders of Genetic MicroSystems common
payment upon the Affymetrix stock are
</TABLE>
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<PAGE> 96
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
common stock only out of any assets or subject to any preferential dividend
funds of Affymetrix legally available for rights of any then outstanding Genetic
the payment of dividends. MicroSystems preferred stock.
Genetic MicroSystems preferred stock:
During any fiscal year of the corporation,
no dividends (other than dividends payable
solely in shares of Genetic MicroSystems
common stock) shall be paid or declared,
and no other distributions shall be made,
on or with respect to the Genetic
MicroSystems common stock with one
exception. Unless and until there shall
have been paid, or declared and set aside
for payment, during the fiscal year
dividends with respect to each share of
Series A convertible preferred stock in an
amount equivalent to the amount per share
to be paid as a dividend on the Genetic
MicroSystems common stock, such equivalent
amount payable in respect of each share of
Series A convertible preferred stock will
be determined by multiplying the amount
per share of the dividend to be paid on
the common stock by the number of shares
of common stock into which each such share
of Series A convertible preferred stock
and convertible at the record date for the
determination of stockholders entitled to
the payment of such dividend.
</TABLE>
VOTING RIGHTS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Affymetrix common stock: Holders are Genetic MicroSystems common stock: Holders
entitled to one vote for each share held are entitled to one vote for each share
at all meetings of stockholders (and held at all meetings of stockholders (and
written actions in lieu of meetings). written actions in lieu of meetings).
There is no cumulative voting. There is no cumulative voting.
Genetic MicroSystems preferred stock: On
all matters submitted to a vote of holders
of Genetic MicroSystems common stock
generally, each share of Series A
convertible preferred stock or Series B
convertible preferred stock will have the
right to exercise the number of votes
equal to the number of shares of common
stock into which such share of Series A
convertible preferred stock or Series B
convertible preferred stock could be
converted on the record date for
determining stockholders having a right to
vote
</TABLE>
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<PAGE> 97
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
on such matters, and, except as required
by law, the Series A convertible preferred
stock, the Series B convertible preferred
stock and the Genetic MicroSystems common
stock will vote as a single class.
</TABLE>
MEETINGS OF STOCKHOLDERS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Affymetrix' charter and bylaws Genetic MicroSystems' bylaws provide for
provide that special meetings of the call of a special meeting at any time
stockholders, other than those required by by the President or a majority of the
statute, may be called only by the directors. Special meetings shall be
Chairman of the Board or the President or called by the Clerk, or in the case of his
by the board of directors acting pursuant death, absence, incapacity or refusal, by
to a resolution adopted by a majority of any other officer, upon written
the total number of authorized directors application of one or more stockholders
whether or not there exist any vacancies who hold at least one- tenth part in
in previously authorized directorships. interest of the capital stock entitled to
vote at such meeting, stating the time,
place and purpose of the meeting.
Affymetrix' bylaws provide that an The annual meeting of stockholders shall
annual meeting of the stockholders, for be held within six months after the end of
the election of directors to succeed those Genetic MicroSystems' fiscal year
whose terms expire and for the transaction specified in the bylaws, at such date,
of such other business as may properly hour and place as are fixed by the board
come before the meeting, shall be held at of directors or the president. At such
11 a.m. on the first Tuesday of the fifth annual meeting the stockholders shall
calendar month following the end of the elect directors, hear the report of the
corporation's fiscal year or at such time treasurer, and transact such other
as the board of directors shall each year business as may properly come before the
fix, which date shall be within 13 months meeting. In the event that no date for the
of the last annual meeting of the annual meeting is established or if no
stockholders. annual meeting is held in accordance with
the foregoing procedures, a special
meeting of the stockholders may be held in
lieu of and for the purposes of the annual
meeting with all the force and effect of
an annual meeting and for such other
purposes as may be specified in the notice
of that special meeting.
</TABLE>
ACTION BY STOCKHOLDERS WITHOUT A MEETING
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Unless otherwise provided in the Under Massachusetts law, any action to be
certificate of incorporation, Delaware law taken by stockholders may be taken without
permits stockholders to take action a meeting only by unanimous written
without a meeting, without prior notice consent, and a corporation may not provide
and without a vote, upon the written otherwise in its articles of organization
consent of stockholders having not less or bylaws.
than the minimum number of votes that
</TABLE>
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<PAGE> 98
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
would be necessary to authorize the
proposed action at a meeting at which all
shares entitled to vote were present and
voted.
Affymetrix' charter provides that any Pursuant to the Genetic MicroSystems
action required or permitted to be taken bylaws, any action required or permitted
by the stockholders of the corporation to be taken by stockholders at a meeting
must be effected at a duly called annual may be taken without a meeting if all
or special meeting of stockholders of the stockholders entitled to vote on the
corporation and may not be effected by any matter consent to the action in writing
consent in writing by such stockholders. and the written consents are filed with
the records of the meetings of
stockholders.
</TABLE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Affymetrix currently has nine Genetic MicroSystems currently has four
directors. directors.
The authorized number of directors The Genetic MicroSystems board of
cannot be less than six nor more than directors consists of not less than three
eleven. Within these limits, the exact nor more than fifteen directors, except
number of directors is set at nine. An that whenever there are only two
indefinite number of directors may be stockholders, the Genetic MicroSystems
fixed, or the definite number of directors board of directors may consist of at
may be changed, by a duly adopted least, but not be less than, two
amendment to the charter or by an directors, and whenever there is only one
amendment to the bylaws duly adopted by stockholder or prior to the issuance of
the stockholders or Affymetrix board of any stock, the board may consist of at
directors. least, but not less than, one director.
Whenever the authorized number of The directors generally hold office until
directors is increased between annual the next annual meeting of stockholders or
meetings of the stockholders, a majority directors at which they are regularly
of the directors then in office have the elected and until their successors are
power to elect such new directors for the chosen and qualified.
balance of a term and until their
successors are elected and qualified. Any
decrease in the authorized number of
directors does not become effective until
the expiration of the term of the
directors then in office unless, at the
time of that decrease, there are vacancies
on the board of directors which are being
eliminated by the decrease.
Subject to applicable law and to the When there is a vacancy in the Genetic
rights of holders of any series of MicroSystems board of directors, including
preferred stock with respect to that a vacancy resulting from the enlargement
series of preferred stock, and unless the of the board, the Genetic MicroSystems
Affymetrix board of directors otherwise board of directors may fill that vacancy
determines, vacancies on the board of by the affirmative vote of a majority of
directors (including without limitation the directors then in office.
vacancies
</TABLE>
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<PAGE> 99
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
resulting from death, resignation, Any vacancy in the Genetic MicroSystems
retirement, disqualification from office board of directors may also be filled by
or other cause) are filled only by a the stockholders at any regular or special
majority vote of the directors then in meeting unless that vacancy has been
office, though less than a quorum, and previously filled by the Genetic
directors so chosen will hold office for MicroSystems board of directors. Any
the unexpired term and until his or her director so elected by the Genetic
successor is duly elected or qualified. No MicroSystems board of directors or
decrease in the number of authorized stockholders to fill such vacancy will
directors constituting the entire hold office only until the next meeting of
Affymetrix board of directors shortens the the stockholders or directors at which the
term of any incumbent director. office would regularly be filled and until
a successor is chosen and qualified.
The board of directors is elected at The Genetic MicroSystems board of
each annual meeting of the Stockholders. directors is elected at each annual
meeting of the stockholders. Except as
summarized above, the exact number of
directors constituting the board is fixed
at each annual meeting by the
stockholders, provided that by vote of the
stockholders at a special meeting called
for the purpose the number of directors
may be increased or decreased and provided
further that by vote of a majority of the
directors then in office, the number of
directors may be increased. No vacancy
shall be deemed to exist in the board
unless and until the number of directors
in office falls below the number so fixed.
At any meeting of the board of At any meeting of the Genetic MicroSystems
directors, a majority of the total number board of directors, a majority, or if the
of the whole Affymetrix board of directors number of directors is an even number,
constitutes a quorum for all purposes. If then one-half, of the directors then in
there is not a quorum at the meeting, a office constitutes a quorum.
majority of those present may adjourn the
meeting to another place, date, or time,
without further notice or waiver thereof.
The Affymetrix charter gives the The Genetic MicroSystems articles and
Affymetrix board of directors broad bylaws give the Genetic MicroSystems
authority, including authority to fix the directors broad powers, including the
compensation of the directors. The power to fix any fees or other
directors may be paid their expenses, if compensation paid to directors and members
any, of attendance at each meeting of the of the Genetic MicroSystems executive
board of directors or paid a stated salary committee and any other committees, if
or paid other compensation as director. No any, for their services to Genetic
such payment shall preclude any director MicroSystems as the board may deem
from serving the corporation in any other reasonable.
capacity and receiving compensation
therefor.
</TABLE>
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<PAGE> 100
INDEMNIFICATION OF DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Under Delaware law, a director is not Under Massachusetts law, a director is
exculpated from liability under provisions generally not exculpated from liability
of the Delaware General Corporation Law under provisions of the Massachusetts
relating to unlawful payments of dividends Business Corporation Law relating to
and unlawful stock purchases or unauthorized distributions and loans to
redemptions. insiders.
Delaware General Corporation Law The Massachusetts Business Corporation Law
generally permits indemnification, or provides that no indemnification may be
reimbursement, of directors and officers provided with respect to any matter in
for expenses, judgments, fines and amounts which the director or officer shall have
paid in settlement of claims incurred by been adjudicated not to have acted in good
them by reason of their position with the faith in the reasonable belief that his
corporation. action was:
The Delaware General Corporation Law - in the best interest of the corporation,
permits indemnification only where there or
has been a determination by a majority
vote of disinterested directors, - to the extent that such matter relates
independent legal counsel, or the to service with respect to any employee
stockholders that the person seeking benefit plan, in the best interests of
indemnification acted in good faith and in the participants or beneficiaries of
a manner he or she reasonably believed to such employee benefit plan.
be in, or not opposed to, the best
interests of the corporation.
The Delaware General Corporation Law The Massachusetts Business Corporation Law
expressly does not permit a corporation to does not explicitly address indemnifying
indemnify persons against judgments in persons against judgments in actions
actions brought by or in the right of the brought by or in the right of the
corporation (although it does permit corporation. The previously discussed
indemnification in such situations if standard applies to such cases.
approved by the Delaware Court of Chancery
and for expenses of such actions).
Affymetrix' charter provides that, to Genetic MicroSystems' articles provide
the fullest extent permitted by Delaware that no director of the corporation shall
General Corporation Law, a director of the be personally liable to the corporation or
corporation shall not be personally liable its stockholders for monetary damages for
to the corporation or its stockholders for breach of fiduciary duty as a director
monetary damages for breach of fiduciary notwithstanding any provision of law
duty as a director, except for liability: imposing such liability; provided,
however, that this provision shall not
- - for any breach of the director's duty of eliminate or limit the liability of a
loyalty to the corporation or its director, to the extent that such
stockholders; liability is imposed by applicable law:
- - for acts or omissions not in good faith - for any breach of the director's duty of
or which involve intentional misconduct loyalty to the corporation or its
or a knowing violation of law; stockholders;
- - under Section 174 of the Delaware - for acts or omissions not in good faith
General Corporation Law; or or which involve intentional misconduct or
a knowing violation of law;
</TABLE>
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<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
- - for any transaction from which the - under Section 61 or 62 or successor
director derived an improper personal provisions of the Massachusetts Business
benefit. Corporation Law; or
- for any transaction from which the
director derived an improper personal
benefit.
If the Delaware General Corporation No amendment to or repeal of this
Law is amended to authorize corporate provision of the Genetic MicroSystems
action further eliminating or limiting the articles shall apply to or have any effect
personal liability of directors, then the on the liability or alleged liability of
liability of a director of the corporation any director for or with respect to any
shall be eliminated or limited to the acts or omissions of such director
fullest extent permitted by the Delaware occurring prior to such amendment or
General Corporation Law, as amended. repeal.
</TABLE>
AMENDMENT OF CHARTER AND BYLAWS
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Affymetrix' charter provides that the Genetic MicroSystems' articles authorize
Affymetrix board of directors is expressly the Genetic MicroSystems board of
empowered to adopt, alter, amend or repeal directors to make, amend or repeal the
bylaws of the corporation. Any adoption, bylaws to the extent permitted by law.
alteration, amendment or repeal of the Genetic MicroSystems' bylaws provide that
bylaws of the corporation by the they may be amended or repealed and new
Affymetrix board of directors requires the bylaws made either:
approval of a majority of the entire board
of directors. The stockholders also have - by the stockholders at any meeting of
power to adopt, amend or repeal the bylaws the stockholders by the affirmative vote
of the corporation; provided, however, of the holders of at least a majority in
that in addition to any vote of the interest of the capital stock then
holders of any class or series of stock of outstanding and then entitled to vote,
the corporation required by law or by the provided that notice of the proposed
charter, the affirmative vote of at least alteration, addition, amendment or
a majority of the voting power of all the repeal stating such change or the
then-outstanding shares of the capital substance thereof shall have been given
stock of the corporation entitled to vote in the notice of such meeting or in the
generally in the election of directors, waiver of notice with respect to such
voting together as a single class, shall meeting, or
be required to adopt, alter, amend or
repeal any provision of the corporation's - by vote of a majority of the Genetic
bylaws. MicroSystems board of directors then in
office, except with respect to any
provision as to which stockholder action
is required by law, the articles, or the
bylaws; provided that not later than the
time of giving notice of the meeting of
stockholders next following any such
change in the bylaws by the directors,
notice thereof shall be given to all
stockholders entitled to vote on
amending the bylaws.
Pursuant to Delaware law, the charter Massachusetts law requires a majority vote
of Affymetrix may be amended by a majority to amend the articles for certain events,
vote such as
</TABLE>
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<PAGE> 102
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
of the stockholders. an increase in the authorized capital
stock or a change in corporate name, but
requires a two-thirds vote for other
amendments such as a change in the nature
of its corporate business, or to authorize
the sale, mortgage, pledge, lease or
exchange of all its property or assets
unless the articles of organization
provide for a lesser vote, not to be less
than a majority of the shares entitled to
vote.
</TABLE>
TAKEOVER LAW
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
Section 203 of the Delaware General With certain exceptions, Chapter 110F of
Corporation Law prohibits a corporation the General Laws of Massachusetts
which has securities traded on a national prohibits a business combination with an
securities exchange, designated on the interested stockholder, generally defined
NASDAQ National Market or held of record as a person beneficially owning 5% or more
by more than 2,000 stockholders from of the corporation's outstanding voting
engaging in various business combinations, stock, or an interested stockholder's
including a merger, sale of substantial affiliate or associate, for a three-year
assets, loan or substantial issuance of period following the date that a
stock, with an interested stockholder, stockholder becomes an interested
defined generally as a person beneficially stockholder. This Massachusetts statute is
owning 15% or more of the corporation's inapplicable to this transaction, however,
outstanding voting stock, or an interested because Genetic MicroSystems has fewer
stockholder's affiliates or associates, than two hundred stockholders of record.
for a three-year period beginning on the
date the interested stockholder acquires
15% or more of the outstanding voting
stock of the corporation. The restrictions
on business combinations do not apply if:
- - the board of directors gives prior
approval to the transaction in which the
15% ownership level is exceeded,
- - the interested stockholder acquires 85%
or more of the corporation's outstanding
stock in the same transaction in which
the stockholder's ownership first
exceeds 15%, excluding those shares
owned by persons who are directors and
also officers as well as by employee
stock plans in which employees do not
have the right to determine
confidentially whether shares held
subject to the plan will be tendered in
a tender or exchange offer, or
- - on or following the date on which the
stockholder became an interested
stockholder, the board of directors
approves the business
</TABLE>
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<PAGE> 103
<TABLE>
<CAPTION>
AFFYMETRIX GENETIC MICROSYSTEMS
---------- --------------------
<S> <C>
combination and the holders of at least
two-thirds of the outstanding voting
stock, excluding shares owned by the
interested stockholder, authorize the
business combination at a meeting of
stockholders.
Although a Delaware corporation may
elect, pursuant to its certificate or
bylaws, not to be governed by this
provision, the charter and the Affymetrix
bylaws do not contain these elections.
The Delaware General Corporation Law The Massachusetts Business Corporation Law
generally requires that mergers and provides that a merger agreement must be
consolidations, and sales, leases or approved by a vote of two-thirds of the
exchanges of all or substantially all of a shares of each class of stock unless the
corporation's property and assets be articles of organization of the
approved by the directors and by a vote of corporation provide for a vote of a lesser
the holders of a majority of the proportion but not less than a majority of
outstanding stock entitled to vote, though shares outstanding and entitled to vote.
a corporation's certificate of See "The Genetic MicroSystems Special
incorporation may require a Meeting -- Required Vote" on page 41 for a
greater-than-majority vote. Under the discussion on the voting provisions in the
Delaware General Corporation Law, a Genetic MicroSystems articles with respect
surviving corporation need not have to the merger.
stockholder approval for a merger if:
- - each share of the surviving
corporation's stock outstanding prior to
the merger remains outstanding in
identical form after the merger;
- - there is no amendment to its certificate
of incorporation; and
- - the consideration going to stockholders
of the non-surviving corporation is not
common stock (or securities convertible
into common stock) of the surviving
corporation or, if it is such stock or
securities convertible into such stock,
the aggregate number of common shares
actually issued or delivered, or
initially issuable upon conversion does
not exceed 20% of the shares of the
survivor's common stock outstanding
immediately prior to the effective date
of the merger.
</TABLE>
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<PAGE> 104
VALIDITY OF SHARES
The validity of the Affymetrix common stock to be issued in connection with
the merger will be passed upon by the General Counsel of Affymetrix. Certain tax
matters relating to the merger will be passed upon by Sullivan & Cromwell, New
York, New York, and Palmer & Dodge, LLP, Boston, Massachusetts. See "The
Merger -- Material Federal Income Tax Consequences" on p. 49.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Affymetrix's
financial statements and schedule included in its Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this proxy statement/prospectus. Our financial
statements and schedule are incorporated by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited Genetic Microsystems'
financial statements for the year ended December 31, 1998 and for the period
from August 7, 1997 (date of inception) to December 31, 1997, as set forth in
their report. We have included these financial statements in this document in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Affymetrix is subject to the informational requirements of the Exchange Act
and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission. The reports, proxy
statements and other information filed by Affymetrix with the Securities and
Exchange Commission can be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and
Exchange Commission Regional Offices located at 7 World Trade Center, 13th
floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, Washington, D.C. 20549. Information
regarding the Public Reference Room may be obtained by calling the Securities
and Exchange Commission at (800) 732-0330. In addition, Affymetrix is required
to file electronic versions of such material with the Securities and Exchange
Commission through the Securities and Exchange Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Securities and Exchange
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. Affymetrix common stock is listed on the NASDAQ National Market and
reports and other information concerning Affymetrix can also be inspected at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20001-1500.
Affymetrix has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Exchange Act with respect to the
shares of Affymetrix common stock to be issued pursuant to the merger agreement.
The Securities and Exchange Commission allows Affymetrix to "incorporate by
reference" information into this document, which means that Affymetrix can
disclose important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. Statements contained in
this document or in any document incorporated by reference in this document as
to the contents of any contract or other document referred to herein or therein
are
94
<PAGE> 105
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement on Form S-4 or such other document, each such statement being
qualified in all respects by such reference. The information incorporated by
reference is deemed to be part of this document. This document incorporates by
reference the documents set forth below that Affymetrix have previously filed
with the Securities and Exchange Commission. These documents contain important
information about Affymetrix and its finances.
<TABLE>
<CAPTION>
AFFYMETRIX SEC FILINGS
(FILE NO. 0-28218) PERIOD OR DATE FILED
---------------------- --------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
1999 Proxy Statement For annual meeting of stockholders held on
June 9, 1999
Current Reports on Form 8-K Filed on April 1, 1999 and September 28,
1999
Description of rights to purchase Series B Filed on October 16, 1999
Junior Participating Preferred Stock
from Registration Statement on Form 8-A
</TABLE>
We are also incorporating by reference additional documents that we filed
with the Securities and Exchange Commission between the date of this document
and the date of the special meeting.
Affymetrix has supplied all information contained or incorporated by
reference in this document relating to Affymetrix and Genetic MicroSystems has
supplied all such information relating to Genetic MicroSystems.
Documents incorporated by reference are available from Affymetrix without
charge, excluding all exhibits unless Affymetrix has specifically incorporated
by reference an exhibit in this document. Stockholders may obtain documents
incorporated by reference in this document by requesting them in writing or by
telephone from the appropriate party at the following addresses:
AFFYMETRIX, INC.
CORPORATE SECRETARY
3380 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA 95051
(408) 731-5000
Genetic MicroSystems is a privately held corporation that is not subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
and therefore does not incorporate information in this document by reference
unless such information appears in an Appendix to this document.
95
<PAGE> 106
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MERGER AGREEMENT. AFFYMETRIX AND
GENETIC MICROSYSTEMS HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS
DATED --, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE
MAILING OF THIS DOCUMENT TO STOCKHOLDERS OF GENETIC MICROSYSTEMS NOR THE
ISSUANCE OF AFFYMETRIX COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
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<PAGE> 107
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
AFFYMETRIX, INC.,
GMS ACQUISITION, INC.,
GENETIC MICROSYSTEMS, INC.,
JEAN MONTAGU
(AS STOCKHOLDER REPRESENTATIVE)
AND
THE STOCKHOLDERS SET FORTH ON THE SIGNATURE PAGES
TO THIS AGREEMENT
DATED AS OF SEPTEMBER 10, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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RECITALS
ARTICLE I
DEFINITIONS
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger....................................................... A-11
2.2. Closing.......................................................... A-11
2.3. Effective Time................................................... A-11
ARTICLE III
ARTICLES OF ORGANIZATION AND BY-LAWS
OF THE SURVIVING CORPORATION
3.1. The Articles of Organization..................................... A-11
3.2. The By-Laws...................................................... A-11
ARTICLE IV
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
4.1. Directors........................................................ A-12
4.2. Officers......................................................... A-12
ARTICLE V
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
5.1. Effect on Capital Stock.......................................... A-12
(a) Merger Consideration........................................ A-12
(b) Cancellation of Shares...................................... A-12
5.2. Exchange of Certificates for Shares.............................. A-12
(a) Exchange Agent.............................................. A-12
(b) Exchange Procedures......................................... A-13
(c) Distributions with Respect to Unexchanged Shares............ A-13
(d) Transfers................................................... A-14
(e) Fractional Shares........................................... A-14
(f) Termination of Exchange Fund................................ A-14
(g) Lost, Stolen or Destroyed Certificates...................... A-14
(h) Affiliates.................................................. A-14
5.3. Appraisal Rights................................................. A-14
5.4. Adjustments to Prevent Dilution.................................. A-15
5.5. Treatment of Warrants and Company Options........................ A-15
5.6. Appointment of Stockholder Representative........................ A-15
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Representations and Warranties of the Company.................... A-15
(a) Organization, Good Standing and Qualification............... A-15
(b) Capital Structure........................................... A-16
(c) Corporate Authority; Approval and Fairness.................. A-16
(d) Governmental Filings; No Violations......................... A-16
(e) Financial Statements........................................ A-17
(f) Absence of Certain Changes.................................. A-17
(g) Litigation and Liabilities.................................. A-17
(h) Employee Benefits........................................... A-18
(i) Compliance; Permits......................................... A-19
(j) Takeover Statutes........................................... A-19
(k) Environmental Matters....................................... A-19
(l) Accounting and Tax Matters.................................. A-20
(m) Taxes....................................................... A-20
(n) Labor Matters............................................... A-20
(o) Insurance................................................... A-21
(p) Intellectual Property....................................... A-21
(q) Year 2000 Compliance........................................ A-23
(r) Title to Properties; Encumbrances........................... A-23
(s) Contracts................................................... A-23
(t) Condition and Sufficiency of Assets......................... A-24
(u) Certain Payments............................................ A-24
(v) Disclosure.................................................. A-24
(w) Books and Records........................................... A-24
(x) Brokers and Finders......................................... A-25
6.2. Representations and Warranties of Parent and Merger Sub.......... A-25
(a) Capitalization of Parent and Merger Sub..................... A-25
(b) Organization, Good Standing and Qualification............... A-25
(c) Corporate Authority......................................... A-25
(d) Governmental Filings; No Violations......................... A-26
(e) Parent Reports; Financial Statements........................ A-26
(f) Accounting and Tax Matters.................................. A-26
(g) No Parent Material Adverse Effect........................... A-27
(h) Brokers and Finders......................................... A-27
ARTICLE VII
COVENANTS
7.1. Interim Operations of the Company................................ A-27
7.2. Acquisition Proposals............................................ S-28
7.3. Information Supplied............................................. A-29
7.4. Stockholders Meeting............................................. A-29
7.5. Filings; Other Actions........................................... A-29
7.6. Taxation and Accounting.......................................... A-31
7.7. Access........................................................... A-31
7.8. Affiliates....................................................... A-31
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7.9. Quotation of Parent Common Stock................................. A-32
7.10. Publicity........................................................ A-32
7.11. Benefits......................................................... A-32
(a) Stock Options............................................... A-32
(b) Employee Benefits........................................... A-32
7.12. Expenses; Cash Paid to Dissenting Stockholders................... A-33
7.13. Takeover Statutes................................................ A-33
7.14. Warrants......................................................... A-33
7.15. Assignment of Contracts.......................................... A-33
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Effect the Merger....... A-33
(a) Stockholder Approval........................................ A-33
(b) NASDAQ Quotation............................................ A-33
(c) Regulatory Consents......................................... A-33
(d) Litigation.................................................. A-34
(e) Accountant Letter........................................... A-34
(f) S-4 Registration Statement.................................. A-34
(g) Tax Opinions................................................ A-34
8.2. Conditions to Obligations of Parent and Merger Sub............... A-34
(a) Representations and Warranties.............................. A-34
(b) Performance of Obligations of the Company................... A-34
(c) Consents Under Agreements................................... A-34
(d) Legal Opinion............................................... A-35
(e) Resignations................................................ A-35
(f) Non-competition Agreements.................................. A-35
(g) Affiliates Letters.......................................... A-35
8.3. Conditions to Obligation of the Company.......................... A-35
(a) Representations and Warranties.............................. A-35
(b) Performance of Obligations of Parent and Merger Sub......... A-35
(c) Consents Under Agreements................................... A-35
(d) Legal Opinion............................................... A-35
ARTICLE IX
TERMINATION
9.1. Termination by Mutual Consent.................................... A-35
9.2. Termination by Either Parent or the Company...................... A-35
9.3. Termination by the Company....................................... A-36
9.4. Termination by Parent............................................ A-36
9.5. Effect of Termination and Abandonment............................ A-36
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ARTICLE X
INDEMNIFICATION
10.1. Survival; Right to Indemnification Not Affected by Knowledge;
Representations and Warranties Made as of the Closing Date....... A-37
10.2. Indemnification and Payment of Damages by Holders of Shares...... A-38
10.3. Indemnification and Payment of Damages by Parent................. A-38
10.4. Limitations on Amount -- Holder of Shares........................ A-38
10.5. Limitations on Amount -- Parent.................................. A-38
10.6. Payments to Parent............................................... A-39
10.7. Procedures for Indemnification................................... A-39
10.8. Non-Exclusive Remedy............................................. A-39
10.9. Tax Treatment.................................................... A-40
10.10. Pooling.......................................................... A-40
ARTICLE XI
MISCELLANEOUS AND GENERAL
11.1. Modification or Amendment........................................ A-40
11.2. Waiver of Conditions............................................. A-40
11.3. Counterparts..................................................... A-40
11.4. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.................... A-40
11.5. Notices.......................................................... A-41
11.6. Entire Agreement................................................. A-42
11.7. No Third Party Beneficiaries..................................... A-42
11.8. Obligations of Parent............................................ A-42
11.9. Transfer Taxes................................................... A-42
11.10. Severability..................................................... A-42
11.11. Interpretation................................................... A-42
11.12. Assignment....................................................... A-42
11.13. Specific Performance............................................. A-43
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement") is
made as of September 10, 1999, by and among Genetic MicroSystems, Inc., a
Massachusetts corporation (the "Company"), Affymetrix, Inc., a Delaware
corporation ("Parent"), GMS Acquisition, Inc., a Massachusetts corporation and a
wholly-owned subsidiary of Parent ("Merger Sub," the Company and Merger Sub
sometimes being hereinafter collectively referred to as the "Constituent
Corporations") and Jean Montagu (the "Stockholder Representative") and the
stockholders of the Company set forth on the signature pages to this Agreement.
RECITALS
WHEREAS, the respective boards of directors of each of Parent, Merger Sub
and the Company have approved the merger of the Company with and into Merger Sub
(the "Merger") and approved the Merger upon the terms and subject to the
conditions set forth in this Agreement and have determined that the Merger and
the other transactions contemplated by this Agreement are fair to, and in the
best interests of, their respective stockholders;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code") and the parties intend, by executing this
Agreement, to adopt this Agreement as a plan of reorganization within the
meaning of Section 368 of the Code;
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling-of-interests;"
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, the Company is entering into a stock
option agreement with Parent (the "Stock Option Agreement"), pursuant to which
the Company has granted to Parent an option to purchase Common Shares (as
defined below) under the terms and conditions set forth in the Stock Option
Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's and Merger Sub's willingness to enter
into this Agreement, certain stockholders of the Company have entered into
Stockholder Voting Agreements, dated as of the date of this Agreement
(collectively, the "Stockholder Voting Agreements"), pursuant to which such
stockholders have agreed to, among other things, vote their shares of capital
stock of the Company in favor of this Agreement and the Merger; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
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NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquisition Proposal" shall have the meaning set forth in Section 7.2.
"Affiliate" means with respect to any Person, any director or executive
officer of such Person and any other Person which would constitute an
"affiliate" of such Person within the meaning of Rule 12b-2 under the Exchange
Act.
"Affiliates Letter" shall have the meaning set forth in Section 7.8.
"Agreement" shall have the meaning set forth in the paragraph before the
Recitals.
"Appraisal Rights Provisions" shall have the meaning set forth in Section
5.1(a).
"Balance Sheet Date" shall have the meaning set forth in Section 6.1(e).
"Bankruptcy and Equity Exception" shall have the meaning set forth in
Section 6.1(c).
"By-laws" shall have the meaning set forth in Section 3.2.
"Certificate" shall have the meaning set forth in Section 5.1(a).
"Charter" shall have the meaning set forth in Section 3.1.
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Code" shall have the meaning set forth in the Recitals.
"Commercial Software Licenses" shall have the meaning set forth in Section
6.1(p).
"Company" shall have the meaning set forth in the paragraph before the
Recitals.
"Company Disclosure Schedule" means the disclosure schedule delivered by
the Company to Parent prior to the execution and delivery of this Agreement.
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 6.1(p).
"Company Material Adverse Effect" shall mean any change, event or effect
that, individually or in the aggregate, is or is reasonably likely to have a
material adverse effect on the financial condition, properties, prospects,
business or results of operations of the Company or on the Company's ability to
perform its obligations, if any, as contemplated in the Transaction Agreements.
"Company Option" shall have the meaning set forth in Section 6.1(b).
"Company Requisite Vote" shall have the meaning set forth in Section
6.1(c).
"Compensation and Benefit Plans" shall have the meaning set forth in
Section 6.1(h).
"Common Share" shall have the meaning set forth in Section 5.1(a).
"Constituent Corporations" shall have the meaning set forth in the
paragraph before the Recitals.
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"Contract" means any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation.
"Damages" shall have the meaning set forth in Section 10.2.
"Dissenting Shares" shall have the meaning set forth in Section 5.1(a).
"Dissenting Stockholders" shall have the meaning set forth in Section
5.1(a).
"Effective Time" shall have the meaning set forth in Section 2.3.
"Encumbrance" means any mortgage, easement, right of way, charge, claim,
community property interest, condition, equitable interest, lien, option,
pledge, security interest, right of first refusal, or restriction or adverse
claim of any kind, including any restriction on use, voting, transfer, receipt
of income, or exercise of any other attribute of ownership, or any other
encumbrance or exception to title of any kind.
"Environmental Health and Safety Law" means any federal, state, local or
foreign statute, law, regulation, order, decree, permit, authorization, common
law or binding agency requirement relating to: (A) the protection, investigation
or restoration of the environment, health, safety, or natural resources, (B) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (C) noise, odor, indoor air, employee exposure, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
"ERISA" shall have the meaning set forth in Section 6.1(h).
"ERISA Affiliate" shall have the meaning set forth in Section 6.1(h).
"Escrow Agreement" means the Escrow Agreement dated as of the date of this
Agreement among Parent, the Stockholder Representative and the Escrow Agent (as
defined in the Escrow Agreement).
"Excluded Shares" shall have the meaning set forth in Section 5.1(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 5.2(a).
"Exchange Fund" shall have the meaning set forth in Section 5.2(a).
"Financial Statements" shall have the meaning set forth in Section 6.1(e).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any (i) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (ii) federal, state,
local, municipal, foreign, or other government; (iii) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal) or (iv)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature (including any self-regulatory organization).
"Hazardous Substance" means any substance that is: (A) listed, classified
or regulated pursuant to any Environmental Health and Safety Law; (B) any
petroleum product or by-product, asbestos-containing material, lead-containing
paint, polychlorinated biphenyls, radioactive material or radon; or (C) any
other substance which may be the subject of regulatory action by any Government
Entity in connection with any Environmental Health and Safety Law.
"Holdback" means 10% (or the maximum percentage permitted that is
consistent with pooling of interests accounting treatment) of the aggregate
number of shares of Parent Common Stock to be delivered by Parent at Closing,
rounded down to the nearest whole share.
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"Holdback Account" means the account maintained by the Escrow Agent
pursuant to the terms of the Escrow Agreement in respect of the Holdback.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Party" shall have the meaning set forth in Section 10.7.
"Indemnifying Parties" shall have the meaning set forth in Section 10.7.
"Intellectual Property Rights" shall have the meaning set forth in Section
6.1(p).
"knowledge" with respect to the Company shall mean the actual knowledge of
Jean Montagu, Stanley Rose, Peter Honkanen or Peter Lewis or to the knowledge
that such individuals would reasonably be expected to have after reasonable
inquiry arising after the conduct by such individuals of a reasonable
investigation with respect to the facts or matters specified.
"Law" means any federal, state, local, foreign or international law,
statute, ordinance, rule, regulation, treaty, judgment, order, injunction,
decree, arbitration award, agency requirement, license or permit of any
Governmental Entity.
"Massachusetts Articles of Merger" shall have the meaning set forth in
Section 2.3.
"MBCL" shall have the meaning set forth in Section 2.1.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in Section 5.1(a).
"Merger Sub" shall have the meaning set forth in the paragraph before the
Recitals.
"NASDAQ" shall mean the NASDAQ Stock Market.
"New Parent Option" shall have the meaning set forth in Section 7.11(a).
"Order" shall have the meaning set forth in Section 8.1(d).
"Organizational Documents" shall have the meaning set forth in Section
6.1(a).
"Parent" shall have the meaning set forth in the paragraph before the
Recitals.
"Parent Common Stock" shall have the meaning set forth in Section 5.1(a).
"Parent Companies" shall have the meaning set forth in Section 5.1(a).
"Parent Disclosure Schedule" means the disclosure schedule delivered by
Parent to the Company prior to the execution and delivery of this Agreement.
"Parent Indemnified Parties" shall have the meaning set forth in Section
10.2.
"Parent Material Adverse Effect" shall mean any change, event or effect
that, individually or in the aggregate, is or is reasonably likely to have a
material adverse effect on the financial condition, properties, prospects,
business or results of operations of Parent and its Subsidiaries, taken as a
whole, or on Parent's ability to perform its obligations, if any, as
contemplated in the Transaction Agreements.
"Parent Reports" shall have the meaning set forth in Section 6.2(e).
"Person" shall mean any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, Governmental Entity or other entity of
any kind or nature.
"Pooling Affiliates Letter" shall have the meaning set forth in Section
7.8.
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"Preferred Share" shall have the meaning set forth in Section 5.1(a).
"Prospectus/Proxy Statement" shall have the meaning set forth in Section
7.3.
"Representatives" shall have the meaning set forth in Section 7.7.
"S-4 Registration Statement" shall have the meaning set forth in Section
7.3.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning set forth in Section 5.1(a).
"Stock Option Agreement" shall have the meaning set forth in the Recitals.
"Stockholder Representative" shall have the meaning set forth in the
paragraph before the Recitals.
"Stockholder Voting Agreements" shall have the meaning set forth in the
Recitals.
"Stockholders Meeting" shall have the meaning set forth in Section 7.4.
"Subsidiary" shall mean, with respect to the Company, Parent or Merger Sub,
as the case may be, any entity, whether incorporated or unincorporated, of which
at least a majority of the securities or ownership interests having by their
terms ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions is directly or indirectly owned or
controlled by such party or by one or more of its respective Subsidiaries or by
such party and any one or more of its respective Subsidiaries.
"Superior Proposal" shall have the meaning set forth in Section 7.2.
"Survival Date" shall have the meaning set forth in Section 10.1.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Systems" shall have the meaning set forth in Section 6.1(q).
"Takeover Statute" shall have the meaning set forth in Section 6.1(j).
"Tax" (including, with correlative meaning, the terms "Taxes", and
"Taxable") means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severances, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions.
"Tax Return" means all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
"Termination Date" shall have the meaning set forth in Section 9.2.
"Third Party Intellectual Property Licenses" shall have the meaning set
forth in Section 6.1(p).
"Transaction Agreements" shall mean the Merger Agreement, the Stock Option
Agreement, the Stockholder Voting Agreements and the Escrow Agreement.
"Voting Debt" shall have the meaning set forth in Section 6.1(b).
"Warrant" shall have the meaning set forth in Section 6.1(b).
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"Year 2000 Compliant" means that a System shall be able to process
(including without limitation calculate, compare and sequence) accurately date
and time from, into and between the years 1999 and 2000 and any other years in
the 20th and 21st centuries, including the making of accurate leap year
calculations.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time, the Company shall be merged with and
into Merger Sub and the separate corporate existence of the Company shall
thereupon cease. Merger Sub shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). The Merger
shall have the effects specified in the Massachusetts Business Corporation Law,
as amended (the "MBCL").
2.2. Closing. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
at 9:00 A.M. on the later of (x) January 14, 2000 or such earlier date as
selected by Parent in a written notice delivered to the Company or (y) the first
business day on which the last to be fulfilled or waived of the conditions set
forth in Article VIII (other than those conditions that by their nature are to
be satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions) shall be satisfied or waived in accordance with this Agreement or
(ii) at such other place and time and/or on such other date as the Company and
Parent may agree in writing (the "Closing Date").
2.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause Articles of Merger (the "Massachusetts Articles of
Merger") to be executed, acknowledged and filed with the Secretary of State of
the Commonwealth of Massachusetts as provided in Section 84 of Chapter 156B of
the MBCL. The Merger shall become effective at the time when the Massachusetts
Articles of Merger have been duly filed with the Secretary of State of the
Commonwealth of Massachusetts, unless such Massachusetts Articles of Merger
specify a later effective date in which event the Merger shall become effective
on such later date (the "Effective Time").
ARTICLE III
ARTICLES OF ORGANIZATION AND BY-LAWS
OF THE SURVIVING CORPORATION
3.1. The Articles of Organization. The articles of organization of Merger
Sub as in effect immediately prior to the Effective Time shall be the articles
of organization of the Surviving Corporation (the "Charter"), until duly amended
as provided therein or by applicable law, except that Article 1 of the Charter
shall be amended to change the name of the Surviving Corporation to "Genetic
MicroSystems, Inc."
3.2. The By-Laws. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "By-Laws"), until
thereafter amended as provided therein or by applicable law.
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ARTICLE IV
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
4.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws. Prior to the Effective Time, the Company shall take all actions
necessary to obtain any resignations of its directors necessary to give effect
to the provisions of this Section.
4.2. Officers. The officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws.
ARTICLE V
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
5.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Each share of the Common Stock, no par value per
share, of the Company and each share of the Preferred Stock, par value $0.01 per
share, of the Company (as applicable a "Common Share" or a "Preferred Share"; or
collectively, the "Shares") issued and outstanding immediately prior to the
Effective Time (other than Shares ("Dissenting Shares") that are owned by
stockholders exercising appraisal rights ("Dissenting Stockholders") pursuant to
Chapter 156B Sections 86 through 98 of the MBCL (the "Appraisal Rights
Provisions") or Shares owned by Parent, Merger Sub or any other direct or
indirect Subsidiary of Parent (collectively, the "Parent Companies") or Shares
that are owned by the Company and are not held on behalf of third parties
(collectively, "Excluded Shares")) shall, subject to Section 5.2(e), be
converted into the right to receive that number of shares (the "Merger
Consideration"), of Common Stock, par value $0.01 per share, of Parent ("Parent
Common Stock") determined by dividing 1,070,000 by the aggregate number of
Shares issued and outstanding and Shares subject to Company Options or Warrants
(whether vested or unvested or currently exercisable or unexercisable), in each
case, immediately prior to the Effective Time. At the Effective Time, all Shares
shall no longer be outstanding and shall be canceled and retired and shall cease
to exist, and each certificate (a "Certificate") formerly representing any of
such Shares (other than Excluded Shares) shall thereafter represent only the
right to the Merger Consideration and the right, if any, to receive pursuant to
Section 5.2(e) cash in lieu of fractional shares into which such Shares have
been converted pursuant to this Section 5.1(a) and any distribution or dividend
pursuant to Section 5.2(c).
(b) Cancellation of Shares. Each Share issued and outstanding immediately
prior to the Effective Time and owned by any of the Parent Companies or owned by
the Company (other than Shares that are in each case owned on behalf of third
parties), shall, by virtue of the Merger and without any action on the part of
the holder thereof, cease to be outstanding, shall be canceled and retired
without payment of any consideration therefor and shall cease to exist.
5.2. Exchange of Certificates for Shares.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit, or
shall cause to be deposited, with an exchange agent selected by Parent (the
"Exchange Agent"), for the benefit of the
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holders of Shares, certificates representing the shares of Parent Common Stock
and, after the Effective Time, if applicable, any cash, dividends or other
distributions with respect to the Parent Common Stock to be issued or paid
pursuant to the last sentence of Section 5.1(a) in exchange for Shares
outstanding immediately prior to the Effective time upon due surrender of the
Certificates (or affidavits of loss in lieu thereof) pursuant to the provisions
of this Article V (such certificates for shares of Parent Common Stock, together
with the amount of any dividends or other distributions payable with respect
thereto, being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record of
Shares (other than holders of Excluded Shares) (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits
of loss in lieu thereof) to the Exchange Agent and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for (A) certificates
representing shares of Parent Common Stock and (B) any unpaid dividends and
other distributions and cash in lieu of fractional shares. Subject to Section
5.2(h), upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Common Stock that such holder
is entitled to receive pursuant to this Article V, (y) a check in the amount
(after giving effect to any required tax withholdings) of (A) any cash in lieu
of fractional shares plus (B) any unpaid non-stock dividends and any other
dividends or other distributions that such holder has the right to receive
pursuant to the provisions of this Article V, and the Certificate so surrendered
shall forthwith be cancelled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. In the event of a transfer of
ownership of Shares that is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent Common
Stock, together with a check for any cash to be paid upon due surrender of the
Certificate and any other dividends or distributions in respect thereof, may be
issued and/or paid to such a transferee if the Certificate formerly representing
such Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. 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 shall be a
condition of such exchange that the Person requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of certificates
for shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
Parent or the Exchange Agent that such tax has been paid or is not applicable.
(c) Distributions with Respect to Unexchanged Shares. All shares of Parent
Common Stock to be issued pursuant to the Merger shall be deemed issued and
outstanding as of the Effective Time and whenever a dividend or other
distribution is declared by Parent in respect of the Parent Common Stock, the
record date for which is at or after the Effective Time, that declaration shall
include dividends or other distributions in respect of all shares issuable
pursuant to this Agreement. No dividends or other distributions in respect of
the Parent Common Stock shall be paid to any holder of any unsurrendered
Certificate until such Certificate is surrendered for exchange in accordance
with this Article V. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be issued and/or paid to the
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date for which is
at or after the Effective Time theretofore payable with respect to such whole
shares of Parent Common Stock and not paid and (B) at the appropriate payment
date, the dividends or other distributions payable with respect to such
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whole shares of Parent Common Stock with a record date for which is at or after
the Effective Time but with a payment date subsequent to surrender.
(d) Transfers. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the Shares that were outstanding
immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock shall be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 5.2(e) shall be entitled to receive, as of the date on
which those holders entitled to receive fractional shares are determined, a cash
payment in lieu thereof, without interest, which payment shall represent such
holder's proportionate interest in the net proceeds from the sale by the
Exchange Agent on behalf of such holder of the aggregate fractional shares of
Parent Common Stock that such holder otherwise would be entitled to receive. Any
such sale shall be made by the Exchange Agent on the date on which those holders
entitled to receive fractional shares are determined.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time shall be paid to Parent. Any stockholders of the Company who have
not theretofore complied with this Article V shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to Section 5.1 and Section 5.2(c) upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Shares for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making and delivery to the
Exchange Agent of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such Person of a bond in customary amount as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate the
shares of Parent Common Stock and any cash payable and any unpaid dividends or
other distributions in respect thereof pursuant to Section 5.2(c) upon due
surrender of and deliverable in respect of the Shares represented by such
Certificate pursuant to this Agreement.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as determined pursuant
to Section 7.8) of the Company shall not be exchanged until Parent has received
a written agreement from such Person as provided in Section 7.8 hereof.
5.3. Appraisal Rights. No Dissenting Stockholder shall be entitled to
shares of Parent Common Stock or cash in lieu of fractional shares thereof or
any dividends or other distributions pursuant to this Article V unless and until
the holder thereof shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to dissent from the Merger under the
Appraisal Rights Provisions, and any Dissenting Stockholder shall be entitled to
receive only the payment provided by the Appraisal Rights Provisions with
respect to Shares owned by such Dissenting Stockholder. If any Person who
otherwise would be deemed a Dissenting Stockholder shall have failed to perfect
properly or shall have effectively withdrawn or lost the right to dissent with
respect to any Shares, such Shares shall thereupon be treated as though such
Shares had been converted into shares of Parent Common Stock pursuant to Section
5.1 hereof. The Company shall give Parent
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(i) prompt notice of any demands for appraisal, attempted withdrawals of such
demands, and any other instruments served pursuant to applicable law received by
the Company relating to stockholders' rights of appraisal and (ii) the
opportunity to direct and conclude all negotiations and proceedings with respect
to demand for appraisal under the MBCL. The Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for appraisals of Dissenting Shares, offer to settle or settle any
such demands or approve any withdrawal of any such demands; and Parent agrees to
provide the Company with all funds necessary to pay or settle such demands for
appraisal.
5.4. Adjustments to Prevent Dilution. In the event that the Company
changes the number of Shares or securities convertible or exchangeable into or
exercisable for Shares, or Parent changes the number of shares of Parent Common
Stock or securities convertible or exchangeable into or exercisable for shares
of Parent Common Stock, issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse split), stock
dividend or distribution, recapitalization, merger, subdivision, issuer tender
or exchange offer, or other similar transaction, the Merger Consideration shall
be equitably adjusted.
5.5. Treatment of Warrants and Company Options. The Company Options shall
be treated as set forth in Section 7.11 and the Warrants shall be treated as set
forth in Section 7.14.
5.6. Appointment of Stockholder Representative. (a) Each holder of Shares
who votes in favor of the Merger or who receives or accepts the Merger
Consideration shall be deemed to have consented in all respects to the
appointment of Jean Montagu as Stockholder Representative and shall be deemed to
have consented to the performance by the Stockholder Representative of all
rights and obligations conferred on the Stockholder Representative under this
Agreement and the Escrow Agreement.
(b) The Stockholder Representative shall not be liable to the Stockholders
of the Company for any action taken or omitted to be taken hereunder as
Stockholder Representative, except due to gross negligence or bad faith. The
Stockholders of Genetic MicroSystems shall indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Stockholder Representative and arising out of or in connection with
the acceptance or administration of the Stockholder Representative's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Stockholder Representative.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Representations and Warranties of the Company. The Company, the
Stockholder Representative (on behalf of the stockholders of the Company) and
the stockholders set forth on the signature pages to this Agreement hereby
represent and warrant to Parent and Merger Sub that, except as set forth in a
correspondingly numbered schedule in the Company Disclosure Schedule:
(a) Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts and has all requisite corporate or similar
power and authority to own and operate its properties and assets and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the ownership
or operation of its properties or conduct of its business requires such
qualification. The Company has delivered to Parent a complete and correct copy
of the Company's Restated Articles of Organization and By-laws (collectively,
"Organizational Documents"), each as amended to date. The Company's
Organizational Documents so delivered are in full force and effect. Section
6.1(a) of the Company
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Disclosure Schedule contains a correct and complete list of each jurisdiction
where the Company is organized and/or qualified to do business. The Company has
no Subsidiaries and owns no security, equity or other interest in any Person.
(b) Capital Structure. The authorized capital stock of the Company
consists of 5,000,000 Common Shares, of which 1,006,702 Common Shares were
outstanding as of the close of business on September 8, 1999, and 2,636,353
Preferred Shares, of which 2,000,000 Series A Preferred Shares and 431,977
Series B Preferred Shares were outstanding as of the close of business on
September 8, 1999. All of the outstanding Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Other than, as of the date
hereof (i) 684,297 Common Shares reserved for issuance under the Stock Option
Agreement, (ii) 346,864 Common Shares reserved for issuance under the Company's
1998 Stock Option Plan (the "Stock Plan") and (iii) 122,197 Common Shares
reserved for issuance in connection with the Warrants, the Company has no Shares
reserved for issuance. The Company Disclosure Schedule contains a correct and
complete list of each outstanding option to purchase Shares under the Stock Plan
(each a "Company Option") and each outstanding Warrant to purchase Shares (each
a "Warrant"), including the holder, date of grant, exercise price and number of
Shares subject thereto. Except as set forth above or in Schedule 6.1(b) of the
Company Disclosure Schedule, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or commitments to
issue or sell any shares of capital stock or other securities of the Company or
any securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any securities of
the Company, and no securities or obligations evidencing such rights are
authorized, issued or outstanding. The Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter ("Voting
Debt").
(c) Corporate Authority; Approval and Fairness. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement and to consummate, subject only to (x)
approval of this Agreement by the holders of two-thirds of the Common Shares
outstanding and entitled to vote, (y) approval of this Agreement (A) by the
holders of two-thirds of the Preferred Shares outstanding and entitled to vote
and (B) by the holders of a majority of the Series A Preferred Shares
outstanding and entitled to vote and (z) the affirmative vote of a majority of
the shares of the Series A Preferred Stock of the Company that the Merger does
not constitute a liquidation, dissolution or winding up of the Company as set
forth in the Company's Organizational Documents (collectively, the "Company
Requisite Vote"). This Agreement and the Stock Option Agreement are valid and
binding agreements of the Company enforceable against the Company in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception").
(ii) The Board of Directors of the Company has unanimously approved this
Agreement and the Stock Option Agreement and the Merger and the other
transactions contemplated hereby.
(d) Governmental Filings; No Violations. (i) Except for (A) the filing of
the Massachusetts Articles of Merger pursuant to Section 2.3, (B) filings and/or
notices under the HSR Act and (C) such consents, approvals, orders and
authorizations as may be required under applicable state securities or
"blue-sky" laws, no notices, reports or other filings are required to be made by
the Company with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from any Governmental
Entity, in connection with the execution and
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delivery of this Agreement and the Stock Option Agreement by the Company and the
consummation by the Company of the Merger and the other transactions
contemplated hereby and thereby.
(ii) The execution, delivery and performance of this Agreement and the
Stock Option Agreement by the Company do not, and the consummation by the
Company of the Merger and the other transactions contemplated hereby and thereby
will not, constitute or result in (A) a breach or violation of, or a default
under, the Organizational Documents of the Company, (B) a breach or violation
of, or a default under, the acceleration of any obligations or the creation of
any Encumbrance on the assets of the Company (with or without notice, lapse of
time or both) pursuant to, any Contracts binding upon the Company or any Law or
governmental or non-governmental permit or license to which the Company is
subject or (C) any change in the rights or obligations of any party under any of
the Contracts binding upon the Company. Schedule 6.1(d) of the Company
Disclosure Schedule sets forth a correct and complete list of Contracts of the
Company pursuant to which consents or waivers are or may be required prior to
consummation of the transactions contemplated by this Agreement and the Stock
Option Agreement.
(e) Financial Statements. The Company has delivered to Parent: (i) the
Company's audited balance sheets at December 31, 1997 and 1998 and the related
statements of operations and comprehensive loss, shareholders' equity, and
income and cash flows for the period from August 7, 1997 (date of inception) to
December 31, 1997 and the year ended December 31, 1998, respectively, and (ii)
an unaudited balance sheet of the Company at August 28, 1999 (the "Balance Sheet
Date") and the related unaudited statements of income and cash flows for the
eight months then ended. The financial statements referred to in this Section
6.1(e) (the "Financial Statements") fairly present the consolidated financial
position and the consolidated results of operations of the business of the
Company as of the dates thereof and for the periods then ended. The Financial
Statements have been prepared, in each case, in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
(f) Absence of Certain Changes. Since December 31, 1998, the Company has
conducted its business only in, and has not engaged in any transaction other
than according to, the ordinary and usual course of such business and there has
not been (i) any change in the financial condition, properties, prospects,
business or results of operations of the Company or any development or
combination of developments that is reasonably likely to have a Company Material
Adverse Effect; (ii) any damage, destruction or other casualty loss with respect
to any asset or property owned, leased or otherwise used by the Company, whether
or not covered by insurance; (iii) any declaration, setting aside or payment of
any dividend or other distribution in respect of the capital stock of the
Company; (iv) any change by the Company in accounting principles, practices or
methods; or (v) any increase, except in the ordinary course of business
consistent with past practice and consistent with Schedule 7.1(d) of the Company
Disclosure Schedule, in the compensation payable or that could become payable by
the Company to officers or key employees or any amendment of any of the
Compensation and Benefit Plans or the Stock Plan. Schedule 6.1(f) of the Company
Disclosure Schedule sets forth the name, title, salary and other compensation of
each employee of the Company as of the date of this Agreement.
(g) Litigation and Liabilities. There are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company or
any of its Affiliates or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise, including those relating to matters involving
any Environmental Health and Safety Law, or any other facts or circumstances
that could result in any claims against, or obligations or liabilities of, the
Company or any of its Affiliates.
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(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that covers current or former employees, contractors or directors of the Company
(the "Compensation and Benefit Plans") and any trust agreement or insurance
contract forming a part of such Compensation and Benefit Plans has been made
available to Parent prior to the date hereof. The Compensation and Benefit Plans
are listed in Section 6.1(h) of the Company Disclosure Schedule and any "change
of control" or similar provisions therein are specifically identified in Section
6.1(h) of the Company Disclosure Schedule.
(ii) All Compensation and Benefit Plans are in substantial compliance with
all applicable law, including the Code and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Each Compensation and Benefit Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") and that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service (the "IRS") with respect to "TRA" (as defined in
Section 1 of Rev. Proc. 93-39), and the Company is not aware of any
circumstances likely to result in revocation of any such favorable determination
letter. There is no pending or, to the knowledge of the Company, threatened
litigation relating to the Compensation and Benefit Plans. The Company has not
engaged in a transaction with respect to any Compensation and Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject the Company to a tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or D of Title IV
of ERISA has been or is expected to be incurred by the Company with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). The Company has not contributed, or been obligated to contribute,
to a multiemployer plan under Subtitle E of Title IV of ERISA at any time since
September 26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof or will be
required to be filed in connection with the transactions contemplated by this
Agreement and the Stock Option Agreement.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made or
have been reflected on the Financial Statements. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. The Company has not provided, nor is it required
to provide, security to any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of the last
day of the most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities", within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions contained in the Pension Plan's most recent actuarial valuation),
did not exceed the then current value of the assets of such Pension Plan, and
there has been no change in the financial condition of such Pension Plan since
the last day of the most recent plan year.
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(vi) The Company does not have any obligations for retiree health and life
benefits under any Compensation and Benefit Plan, except as set forth in the
Company Disclosure Schedule, or as required by Law. The Company may amend or
terminate any such plan under the terms of such plan at any time without
incurring any liability thereunder except as required by Law.
(vii) The consummation of the Merger and the other transactions
contemplated by this Agreement or the Stock Option Agreement will not (x)
entitle any employees of the Company to severance pay, (y) accelerate the time
of payment or vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other obligation pursuant to, any of
the Compensation and Benefit Plans or (z) result in any breach or violation of,
or a default under, any of the Compensation and Benefit Plans.
(viii) None of the Company's existing or former contractors are, or may be
considered under any Law, employees of the Company.
(ix) All Compensation and Benefit Plans covering current or former non-U.S.
employees or former employees of the Company comply in all respects with
applicable local law. The Company has no unfunded liabilities with respect to
any Pension Plan that covers such non-U.S. employees.
(i) Compliance; Permits. The business of the Company has not been, and is
not being, conducted in violation of any Laws. No investigation or review by any
Governmental Entity with respect to the Company is pending or, to the knowledge
of the Company, threatened, nor has any Governmental Entity indicated an
intention to conduct the same. To the knowledge of the Company, no change is
required in the Company's processes, properties or procedures in connection with
any Laws, and the Company has not received any notice or communication of any
noncompliance with any Laws. The Company has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted.
(j) Takeover Statutes. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (including,
without limitation, Chapters 110C, 110D, 110 E and 110F of the General Laws of
the Commonwealth of Massachusetts) (each a "Takeover Statute") or any
anti-takeover provision in the Company's Organizational Documents is, or at the
Effective Time will be, applicable to the Company, the Shares, the Merger or the
other transactions contemplated by this Agreement, the Stock Option Agreement or
the Stockholder Voting Agreements.
(k) Environmental Matters. Except as set forth in Schedule 6.1(k) of the
Company Disclosure Schedule: (i) the Company has complied at all times with all
applicable Environmental Health and Safety Laws; (ii) to the knowledge of the
Company no property currently owned or operated by the Company (including soils,
groundwater, surface water, buildings or other structures) is contaminated with
any Hazardous Substance; (iii) to the knowledge of the Company no property
formerly owned or operated by the Company was contaminated with any Hazardous
Substance during or prior to such period of ownership or operation; (iv) to the
knowledge of the Company the Company is not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
the Company has not been associated with any release or threat of release of any
Hazardous Substance; (vi) the Company has not received any notice, demand,
letter, claim or request for information alleging that the Company may be in
violation of or subject to liability under any Environmental Health and Safety
Law; (vii) the Company is not subject to any order, decree, injunction or other
agreement with any Governmental Entity or any indemnity or other agreement with
any third party relating to liability under any Environmental Health and Safety
Law or relating to Hazardous Substances; (viii) to the knowledge of the Company
there are no other circumstances or conditions involving the Company that could
reasonably be expected to result in any claim,
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liability, investigation, cost or restriction on the ownership, use, or transfer
of any property pursuant to any Environmental Health and Safety Law; and (ix)
the Company has delivered to Parent copies of all written environmental reports,
studies, assessments, sampling data and other environmental information in its
possession relating to the Company or its current and former properties or
operations.
(l) Accounting and Tax Matters. (i) Neither the Company nor any of its
Affiliates has taken or agreed to take any action, nor does the Company have any
knowledge of any fact or circumstance, that would prevent Parent from accounting
for the business combination to be effected by the Merger as a
"pooling-of-interests" or prevent the Merger and the other transactions
contemplated by this Agreement from qualifying as a "reorganization" within the
meaning of Section 368(a) of the Code.
(ii) The representations and warranties that are set forth in the Company's
letter to be delivered by the Company to Ernst & Young LLP in connection with
Section 8.1(e) are hereby adopted as if such representations and warranties were
fully set forth herein; provided that no representation or warranty is made to
the extent such representation or warranty relates to Parent.
(m) Taxes. The Company (i) has prepared in good faith and duly and timely
filed (taking into account any extension of time within which to file) all Tax
Returns required to be filed by it and all such filed Tax Returns are complete
and accurate; (ii) has paid or accrued all Taxes that are required to be paid or
accrued and has withheld from amounts owing to any employee, creditor or third
party all amounts that the Company is obligated to withhold, except in each case
with respect to matters contested in good faith; and (iii) has not waived any
statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. As of the date hereof, there are
not ongoing or, to the knowledge of the Company threatened in writing, any
audits, examinations, investigations or other proceedings in respect of Taxes or
Tax matters which could result in any tax deficiency of the Company for any
taxable period ending on or before the date hereof, and the Company is not aware
of any reasonable basis upon which any such deficiency would be asserted. There
are no liens on any of the Company's assets that arose in connection with any
failure (or alleged failure) to pay any Tax other than liens for Taxes not yet
due or being contested in good faith by appropriate proceedings. The Company has
never been a party to the filing of an affiliated, combined, consolidated or
unitary Tax Return. No closing agreements, private letter rulings, technical
advice memoranda or similar agreements or rulings have been entered into or
issued by any taxing authority with respect to the Company. Except as set forth
in the Company Disclosure Schedule, the Company will not, as a result of the
transactions contemplated by this Agreement, be obligated to make a payment that
will not be deductible under Section 280G of the Code. The Company has made
available to Parent true and correct copies of the United States federal income
Tax Returns filed by the Company for each of the fiscal years ended December 31,
1997 and 1998. The Company has not been audited by any Governmental Entity in
respect of Taxes or Tax matters. The Company does not have any liability with
respect to income, franchise or similar Taxes that accrued on or before the
Balance Sheet Date in excess of the amounts accrued with respect thereto that
are reflected in the Financial Statements.
(n) Labor Matters. The Company is not a party to or otherwise bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is the Company the subject of any
proceeding asserting that the Company has committed an unfair labor practice or
is seeking to compel it to bargain with any labor union or labor organization
nor is there pending or, to the knowledge of the Company, threatened, nor has
there been, since the date of the Company's formation, any labor strike,
dispute, walk-out, work stoppage, slow-down or lockout involving the Company.
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(o) Insurance.
(i) The Company has delivered to Parent true and complete copies of all
policies of insurance to which the Company is a party or under which any
director of the Company is insured.
(ii) All insurance policies maintained by the Company are with reputable
insurance carriers, provide full and adequate coverage for all normal risks
incident to the business of the Company and its properties and assets.
(iii) The Company has paid all premiums due, and has otherwise performed
all of its obligations under each insurance policy to which the Company is a
party or that provides coverage to any director of the Company and all such
insurance policies shall continue in full force and effect following the
consummation of the transactions contemplated by this Agreement.
(p) Intellectual Property.
(i) Set forth in Schedule 6.1(p)(i) of the Company Disclosure Schedule is a
complete list of each of the following items (A) all patents and applications
therefor, registrations of trademarks (including service marks) and applications
therefor, and registrations of copyrights and applications therefor that are
owned by the Company or licensed to the Company (collectively, "Company
Intellectual Property Rights"), (B) all licenses, sublicenses, agreements and
contracts relating to the Company Intellectual Property pursuant to which the
Company is entitled to use any Company Intellectual Property owned by any third
party ("Third Party Intellectual Property Licenses") excluding commercially
available end-user computer software licenses, where the total license fees for
such software do not exceed $10,000 per license per calendar year, used in the
normal course of business ("Commercial Software Licenses") and (C) all
agreements under which the Company has granted any third party the right to use
any Company Intellectual Property.
(ii) To the knowledge of the Company, excluding Commercial Software
Licenses the Company is the owner of all intellectual property, including,
without limitation, all Company Intellectual Property Rights, patents and patent
applications, supplementary protection certificates and patent extensions,
trademarks and trademark applications, service mark and service mark
registrations, logos, commercial symbols, business name registrations, trade
names, copyrights and copyright registrations, computer software, mask works and
mask work registration applications, industrial designs and applications for
registration of such industrial designs, including, without limitation, any and
all applications for renewal, extensions, reexaminations and reissues of any of
the foregoing intellectual property rights where applicable, inventions,
biological materials, trade secrets, formulae, know-how, technical information,
research data, research raw data, laboratory notebooks, procedures, designs,
proprietary technology and information held or used in the business of the
Company (the "Company Intellectual Property").
(iii) To the knowledge of the Company, (a) the Company is the sole legal
and beneficial owner of all the Company Intellectual Property (except for
Company Intellectual Property that is the subject of any Third Party
Intellectual Property Licenses or the Commercial Software Licenses) and (b) all
Company Intellectual Property is valid and subsisting.
(iv) The Company has not entered into any agreements, licenses or created
any Encumbrances, leases, equities, options, restrictions, rights of first
refusal, title retention agreements or other exceptions to title which affect
the Company Intellectual Property or restrict the use by the Company of the
Company Intellectual Property in any way.
(v) The Company is in compliance in all respects with Third Party
Intellectual Property Licenses.
(vi) The Company is not, and will not be as a result of the execution,
delivery or performance of this Agreement or the consummation of the Merger or
the other transactions contemplated hereby
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in breach, violation or default of any Third Party Intellectual Property
Licenses. The rights of the Company to the Company Intellectual Property will
not be affected by the execution, delivery or performance of this Agreement or
the consummation of the Merger or the other transactions contemplated hereby.
(vii) The Company has the right to license to third parties the use of
Company Intellectual Property Rights.
(viii) All registrations and filings relating to Company Intellectual
Property Rights are in good standing. All maintenance and renewal fees necessary
to preserve the rights of the Company in respect of Company Intellectual
Property Rights have been made. The registrations and filings relating to
Company Intellectual Property Rights are proceeding and there are no facts of
which the Company has knowledge which could significantly undermine those
registrations or filings or reduce to a significant extent the scope of
protection of any patents arising from such applications beyond that which
ordinarily might occur in a patent prosecution proceeding.
(ix) The manufacturing, marketing, distribution or sale of any product
currently manufactured, marketed, distributed or sold by, or identified for
development by, the Company, licensees or sublicensees in the countries where
the Company has conducted or proposes to conduct such activities, to the
knowledge of the Company, does not and would not infringe, induce infringement
or contributorily infringe the patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, copyrights,
copyright applications, and proprietary trade names, publication rights,
computer programs (including source code and object code), inventions, know-
how, trade secrets, technology, processes, confidential information and all
other intellectual property rights throughout the world (collectively,
"Intellectual Property Rights") of any third party.
(x) To the knowledge of the Company, there are no allegations, claims or
proceedings instituted or pending which challenge the rights possessed by the
Company to use the Company Intellectual Property or the validity or
effectiveness of the Company Intellectual Property, including without limitation
any interferences, oppositions, cancellations or other contested proceedings.
(xi) To the knowledge of the Company, there are no outstanding claims or
proceedings instituted or pending by any third party challenging the ownership,
priority, scope or validity or effectiveness of any Company Intellectual
Property.
(xii) To the knowledge of the Company, there are no Intellectual Property
Rights of any third party that would be infringed by the continued practice of
any technologies previously used or presently in use by the Company.
(xiii) To the knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of the Company Intellectual Property by any
third party, including any employee or former employee of the Company.
(xiv) The Company has not granted any licenses, immunities, options or
other rights to the Company Intellectual Property which could provide a third
party with a defense to patent infringement proceedings, whether domestic or
foreign.
(xv) The Company has taken commercially reasonable measures to maintain the
confidentiality of the inventions, trade secrets, formulae, know-how, technical
information, research data, research raw data, laboratory notebooks, procedures,
designs, proprietary technology and information of the Company, and all other
information the value of which to the Company is contingent upon maintenance of
the confidentiality thereof. Without limiting the generality of the foregoing,
(A) each employee of the Company and each consultant to the Company who has had
access to proprietary information with respect to the Company has entered into
an agreement suitable to vest ownership rights to any inventions, creations,
developments, and works in the Company and has entered into an
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agreement for maintaining the confidential information of the Company and (B)
each officer and director of the Company has entered into an agreement to
maintain the confidential information of the Company, except for those
individuals listed in Schedule 6.1(p)(xv) of the Company Disclosure Schedule
whose involvement in the business of the Company is described with specificity
therein.
(q) Year 2000 Compliance. (i) Items of hardware, software, firmware or
embedded processes ("Systems") that are a part of, or are used in connection
with, the business of the Company will be Year 2000 Compliant by December 31,
1999, (disregarding insurance or similar coverage or plans for making such
Systems Year 2000 Compliant).
(ii) Based upon a reasonable inquiry of substantial suppliers, customers
and service providers of the Company, to the knowledge of the Company, no
supplier, customer or service provider of the Company will be unable to ensure
that its Systems are Year 2000 Compliant.
(r) Title to Properties; Encumbrances. The Company does not own any real
property. Schedule 6.1(r) of the Company Disclosure Schedule contains a complete
and accurate list of all real property leases to which the Company is a party.
The Company owns (i) all of the properties and assets (whether real, personal,
or mixed and whether tangible or intangible) that it purports to own, including
all of the properties and assets reflected in the Financial Statements and (ii)
all of the properties and assets purchased or otherwise acquired by the Company
since the Balance Sheet Date, except for personal property acquired and sold
since such date in the ordinary course of business and consistent with past
practice, which subsequently purchased or acquired properties and assets are
listed in Schedule 6.1(r) of the Company Disclosure Schedule. All of the
aforementioned properties and assets, taken together, are the only properties
and assets used in conducting the businesses of the Company, and such properties
and assets are adequate for the continued operation of such businesses after the
Closing in substantially the same manner as conducted to the date hereof. All
properties and assets reflected in the Financial Statements are free and clear
of all Encumbrances except as reflected in the Financial Statements or Schedule
6.1(r) of the Company Disclosure Schedule.
(s) Contracts. Schedule 6.1(s) of the Company Disclosure Schedule lists
the following Contracts to which the Company is a party on the date hereof:
(i) any agreement the performance of which involved aggregate
consideration in excess of $25,000.00 during 1998 or 1999;
(ii) any Contract of the Company the performance of which involved
aggregate consideration in excess of $250,000.00;
(iii) any employment agreement;
(iv) any agreement which relates to indebtedness owed by the Company,
or the guarantee thereof excluding purchases of parts or equipment in the
ordinary course of the Company's business consistent with past practice;
(v) all broker, distributor, dealer, manufacturer's representative,
franchise, agency, sales promotion, market research, marketing consulting
and advertising Contracts and agreements to which the Company is a party;
(vi) all Contracts with independent contractors or consultants to
which the Company is a party and which are not cancellable without penalty
or further payment and without more than 30 days' notice;
(vii) all Contracts with any Governmental Entity to which the Company
or its Subsidiary is a party;
(viii) all Contracts that limit or purport to limit the ability of the
Company to compete in any line of business or with any Person or in any
geographic area or during any period of time;
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(ix) all Contracts between or among the Company and any senior
executive officer or director of the Company;
(x) all Contracts to which the Company is expressly subject by the
terms of the Contract to confidentiality obligations; and
(xi) any other Contracts which are material to the Company the absence
of which would have a Company Material Adverse Effect.
Except for those Contracts specified on the Company Disclosure Schedule as
Contracts under clause (x) above, the Company has made available to Parent a
correct and complete copy of each Contract listed in Schedule 6.1(s) of the
Company Disclosure Schedule, together with any and all amendments or
modifications thereto. Each such Contract is valid, binding, enforceable, and in
full force and effect, the Company is not in breach or default under any such
Contract and to the knowledge of the Company no event has occurred which, with
or without notice or lapse of time or both, would constitute a breach or
default, or permit termination, modification, or acceleration, under such
Contract.
(t) Condition and Sufficiency of Assets. The buildings, plants, structures
and equipment of the Company are structurally sound, are in good operating
condition and repair, and are adequate for the uses to which they are being put,
and none of such buildings, plants, structures or equipment is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs. The
building, plants, structures and equipment of the Company are sufficient for the
continued operation of the Company's businesses after the Closing in
substantially the same manner as conducted to the date hereof. To the knowledge
of the Company, the Company has all easements, rights of way and other real
property rights which are necessary for the ownership, use and operation of its
properties, assets and business.
(u) Certain Payments. No director, officer, agent, or employee of the
Company, or any other Person associated with or acting for or on behalf of the
Company, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business or (ii) in violation of
any Law, or (b) established or maintained any fund or asset that has not been
recorded in the books and records of the Company.
(v) Disclosure. (i) No representation or warranty of the Company contained
in this Agreement or the Company Disclosure Schedule contains any untrue
statement of a material fact, or omits to state any material fact, which is
required to be stated herein or therein, or is necessary, in order to make the
statements contained herein or therein not misleading.
(ii) There is no fact known to the Company that has specific application to
the Company (other than general economic or industry conditions) and that
adversely affects the assets, business, prospects, financial condition, or
results of operations of the Company that has not been set forth in this
Agreement or the Company Disclosure Schedule.
(w) Books and Records. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Parent, are complete and correct, in all material respects, and have been
maintained in accordance with sound business practices. The minute books of the
Company contain accurate and complete records, in all material respects, of all
meetings held by, and corporate action taken by, the stockholders, the boards of
directors, and committees of the boards of directors of the Company, and no
meeting of any such stockholders, board of directors or committee has been held
where material matters were approved, voted upon or acted upon for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of such books and records shall be in the possession of the
Company.
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(x) Brokers and Finders. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated in this Agreement or the
Stock Option Agreement.
6.2. Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub each hereby represent and warrant to the Company that, except as set
forth in a correspondingly numbered schedule in the Parent Disclosure Schedule:
(a) Capitalization of Parent and Merger Sub.
(i) The authorized capital stock of Parent consists of 75,000,000 shares of
Common Stock, par value $0.01 per share, of which 25,723,402 shares were issued
and outstanding as of September 8, 1999, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share, of which no shares were issued and outstanding
as of such date. All outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or
By-laws of Parent ("Parent's Organizational Documents") or any agreement or
document to which Parent is a party or by which it is bound.
(ii) The authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, par value $1.00 per share, all of which are validly issued and
outstanding. All of the issued and outstanding capital stock of Merger Sub is,
and at the Effective Time will be, owned by Parent, and there are (i) no other
shares of capital stock or voting securities of Merger Sub, (ii) no securities
of Merger Sub convertible into or exchangeable for shares of capital stock or
voting securities of Merger Sub and (iii) no options or other rights to acquire
from Merger Sub, and no obligations of Merger Sub to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Merger Sub. Merger Sub was formed for the specific
purpose of consummating the transactions contemplated by this Agreement, has not
conducted any business prior to the date hereof and has no, and prior to the
Effective Time will have no, assets, liabilities or obligations of any nature
other than those incident to its formation and pursuant to this Agreement and
the Merger and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and has
all requisite corporate or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted and is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the ownership or operation of its properties or conduct
of its business requires such qualification. Parent has made available to the
Company a complete and correct copy of Parent's Organizational Documents, each
as amended to, and in full force as of, the date hereof.
(c) Corporate Authority.
(i) No vote of holders of capital stock of Parent is necessary to approve
this Agreement and the Merger and the other transactions contemplated hereby.
Each of the Parent and Merger Sub has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute,
deliver and perform its obligations under this Agreement and to consummate the
Merger. This Agreement is a valid and binding agreement of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms, subject to the Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article V. The
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Parent Common Stock, when issued, will be validly issued, fully paid and
nonassessable, and free of any preemptive right of subscription or purchase in
respect thereof.
(d) Governmental Filings; No Violations. (i) Except for (A) the filing of
the Massachusetts Articles of Merger pursuant to Section 2.3, (B) filings and/or
notices under the HSR Act, the Securities Act and the Exchange Act, (C) such
consents, approvals, orders and authorizations as may be required under
applicable state securities or "blue sky" laws and (D) filings and/or notices
required to be made with NASDAQ, no notices, reports or other filings are
required to be made by Parent or Merger Sub with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
Parent or Merger Sub from, any Governmental Entity, in connection with the
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the Merger and the other transactions
contemplated hereby. Schedule 6.2(d) of the Parent Disclosure Schedule sets
forth a correct and complete list of Contracts of Parent or Parent Companies
pursuant to which waivers or consents may be required prior to consummation of
the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by Parent
and Merger Sub do not, and the consummation by Parent and Merger Sub of the
Merger and the other transactions contemplated hereby will not, constitute or
result in (A) a breach or violation of, or a default under, the Organizational
Documents of Parent and Merger Sub, (B) a breach or violation of, or a default
under, the acceleration of any obligations or the creation of any Encumbrance on
the assets of Parent or any of its Subsidiaries (with or without notice, lapse
of time or both) pursuant to, any Contracts binding upon Parent or any of its
Subsidiaries or any Law or governmental or non-governmental permit or license to
which Parent or any of its Subsidiaries is subject or (C) any change in the
rights or obligations of any party under any of the Contracts binding upon
Parent.
(e) Parent Reports; Financial Statements. Parent has made available to the
Company (i) Parent's Annual Report on Form 10-K for the year ended December 31,
1998, (ii) Parent's Quarterly Reports on Form 10-Q for the periods ended March
31, 1999 and June 30, 1999 and (iii) Parent's registration statements on Form
S-3 since December 31, 1998 each in the form (including exhibits, annexes and
any amendments thereto) filed with the SEC (collectively, including any such
reports filed subsequent to the date hereof, the "Parent Reports"). Parent has
timely filed, and between the date of this Agreement and the Effective Time will
timely file, with the SEC all forms, documents and reports required to be filed
with the SEC. As of their respective dates, the Parent Reports (i) complied in
all material respects, and all reports filed by Parent with the SEC between the
date of this Agreement and the Effective Time will comply in all material
respects, with applicable SEC requirements and (ii) did not, and any Parent
Reports filed with the SEC subsequent to the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
Parent Reports (including the related notes and schedules) fairly presents, or
will fairly present, the consolidated financial position of Parent and its
Subsidiaries as of its date and each of the consolidated statements of income
and of changes in financial position included in or incorporated by reference
into the Parent Reports (including any related notes and schedules) fairly
presents, or will fairly present, the results of operations, retained earnings
and changes in financial position, as the case may be, of Parent and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
(f) Accounting and Tax Matters. (i) As of the date hereof, neither Parent
nor any of its Affiliates has taken or agreed to take any action, nor does
Parent have any knowledge of any fact or
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circumstance, that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests" or prevent
the Merger and the other transactions contemplated by this Agreement from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
(ii) The representations and warranties that are set forth in Parent's
letter to be delivered by Parent to Ernst & Young LLP in connection with section
8.1(e) are hereby adopted as if such representations and warranties were fully
set forth herein; provided, that no representation or warranty is made to the
extent such representation or warranty relates in any respect to the Company.
(g) No Parent Material Adverse Effect. Except as set forth in the Parent
Reports, since June 30, 1999 there has not been any change in the financial
condition, business or results of operations of Parent or any development or
combination of developments that is reasonably likely to have a Parent Material
Adverse Effect; it being understood among the parties to this Agreement, that
for purposes of this Section 6.2(g), any change in the trading price of the
shares of Parent Common Stock, or change in financial or economic markets which
effects the trading price on the NASDAQ of the shares of Parent Common Stock
shall not be considered when determining if a Parent Material Adverse Effect has
occurred.
(h) Brokers and Finders. Neither Parent nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the Merger or
the other transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS
7.1. Interim Operations of the Company. The Company covenants and agrees
that, after the date hereof and prior to the Effective Time (unless Parent shall
otherwise approve in writing and except as otherwise expressly contemplated by
this Agreement and the Stock Option Agreement):
(a) except as specifically provided in Section 7.1(a) of the Company
Disclosure Schedule, the business of the Company shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it shall
use its commercially reasonable best efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and
business associates;
(b) it shall not (i) amend its Organizational Documents; (ii) split,
combine or reclassify its outstanding shares of capital stock; (iii)
declare, set aside or pay any dividend payable in cash, stock or property
in respect of any capital stock; or (iv) repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into
or exchangeable or exercisable for any shares of its capital stock;
(c) it shall not (i) issue, sell, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to
acquire, any shares of its capital stock of any class or any Voting Debt or
any other property or assets (other than Shares issuable pursuant to (A)
outstanding options on the date hereof under the Stock Plan, (B)
Outstanding Warrants or (C) Company Options issued in the ordinary and
usual course of business between the date of this Agreement and the
Effective Time); (ii) other than in the ordinary and usual course of
business, transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of or encumber any other property or assets or incur or modify any
material indebtedness or other liability; provided, however, that the
Company may borrow funds from a bank or other financial lending institution
for general working capital purposes not to exceed $250,000 in the
aggregate for non-inventory expenditures
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and $500,000 in the aggregate for non-inventory and inventory expenditures
taken together; (iii) make or authorize or commit for any capital
expenditures, other than in the ordinary course of business and pursuant to
the calendar years 1999 and 2000, capital appropriations/spending budgets
set forth in the Company Disclosure Schedule, and in no event shall any
capital expenditures exceed $50,000 individually or $200,000 in the
aggregate; or (iv) by any means, make any acquisition of, or investment in,
assets or stock of any other Person or entity;
(d) it shall not terminate, establish, adopt, enter into, make any new
grants or awards under (except pursuant to normal advancement and promotion
procedure consistent with past practice and as set forth in Schedule 7.1(d)
of the Company Disclosure Schedule), amend or otherwise modify, any
Compensation and Benefit Plans or increase the salary, wage, bonus or other
compensation of any employees;
(e) it shall not settle or compromise any material claims or
litigation or, except in the ordinary and usual course of business, modify,
amend or terminate any of its material Contracts or waive, release or
assign any material rights or claims;
(f) it shall not make any material Tax election or permit any
insurance policy naming it as a beneficiary or loss-payable payee to be
cancelled or terminated except in the ordinary and usual course of
business;
(g) it shall not change any of the accounting practices or principles
used by it other than is required by GAAP if the Company makes such change
pursuant to and in accordance with the written advice of Ernst & Young LLP;
(h) it shall not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company;
(i) it shall not take any action or omit to take any action that would
cause any of its representations and warranties herein to become untrue in
any material respect; and
(j) it shall not authorize or enter into an agreement to do any of the
foregoing.
7.2. Acquisition Proposals. The Company agrees that neither it nor any of
the officers and directors of it shall, and that it shall direct and use its
best efforts to cause its employees, agents and representatives (including any
investment banker, attorney or accountant retained by it) not to, directly or
indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving, or any purchase
of 10% or more (or any percentage that would negatively effect the ability of
the Merger to qualify for pooling of interests accounting treatment) of the
assets or any equity securities of, the Company (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"). The Company further
agrees that neither it nor any of the officers and directors of it shall, and
that it shall direct and use its best efforts to cause its employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent the
Company or its Board of Directors from (i) providing information in response to
a request therefor by a Person who has made an unsolicited bona fide written
Acquisition Proposal if the Board of Directors receives from the Person so
requesting such information an executed confidentiality agreement; (ii) engaging
in any negotiations or discussions with any Person who has made an unsolicited
bona fide written Acquisition Proposal; or (iii) recommending such an
Acquisition Proposal to the stockholders of the Company, if and only to the
extent that, (A) in each such case referred to in clause (i), (ii) or (iii)
above, the Board of
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Directors of the Company determines in good faith after consultation with
outside legal counsel that such action is necessary in order for its directors
to comply with their respective fiduciary duties under applicable law and (B) in
each case referred to in clause (ii) or (iii) above, the Board of Directors of
the Company determines in good faith (after consultation with its financial
advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the proposal and the Person making the proposal and would, if consummated,
result in a transaction more favorable to the Company's stockholders from a
financial point of view than the transaction contemplated by this Agreement (any
such more favorable Acquisition Proposal being referred to in this Agreement as
a "Superior Proposal"). The Company agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties, other than Parent or Merger Sub, conducted heretofore with respect
to any Acquisition Proposal. The Company agrees that it will take the necessary
steps to promptly inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 7.2. The Company
agrees that it will notify Parent immediately if any such inquiries, proposals
or offers are received by, any such information is requested from, or any such
discussions or negotiations are sought to be initiated or continued with, any of
its representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such discussions or
negotiations. The Company also agrees that it will promptly request each Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it to return all confidential information heretofore
furnished to such Person by or on behalf of it.
7.3. Information Supplied. The Company and Parent each agrees that none
of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement on Form S-4 to be
filed with the SEC by Parent in connection with the issuance of shares of Parent
Common Stock in the Merger (including the proxy statement and prospectus (the
"Prospectus/Proxy Statement") constituting a part thereof) (the "S-4
Registration Statement") will, at the time the S-4 Registration Statement
becomes effective under the Securities 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, and (ii) the Prospectus/Proxy Statement
and any amendment or supplement thereto will, at the date of mailing to
stockholders and at the times of the meetings of stockholders of the Company to
be held in connection with the Merger, 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 were made, not misleading.
7.4. Stockholders Meeting. The Company shall take, in accordance with
applicable law and its Organizational Documents, all action necessary to convene
a meeting of holders of Shares (the "Stockholders Meeting") as promptly as
practicable after the S-4 Registration Statement is declared effective to
consider and vote upon the approval of this Agreement. Subject to fiduciary
obligations under applicable law, the Company's board of directors shall
recommend such approval and shall take all lawful action to solicit such
approval.
7.5. Filings; Other Actions. (a) Parent and the Company shall prepare and
file with SEC the Prospectus/Proxy Statement and the S-4 Registration Statement
as promptly as practicable after the date hereof. Parent and the Company each
shall use its commercially reasonable best efforts to have the S-4 Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing, and promptly thereafter mail the Prospectus/Proxy Statement,
to the stockholders of the Company. Parent shall also use its commercially
reasonable best efforts to obtain all necessary state securities law or "blue
sky" permits and approvals required in connection with the Merger and
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to consummate the other transactions contemplated by this Agreement and the
Stock Option Agreement and shall pay all expenses incident thereto.
(b) The Company and Parent each shall use its commercially reasonable best
efforts (which efforts shall include, without limitation, the execution of
customary representation letters) to cause to be delivered to the other party
and its directors a letter of its independent auditors, dated (i) the date on
which the S-4 Registration Statement shall become effective and (ii) the Closing
Date, and addressed to the other party and its directors, in form and substance
customary for "comfort" letters delivered by independent public accountants in
connection with registration statements similar to the S-4 Registration
Statement.
(c) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective commercially
reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable on its part under
this Agreement, the Stock Option Agreement and applicable Laws to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and the Stock Option Agreement;
provided, however, that nothing in this Section 7.5 shall require, or be
construed to require, Parent to proffer to, or agree to, sell or hold separate
and agree to sell, before or after the Effective Time, any assets, businesses,
or interest in any assets or businesses of Parent, the Company or any of their
respective Affiliates (or to consent to any sale, or agreement to sell, by the
Company of any of its assets or businesses) or to agree to any material changes
or restriction in the operations of any such assets or businesses. Subject to
applicable laws relating to the exchange of information, Parent and the Company
shall have the right to review in advance, and to the extent practicable each
will consult the other on, all the information relating to Parent or the
Company, as the case may be, and any of their respective Subsidiaries, that
appear in any filing made with, or written materials submitted to, any third
party and/or any Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement and the Stock Option Agreement. In
exercising the foregoing right, each of the Company and Parent shall act
reasonably and as promptly as practicable.
(d) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the S-4 Registration Statement, Prospectus/ Proxy Statement,
or any other statement, filing, notice or application made by or on behalf of
Parent, the Company or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement and the Stock Option Agreement.
(e) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by Parent or the Company, as the case may be, from any
third party and/or any Governmental Entity with respect to the Merger and the
other transactions contemplated by this Agreement and the Stock Option
Agreement. The Company and Parent each shall give prompt notice to the other of
any development or combination of developments that, individually or in the
aggregate, is reasonably likely to result in a material adverse effect on the
financial condition, properties, prospects, business or results of operations of
the Company or Parent, as applicable.
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7.6. Taxation and Accounting. Neither Parent nor the Company shall take
or cause to be taken any action, whether before or after the Effective Time,
that would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code. Each of the parties shall report the Merger for income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code (and any
comparable state or local tax statute). Each of Parent and the Company shall
make and use its commercially reasonable best efforts to obtain from its
Affiliates such reasonable representations as may be requested by legal counsel
for the purpose of rendering the opinions contemplated by Section 8.1(g).
7.7. Access. Upon reasonable notice and subject to the requirements of
the confidentiality provisions of those Contracts set forth on Schedule 6.1(s)
of the Company Disclosure Schedule that are specifically described on such
Schedule 6.1(s) as containing confidentiality provisions, the Company shall
afford Parent's officers, employees, counsel, accountants and other authorized
representatives ("Representatives") reasonable access, during normal business
hours throughout the period prior to the Effective Time, to its properties,
books, contracts and records and, during such period, the Company shall furnish
promptly to Parent all information concerning the Company's business, properties
and personnel as may reasonably be requested. All requests for information made
pursuant to this Section shall be directed to an executive officer of the
Company, or such Person as may be designated by the Company.
7.8. Affiliates. (a) At least 10 days prior to the date of the
Stockholders Meeting, the Company shall deliver to Parent a list of names and
addresses of those Persons who are, as of the time of the Stockholders Meeting
referred to in Section 7.4, Affiliates of the Company within the meaning of Rule
145 under the Securities Act and for the purposes of applicable interpretations
regarding the pooling-of-interests method of accounting. The Company shall
provide to Parent such information and documents as Parent shall reasonably
request for purposes of reviewing such list. There shall be added to such list
the names and addresses of any other Person subsequently identified by either
Parent or the Company as a Person who may be deemed to be such an affiliate of
the Company; provided, however, that no such Person identified by Parent shall
be added to the list of affiliates of the Company if Parent shall receive from
the Company, on or before the date of the Stockholders Meeting, an opinion of
counsel reasonably satisfactory to Parent to the effect that such Person is not
such an affiliate. The Company shall exercise its commercially reasonable best
efforts to deliver or cause to be delivered to Parent, prior to the date of the
Stockholders Meeting, from each affiliate of the Company identified in the
foregoing list (as the same may be supplemented as aforesaid), a letter dated as
of the Closing Date substantially in the form attached as Exhibit A-1 (the
"Affiliates Letter"). Parent shall not be required to maintain the effectiveness
of the S-4 Registration Statement or any other registration statement under the
Securities Act for the purposes of resale of Parent Common Stock received in the
Merger and the certificates representing Parent Common Stock received by such
Affiliates shall bear a customary legend regarding applicable Securities Act
restrictions and the provisions of this Section.
(ii) Prior to the date of the Effective Time, Parent shall deliver to the
Company a list of names and addresses of those Persons who are, in the opinion
of the Parent, Affiliates of Parent for the purposes of applicable
interpretations regarding the pooling-of-interests method of accounting. Parent
shall provide to the Company such information and documents as the Company shall
reasonably request for purposes of reviewing such list. There shall be added to
such list the names and addresses of any other Person the Company reasonably
identifies (by written notice to Parent within ten business days after the
Company's receipt of such list) as being a Person who may be deemed to be such
an affiliate of Parent; provided, however, that no such Person identified by the
Company shall be added to the list of affiliates of Parent if the Company shall
receive from Parent, on or before the date of the Stockholders Meeting, an
opinion of counsel reasonably satisfactory to the Company to the effect that
such Person is not such an affiliate. Parent shall exercise its commercially
reasonable
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best efforts to deliver or cause to be delivered to the Company, prior to the
date of the Effective Time, from each of such affiliates of Parent identified in
the foregoing list (as the same may be supplemented as aforesaid), a letter
dated as of the Closing Date substantially in the form attached as Exhibit A-2
(the "Pooling Affiliates Letter").
7.9. Quotation of Parent Common Stock. Parent shall file the appropriate
notification form for the quotation of additional shares together with the
applicable fee covering the Parent Common Stock to be issued in the Merger with
the NASDAQ prior to the Effective Time.
7.10. Publicity. Parent shall control and coordinate the press relations
and publicity activities of the parties in connection with the Merger. The
Company shall consult with Parent with respect to issuing any press releases or
otherwise making public announcements with respect to the Merger and the other
transactions contemplated by this Agreement and the Stock Option Agreement and
will not issue any press releases or otherwise make any public announcements
with respect thereto without Parent's prior consent.
7.11. Benefits.
(a) Stock Options. (i) At the Effective Time, each outstanding Company
Option under the Stock Plan, whether vested or unvested, shall be deemed to
constitute an option to acquire (a "New Parent Option"), on the same terms and
conditions as were applicable under such Company Option, the same number of
shares of Parent Common Stock (rounded down to the nearest whole number) as the
holder of such Company Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time, at an exercise price per share (rounded up to the nearest
whole cent) equal to (y) the aggregate exercise price for the Shares otherwise
purchasable pursuant to such Company Option divided by (z) the number of full
shares of Parent Common Stock deemed purchasable pursuant to such Company Option
in accordance with the foregoing; provided, however, that in the case of any
Company Option to which Section 422 of the Code applies, the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in accordance with the
foregoing, subject to such adjustments as are necessary in order to satisfy the
requirements of Section 424(a) of the Code. At or prior to the Effective Time,
the Company shall take all necessary actions to permit the assumption of the
unexercised Company Options by Parent pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume, as a New Parent
Option, each outstanding Company Option in accordance with this Section and with
the terms of the Stock Plan under which it was issued and the stock option
agreement by which it is evidenced. Not later than 60 days after the Closing
Date, Parent shall file a registration statement under the Securities Act on
Form S-8, or other appropriate form, covering shares of Parent Common Stock
subject to such New Parent Options.
(iii) In connection with Parent's assumption of Company Options in
accordance with the terms of the Stock Plan, Parent shall reserve a sufficient
number of shares of Parent Common Stock for issuance with respect to New Parent
Options.
(b) Employee Benefits. Parent agrees that, during the period commencing at
the Effective Time and ending on the first anniversary thereof, the employees of
the Company shall continue to be provided with benefits under employee benefit
plans (other than plans involving the issuance of Shares) that are no less
favorable in the aggregate than those currently provided by the Company to such
employees. Parent will cause such employee benefit plans to take into account
for purposes of eligibility and vesting thereunder service by employees of the
Company as if such service were with Parent. Parent shall, and shall cause the
Surviving Corporation to, honor all employee benefit obligations to current and
former employees under the Compensation and Benefit Plans and all
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employee severance plans (or policies) in existence on the date hereof and all
employment or severance agreements entered into by the Company or adopted by the
board of directors of the Company prior to the date hereof.
7.12. Expenses; Cash Paid to Dissenting Stockholders. The Surviving
Corporation shall pay all charges and expenses, including those of the Exchange
Agent, in connection with the transactions contemplated in Article V, and Parent
shall reimburse the Surviving Corporation for such charges and expenses. Except
as otherwise provided in Section 9.5(b), whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the other agreements set forth herein and the Merger and the other
transactions contemplated by this Agreement and the other agreements set forth
herein shall be paid by the party incurring such expense; provided, however,
Parent shall pay all expenses incurred in connection with the filing fee for the
S-4 Registration Statement and printing and mailing the Prospectus/Proxy
Statement and any other expenses relating to the S-4 Registration Statement. All
cash required to make payments to Dissenting Stockholders in respect of
Dissenting Shares shall originate with Parent.
7.13. Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, the Stock Option Agreement or the Stockholder Voting Agreements, each
of Parent and the Company and its board of directors shall grant such approvals
and take such actions as are necessary so that such transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement, the Stock Option Agreement, the Stockholder Voting Agreements or by
the Merger and otherwise act to eliminate or minimize the effects of such
statute or regulation on such transactions.
7.14. Warrants. Prior to the Effective Time, the Company and Parent shall
take all action necessary to provide that on and after the Effective Time the
Warrants shall be exercisable only for the Merger Consideration.
7.15. Assignment of Contracts. At the Effective Time, the Company shall
assign those non-competition and non-solicitation Contracts that the Company has
entered into with its employees, as Parent may request.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly
approved by holders of Shares constituting the Company Requisite Vote as
set forth in Section 6.1(c) and shall have been duly approved by the sole
stockholder of Merger Sub in accordance with applicable law and the
Organizational Documents of each such corporation.
(b) NASDAQ Quotation. The appropriate notification form for quotation
of the shares of Parent Common Stock issuable to the Company stockholders
pursuant to this Agreement shall have been filed with the NASDAQ and the
applicable fee, in connection therewith, shall have been paid by Parent.
(c) Regulatory Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated and, other than the filing provided for in Section 2.3, all
notices, reports and other filings required to be made prior to the
Effective Time by the Company or Parent with, and all consents,
registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by the Company or Parent
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from, any Governmental Entity in connection with the execution and delivery
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby by the Company, Parent and Merger Sub
shall have been made or obtained (as the case may be).
(d) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, law, ordinance, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) that is in
effect and restrains, enjoins or otherwise prohibits consummation of the
Merger or the other transactions contemplated by this Agreement
(collectively, an "Order"), and no Governmental Entity or any other Person
shall have instituted any proceeding or threatened to institute any
proceeding seeking any such Order.
(e) Accountant Letter. Parent and the Company shall have received a
letter, dated as of the Closing Date, from Ernst & Young LLP regarding the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
(f) S-4 Registration Statement. The S-4 Registration Statement shall
have become effective under the Securities Act. No stop order suspending
the effectiveness of the S-4 Registration Statement shall have been issued,
and no proceedings for that purpose shall have been initiated or be
threatened, by the SEC.
(g) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Sullivan &
Cromwell and Palmer & Dodge LLP, respectively, dated the Closing Date, to
the effect that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, and
that each of Parent, Merger Sub and the Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
8.2. Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are also subject to the
satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company, the stockholders set forth on the signature
pages of this Agreement, and the Stockholder Representative (on behalf of
the stockholders of the Company) set forth in this Agreement shall be true
and correct in all respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an
earlier date); unless the failure of any such representation or warranty to
be so true and correct, has not had or is not reasonably likely to have, a
Company Material Adverse Effect, and Parent shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer
or the President of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer or the President of the Company to such effect.
(c) Consents Under Agreements. Except as set forth on Schedule 8.2(c)
of the Company Disclosure Schedule, the Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required under any material Contract to which the Company is a party.
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(d) Legal Opinion. Parent shall have received an opinion of Palmer &
Dodge LLP, counsel to the Company, dated the Closing Date, substantially in
the form attached hereto as Exhibit B.
(e) Resignations. Parent shall have received the resignations of each
director of the Company.
(f) Non-competition Agreements. Parent and/or Merger Sub shall have
entered into a non-competition agreement with those individuals set forth
in Schedule 8.2(f) of the Company Disclosure Schedule in a form
satisfactory to Parent and each of such individuals.
(g) Affiliates Letters. Parent shall have received an Affiliates
Letter from each Person identified as an affiliate of the Company pursuant
to Section 7.8.
8.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be
true and correct in all respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to
the extent any such representation or warranty express speaks as of an
earlier date); unless the failure of any such representation or warranty to
be so true and correct, has not had or is not reasonable likely to have, a
Parent Material Adverse Effect, and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent to
such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by an executive officer of Parent
to such effect.
(c) Consents Under Agreements. Parent shall have obtained the consent
or approval of each Person whose consent or approval shall be required in
order to consummate the transactions contemplated by this Agreement under
any material Contract to which Parent or any of its Subsidiaries is a
party.
(d) Legal Opinion. The Company shall have received an opinion of the
General Counsel of Parent dated the Closing Date addressing the matters set
forth in Exhibit C hereto.
ARTICLE IX
TERMINATION
9.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 8.1(a), by mutual written consent of the Company and Parent by action of
their respective Boards of Directors.
9.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if (i)
the Merger shall not have been consummated by February 15, 2000; (the
"Termination Date"), (ii) the approval of the Company's stockholders required by
Section 8.1(a) shall not have been obtained at a meeting duly convened therefor
or at any adjournment or postponement thereof or (iii) any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Merger shall
become final and non-appealable (whether
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before or after the approval by the stockholders of the Company); provided, that
the right to terminate this Agreement pursuant to clause (i) above shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure of the Merger to be consummated.
9.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in Section
8.1(a), by action of the Board of Directors of the Company:
(a) if (i) the Company is not in breach of any of the terms of this
Agreement, (ii) the Board of Directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning a transaction that constitutes
a Superior Proposal and the Company notifies Parent in writing that it
intends to enter into such an agreement, attaching the most current version
of such agreement to such notice, (iii) Parent does not make, within five
business days of receipt of the Company's written notification of its
intention to enter into a binding agreement for a Superior Proposal, an
offer that the Board of Directors of the Company determines, in good faith
after consultation with its financial advisors, is at least as favorable,
from a financial point of view, to the stockholders of the Company as the
Superior Proposal and (iv) the Company prior to such termination pays to
Parent in immediately available funds any fees required to be paid pursuant
to Section 9.5. The Company agrees (x) that it will not enter into a
binding agreement referred to above until at least the sixth business day
after it has provided the notice to Parent required thereby and (y) to
notify Parent promptly if its intention to enter into a written agreement
referred to in its notification shall change at any time after giving such
notification.
(b) if there has been a material breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement contained in this Agreement
that is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by the Company to the party
committing such breach.
9.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by the stockholders of Parent referred to in Section
8.1(a), by action of the Board of Directors of Parent if (i) the Board of
Directors of the Company shall have withdrawn or adversely modified its approval
or recommendation of this Agreement or failed to reconfirm its recommendation of
this Agreement within five business days after a written request by Parent to do
so, (ii) there has been a material breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement that is not curable
or, if curable, is not cured within 30 days after written notice of such breach
is given by Parent to the Company or (iii) if the Company or any of the other
Persons described in Section 7.2 as affiliates, representatives or agents of the
Company shall take any of the actions that would be proscribed by Section 7.2
but for the proviso therein allowing certain actions to be taken pursuant to
clause (i), (ii) or (iii) of the proviso under the conditions set forth therein.
9.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article, this Agreement (other than the provisions of Sections 9.5, 11.4 and
11.5) shall become void and of no effect with no liability on the part of any
party hereto (or of any of its directors, officers, employees, agents, legal and
financial advisors or other representatives); provided, however, except as
otherwise provided herein, no such termination shall relieve any party hereto of
any liability or damages resulting from any breach of this Agreement.
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(b) In the event that this Agreement is terminated (x) by the Company
pursuant to Section 9.3(a) or (y) by Parent pursuant to Section 9.4(i) (in
connection with a Superior Proposal) or Section 9.4(iii), then the Company shall
promptly, but in no event later than two days after the date of such
termination, pay Parent a termination fee of $2,500,000 and shall promptly, but
in no event later than two days after being notified of such by Parent, pay all
of the charges and expenses, including those of the Exchange Agent, incurred by
Parent or Merger Sub in connection with the Transaction Agreements and the
transactions contemplated by the Transaction Agreements up to a maximum amount
of $1,000,000, in each case payable by wire transfer of same day funds. The
Company's payment shall be the sole and exclusive remedy of Parent and Merger
Sub against the Company and its directors, officers, employees, agents, advisors
or other representatives with respect to the breach of any covenant or agreement
giving rise to such payment; provided, however, no such payment shall relieve
any party hereto of any liability or damages resulting solely from any willful
breach of this Agreement. The Company acknowledges that the agreements contained
in this Section 9.5(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent and Merger Sub would
not enter into this Agreement; accordingly, if the Company fails to promptly pay
the amount due pursuant to this Section 9.5(b), and, in order to obtain such
payment, Parent or Merger Sub commences a suit which results in a judgment
against the Company for the fee set forth in this paragraph (b), the Company
shall pay to Parent or Merger Sub its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest (at a 10% rate) on
the amount of the fee.
ARTICLE X
INDEMNIFICATION
10.1. Survival; Right to Indemnification Not Affected by Knowledge;
Representations and Warranties Made as of the Closing Date.
(a) All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Schedules and any other certificate or document
delivered pursuant to this Agreement shall survive for one year after the
Effective Time (the "Survival Date") other than the representation and warranty
contained in Section 6.2(g) which shall not survive the Effective Time. Each
party's indemnification obligations, or liability obligations pursuant to
Section 10.8, with respect to representations, warranties, covenants, and
obligations in this Agreement, the Disclosure Schedules and any other
certificate or document delivered pursuant to this Agreement shall terminate
when the applicable representation, warranty, covenant, obligation terminates
pursuant to this Section; provided, however, that such obligations to indemnify,
or liability obligations pursuant to Section 10.8, shall not terminate with
respect to a particular item as to which, before the expiration of the
applicable survival period, the party (i) seeking indemnification has made a
claim by delivering a notice of such claim (in accordance with the terms of this
Article) to the parties from which indemnification is sought or (ii) seeking
Damages in accordance with Section 10.8 has commenced legal proceedings.
(b) Except as otherwise set forth in this Article X, the right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations shall not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, shall not affect the right to indemnification, payment
of Damages, or other remedy based on such representations, warranties,
covenants, and obligations.
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(c) Notwithstanding anything herein to the contrary, the representations
and warranties contained in Sections 6.1 and 6.2 of this Agreement shall, for
purposes of each party's indemnification obligations and liability obligations
pursuant to Section 10.8, be deemed to be made as of the date of this Agreement
and as of the Closing Date (except to the extent any such representation or
warranty expressly speaks of an earlier date) without regard to the exceptions
set forth in the certificates delivered in connection with Sections 8.2(a) and
8.3(a).
10.2. Indemnification and Payment of Damages by Holders of Shares. The
holders of Shares shall jointly and severally indemnify and hold harmless Parent
and its Affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives (collectively, the "Parent Indemnified
Parties"), for, and shall pay to the Parent Indemnified Parties the amount of,
any loss, liability, claim, damage or expense (including costs of investigation
and defense and reasonable attorneys' fees), whether or not involving a
third-party claim (collectively, "Damages"), directly or indirectly arising or
resulting from or in connection with:
(a) any breach of any representation or warranty made by the Company,
the Stockholders of the Company set forth on the signature pages of this
Agreement or the Stockholder Representative (on behalf of the stockholders
of the Company) in this Agreement or in any certificate delivered by the
Company pursuant to this Agreement;
(b) any breach by the Company of any covenant or obligation of the
Company in this Agreement; or
(c) any breach of, or failure to assign to Parent or any Affiliate of
Parent all of the rights under and terms of, any Contract to which the
Company is a party directly or indirectly arising or resulting from or in
connection with the Company's ceasing to exist by virtue of Merger.
10.3. Indemnification and Payment of Damages by Parent. Parent shall
indemnify and hold harmless the holders of Shares, and shall pay to such holders
the amount of any Damages arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by Parent in
this Agreement or in any certificate delivered by Parent pursuant to this
Agreement; or
(b) any breach by Parent of any covenant or obligation of Parent in
this Agreement.
10.4. Limitations on Amount -- Holder of Shares. Holders of Shares shall
not have liability for indemnification with respect to any matter described in
clause (a), (b) or (c) of Section 10.2 (i) unless and until the total amount of
all Damages with respect to such matters, taken together, exceeds $500,000, in
which case the applicable Parent Indemnified Party shall be entitled to
indemnification for the entire amount of the Parent Indemnified Party's Damages
and (ii) for any Damages in the aggregate in excess of the Holdback; provided,
however, that this Section 10.4 shall not apply to any breach of the Company's
representations and warranties of which the Company had knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional breach by the Company of any covenant or obligation, and the holders
of Shares shall be liable for all Damages with respect to such breaches.
10.5. Limitations on Amount -- Parent. Parent shall have no liability
(for indemnification or otherwise) with respect to the matters described in
clause (a) or (b) of Section 10.3 (i) unless and until the total of all Damages
with respect to such matters, taken together, exceeds $500,000, in which case
the holders of Shares shall be entitled to indemnification for the entire amount
of their Damages and (ii) for any Damages in the aggregate in excess of an
amount equal to (x) 535,000 multiplied by (y) the closing price on the NASDAQ of
the Parent Stock on the Closing Date; provided, however, that this Section 10.5
shall not apply to any breach of the Parent's representations and warranties of
which the Parent had knowledge at any time prior to the date on which such
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representation and warranty is made or any intentional breach by Parent of any
covenant or obligation, and Parent shall be liable for all Damages with respect
to such breaches.
10.6. Payments to Parent. (a) Any payment to be made to a Parent
Indemnified Party pursuant to this Article, shall be made in shares of Parent
Common Stock valued at the Closing price on the NASDAQ of the Parent Stock on
the Closing Date in accordance with the terms of the Escrow Agreement.
(b) All shares of Parent Common Stock held in the Holdback Account (the
"Held Back Shares") shall, for federal income tax purposes, be deemed to be
owned by the stockholders of the Company, or such other persons or entities in
whose names the stockholders may instruct Parent to record on the stock transfer
books of the Company the Held Back Shares, who or which shall be entitled to
vote the Held Back Shares on all matters presented to the stockholders of
Parent. Except with respect to any reclassification, recapitalization, stock
split or combination, exchange or readjustment of shares in the event any
dividends or distributions are made on or in respect of the Held Back Shares,
such dividends or distributions received with respect to such Held Back Shares
from the Effective Time through the time of such payment shall be paid to the
stockholders of the Company in accordance with the terms of the Escrow
Agreement.
10.7. Procedures for Indemnification. The party seeking indemnification
pursuant to this Article (the "Indemnified Party") agrees to give prompt notice
to the parties providing indemnification pursuant to this Article (the
"Indemnifying Parties") of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
this Article; provided that the failure to give such notice shall not affect the
rights of the Indemnifying Party except to the extent the Indemnified Party is
materially prejudiced by such failure. The notice shall state the information
then available regarding the amount and nature of such claim, liability or
expense and shall specify the provision or provisions of this Agreement under
which the liability or obligation is asserted. The Indemnifying Party may at the
request of the Indemnified Party participate in and control the defense of any
such suit, action or proceeding at its own expense. If the Indemnifying Party
admits responsibility for indemnification with respect to such claim, the
Indemnifying Party shall be entitled to control the defense of any such suit,
action or proceeding at its own expense. The Indemnified Party shall cooperate
with the Indemnifying Party in such defense; provided that the Indemnified Party
shall not be obligated to incur any out-of-pocket expenses except to the extent
the Indemnifying Party agrees in writing to reimburse the Indemnified Party for
such expenses as they are incurred. The Indemnifying Party shall not be liable
for any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnification may be sought hereunder; provided
that such consent shall not be unreasonably withheld (it being understood that
the Indemnifying Party may withhold consent if such settlement does not release
the Indemnifying Party from liability (in its capacity as Indemnifying Party) in
connection with such claim, litigation or proceeding). Without the consent of
the Indemnified Party, which consent shall not be unreasonably withheld, the
Indemnifying Party shall not settle any claim, litigation or proceeding in
respect of which indemnity may be sought hereunder if such settlement involves
an admission of liability or wrongdoing on the part of the Indemnified Party, or
a restriction on the operation of the Indemnified Party's business in the future
or would materially adversely affect the business reputation or Tax liability of
the Indemnified Party.
10.8. Non-Exclusive Remedy. (a) Notwithstanding anything herein to the
contrary, the parties hereto acknowledge and agree that the provisions of this
Article X with respect to indemnification shall not be the exclusive remedy for
Parent and that Parent shall have the right to recover Damages from the holders
of Shares from any court of competent jurisdiction for, and that the holders of
Shares shall be jointly and severally liable for, Damages directly or indirectly
arising or resulting from or in connection with: (i) any breach of any
representation or warranty made by the Company, the
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Stockholders Representative (on behalf of the stockholders of the Company) or
the stockholders of the Company set forth on the signature pages of this
Agreement or in any certificate delivered by the Company pursuant to this
Agreement; (ii) any breach by the Company of any covenant or obligation of the
Company in this Agreement or (iii) any breach of, or failure to assign to Parent
or any Affiliate of Parent of all of the terms of, any Contract to which the
Company is a party directly or indirectly arising or resulting from or in
connection with the Company's ceasing to exist by virtue of the Merger;
provided, however, the holders of Shares shall not have any liability for any
Damages in the aggregate in excess of the amount equal to (x) 535,000 multiplied
by (y) the closing price on the NASDAQ of the Parent Stock on the Closing Date.
(b) Any payment of a Damage claim pursuant to Section 10.8 may, at the
option of the holder of Shares, be made in cash or in shares of Parent Common
Stock having a value equal to the amount of cash that would satisfy in full such
Damage claim.
10.9. Tax Treatment. Indemnification payments made pursuant to this
Article shall be treated for Tax purposes as adjustments to the Merger
Consideration.
10.10. Pooling. It is understood and agreed that no party to this
Agreement shall take any action or omit to take any action pursuant to this
Article to the extent that such action or omission would result in the Merger
not qualifying for pooling-of-interests accounting treatment under GAAP.
ARTICLE XI
MISCELLANEOUS AND GENERAL
11.1. Modification or Amendment. Subject to the provisions of the
applicable law, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties.
11.2. Waiver of Conditions. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of any other party hereto or (b) waive compliance with
any of the agreements of any other party or any conditions to its own
obligations, in each case only to the extent such obligations, agreements and
conditions are intended for its benefit and to the extent permitted by
applicable law. Any such extension or waiver shall be binding upon a party only
if such extension or waiver is set forth in a writing executed by such party.
11.3. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
11.4. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. THE PARTIES
HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF
DELAWARE AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE
STATE OF DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE
PROVISIONS OF THE TRANSACTION AGREEMENTS, AND IN RESPECT OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR
OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT
OR
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PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE
VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT ANY OF THE TRANSACTION AGREEMENTS
MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY
AGREE THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD
AND DETERMINED IN SUCH A DELAWARE STATE OR FEDERAL COURT. THE PARTIES HEREBY
CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES
AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR
OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER
PROVIDED IN SECTION 11.5 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW
SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THE TRANSACTION AGREEMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY OF THE
TRANSACTION AGREEMENTS, OR THE TRANSACTIONS CONTEMPLATED THEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 11.4.
11.5. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by express mail or equivalent over-night courier service,
prepaid, or by facsimile:
if to Parent or Merger Sub
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
Attention: General Counsel (Vern Norviel)
fax: (408) 481-4709
(with a copy to Neil Anderson, Esq.
Sullivan & Cromwell
125 Broad Street, New York, NY 10004
fax: (212) 558-3588).
if to the Company
Genetic MicroSystems, Inc.
34 Commerce Way
Woburn, MA 01801
Attention: Jean Montagu
fax: (781) 932-9433
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(with a copy to Michael Lytton, Esq.
Palmer & Dodge, LLP
One Beacon Street
Boston, MA 02108
fax: (617) 227-4420)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
11.6. Entire Agreement. This Agreement (including any exhibits hereto),
the Company Disclosure Schedule, the Parent Disclosure Schedule, the Stock
Option Agreement and the Escrow Agreement constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof.
11.7. No Third Party Beneficiaries. This Agreement is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
11.8. Obligations of Parent. Whenever this Agreement requires Merger Sub
to take any action, such requirement shall be deemed to include an undertaking
on the part of Parent to cause Merger Sub to take such action.
11.9. Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including penalties and interest)
incurred by Parent or the Company in connection with the Merger shall be paid
50% by Parent and 50% by the Company when due.
11.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
11.11. Interpretation. (a) The table of contents and headings herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(b) The inclusion of any matter in a Section or Schedule to the Company
Disclosure Schedule shall also be deemed to be an inclusion for any other
Section or Schedule in the Company Disclosure Schedule if there is a sufficient
indication in the Section or Schedule containing the inclusion to reasonably
inform a Person of the applicability of the matter to such other Schedule. In
the event of any conflict between the Parent Disclosure Schedule or the Company
Disclosure Schedule and this Agreement, the terms of this Agreement shall
prevail.
11.12. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, (i) Parent may assign this Agreement to any
entity that acquires substantially all of the business or assets of Parent and
(ii) that Parent may designate, by written notice to the Company, another
wholly-owned direct or indirect Subsidiary to be a Constituent Corporation in
lieu of Merger Sub, in which event all references herein to Merger Sub shall be
deemed references to
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such other Subsidiary, except that all representations and warranties made
herein with respect to Merger Sub as of the date of this Agreement shall be
deemed representations and warranties made with respect to such other Subsidiary
as of the date of such designation.
11.13. Specific Performance. The parties hereto acknowledge that, in view
of the uniqueness of the subject matter hereof, the parties hereto would not
have an adequate remedy at law for money damages if this Agreement were not
performed in accordance with its terms, and therefore agree that the parties
hereto shall be entitled to specific enforcement of the terms hereof in addition
to any other remedy to which the parties hereto may be entitled at law or in
equity.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
AFFYMETRIX, INC.
By: /s/ VERN NORVIEL
------------------------------------
Name: Vern Norviel
Title: Vice President, General
Counsel and Corporate
Secretary
GMS ACQUISITION, INC.
By: /s/ SUSAN E. SIEGEL
------------------------------------
Name: Susan E. Siegel
Title: President
By: /s/ EDWARD HURWITZ
------------------------------------
Name: Edward Hurwitz
Title: Treasurer
GENETIC MICROSYSTEMS, INC.
By: /s/ JEAN MONTAGU
------------------------------------
Name: Jean Montegu
Title: President
By: /s/ PETER LEWIS
------------------------------------
Name: Peter Lewis
Title: Treasurer
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Stockholder Representative
(on behalf of all of the stockholders
of Genetic MicroSystems, Inc.)
By: /s/ JEAN MONTAGU
------------------------------------
Name: Jean Montagu
/s/ STANLEY ROSE
------------------------------------
Stanley Rose
/s/ PETER HONKANEN
------------------------------------
Peter Honkanen
/s/ MYLES L. MACE, JR.
------------------------------------
Myles L. Mace, Jr.
/s/ DOMINIC MONTAGU
------------------------------------
Dominic Montagu
/s/ SASHA MONTAGU
------------------------------------
Sasha Montagu
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 10, 1999 (the "Agreement"),
between Affymetrix, Inc., a Delaware corporation (the "Grantee"), and Genetic
MicroSystems, Inc., a Massachusetts corporation (the "Grantor").
WHEREAS, the Grantee, GMS Acquisition, Inc., a Massachusetts corporation
and a wholly owned subsidiary of the Grantee ("Merger Sub"), the Grantor and
Jean Montagu as Stockholder Representative are entering into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, for the merger of Merger Sub with and into Grantor
(the "Merger");
WHEREAS, the Grantee and Merger Sub have requested that the Grantor grant
to the Grantee an option to purchase up to 684,297 shares of Common Stock, no
par value per share, of the Grantor (the "Common Stock"), on the terms and
subject to the conditions hereof; and
WHEREAS, the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread; Repurchase Right.
(a) Contemporaneously herewith the Grantee, Merger Sub and the Grantor are
entering into the Merger Agreement. Subject to the other terms and conditions
set forth herein, the Grantor hereby grants to the Grantee an irrevocable option
(the "Option") to purchase up to 684,297 shares of Common Stock (the "Shares")
at a cash purchase price equal to $21.50 per share (the "Purchase Price"). The
Option may be exercised by the Grantee, in whole or in part, at any time, or
from time to time, following (but not prior to) the occurrence of the events set
forth in any of clauses (i), (ii), (iii) or (iv) of Section 2(d) hereof, and
prior to the Termination Date (as defined herein).
(b) In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Stock Exercise Notice")
specifying the total number of Shares it wishes to purchase and a date (subject
to the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act")) not later than 10 business days and not earlier than three business days
following the date such notice is given for the closing of such purchase. In the
event of any change in the number of issued and outstanding shares of capital
stock of the Company (by reason of any stock dividend, stock split, split-up,
recapitalization, merger, issuance of capital stock upon exercise of warrants or
options or any other event), the number of Shares subject to this Option and the
purchase price per Share shall be appropriately adjusted to restore the Grantee
to its rights hereunder.
(c) If at any time the Option is then exercisable pursuant to the terms of
Section 1(a) hereof and at or prior to such time the termination fee referred to
in Section 9.5(b) of the Merger Agreement shall have become payable, the Grantee
may from time to time elect, in lieu of exercising the Option to purchase Shares
provided in Section 1(a) hereof, to send a written notice to the Grantor (a
"Cash Exercise Notice") specifying a date not later than 20 business days and
not earlier than 10 business days following the date such notice is given on
which date the Grantor shall pay to the Grantee an amount in cash (the
"Cancellation Amount") equal to the Spread (as hereinafter defined) multiplied
by all or such portion of the Shares subject to the Option as Grantee shall
specify. As used herein "Spread" shall mean the excess over the Purchase Price
of the highest price per share of Common Stock (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid or proposed to be
paid by any person pursuant to any Acquisition Proposal (as
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defined in the Merger Agreement) occurring after the date of this Agreement and
prior to the Termination Date (the "Alternative Purchase Price"). If the
Alternative Purchase Price includes any property other than cash, the
Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if
any, included in the Alternative Purchase Price plus (ii) the fair market value
of such other property. If such other property consists of securities with an
existing public trading market, the average of the closing prices (or the
average of the closing bid and asked prices if closing prices are unavailable)
for such securities in their principal public trading market on the five trading
days ending five days prior to the date of the Cash Exercise Notice shall be
deemed to equal the fair market value of such property. Upon exercise of its
right to receive cash pursuant to this Section 1(c), the obligations of the
Grantor to deliver Shares pursuant to Section 3 shall be terminated with respect
to such number of Shares for which the Grantee shall have elected to be paid the
Spread.
(d) At the request of the Grantor at any time during the 180-day period
commencing on each date on which the Option is exercised (the "Call Period"),
the Grantor may repurchase from the Grantee, and the Grantee shall sell to the
Grantor, any or all of the Shares acquired by the Grantee pursuant hereto as a
result of such exercise and with respect to which the Grantee has beneficial
ownership at the time of such repurchase at a price per share equal to the
Repurchase Price (defined below) per share in respect of the Shares so acquired
(such price per share multiplied by the number of Shares to be repurchased
pursuant to this Section 1(d) being herein called the "Repurchase
Consideration"). Each date on which the Grantor exercises its rights under this
Section 1(d) by delivering its request to the Grantee is referred to as a
"Grantor Request Date." "Repurchase Price" per share shall be the Purchase
Price. If the Grantor exercises its rights under this Section 1(d), the Grantor
shall, within five business days after the applicable Grantor Request Date, pay
the applicable Repurchase Consideration in immediately available funds, and the
Grantee shall surrender to the Grantor certificates evidencing the Shares
purchased hereunder, and the Grantee shall warrant to the Grantor that,
immediately prior to the repurchase thereof pursuant to this Section 1(d), the
Grantee had sole record and beneficial ownership of such Shares and that such
Shares were then held free and clear of all encumbrances.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction prohibiting the
delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the HSR Act shall have
expired or been terminated; and
(c) the representations and warranties of the Grantee made in Section
5 of this Agreement shall be true and correct in all material respects as
of the date of the closing of the issuance of the Shares; and
(d) (i) in the event that (A) a bona fide Acquisition Proposal (as
defined in the Merger Agreement) shall have been made to the Grantor or any
of its stockholders, and on or following the date of the Merger Agreement,
but prior to the date of the meeting of the Grantor's stockholders to
approve the Merger Agreement, such Acquisition Proposal is or becomes
publicly known, and (B) on or following the date on which such Acquisition
Proposal is or becomes publicly known, (i) the Merger Agreement is
terminated by the Grantor pursuant to Section 9.3(a) of the Merger
Agreement or (ii) the Merger Agreement is terminated by the Grantee
pursuant to clause (i) (in connection with a Superior Proposal) or clause
(iii) of Section 9.4 of the Merger Agreement; or (iii) the Grantor shall
have delivered to Grantee the written notification pursuant to Section
9.3(a)(ii) of the Merger Agreement and the Grantee
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shall have notified the Grantor in writing that the Grantee does not intend
to match the Superior Proposal (as defined in the Merger Agreement)
referred to in such notification. As used in this Agreement, "person" shall
have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Stock Exercise Notice or Cash Exercise Notice or as specified in
Section 1(d), as the case may be, at 10:00 A.M., local time, at the offices of
Sullivan & Cromwell, 125 Broad Street, New York, New York, or, if the conditions
set forth in Section 2(a), (b) or (c) have not then been satisfied, on the
second business day following the satisfaction of such conditions, or at such
other time and place as the parties hereto may agree (the "Closing Date"). On
the Closing Date, (i) in the event of a closing pursuant to Section 1(b) hereof,
the Grantor will deliver to the Grantee a certificate or certificates,
representing the Shares in the denominations designated by the Grantee in its
Stock Exercise Notice and the Grantee will purchase such Shares from the Grantor
at the price per Share equal to the Purchase Price, (ii) in the event of a
closing pursuant to Section 1(c) hereof, the Grantor will deliver to the Grantee
cash in an amount determined pursuant to Section 1(c) hereof; or (iii) in the
event of a closing pursuant to Section 1(d) hereof, the Grantor will deliver to
the Grantee cash in an amount determined pursuant to Section 1(d) hereof. Any
payment made by the Grantee to the Grantor, or by the Grantor to the Grantee,
pursuant to this Agreement shall be made by certified or official bank check or
by wire transfer of federal funds to a bank designated by the party receiving
such funds.
(b) The Grantee agrees not to transfer or otherwise dispose of the Option
or the Shares, or any interest therein, except in compliance with the Securities
Act of 1933, as amended (the "Securities Act") and any applicable state
securities law. The Grantee further agrees that the certificates representing
the Shares shall bear an appropriate legend relating to the fact that such
Shares have not been registered under the Securities Act.
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Massachusetts and has the requisite corporate power and authority to enter into
and perform this Agreement; (b) the execution and delivery of this Agreement by
the Grantor and the consummation by it of the transactions contemplated hereby
have been duly authorized by the Board of Directors of the Grantor and this
Agreement has been duly executed and delivered by a duly authorized officer of
the Grantor and constitutes a valid and binding obligation of the Grantor,
enforceable in accordance with its terms; (c) the Grantor has taken all
necessary corporate action to authorize and reserve the Shares issuable upon
exercise of the Option and the Shares, when issued and delivered by the Grantor
upon exercise of the Option and paid for by the Grantee as contemplated hereby,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights; (d) except as otherwise required by the HSR Act, the
execution and delivery of this Agreement by the Grantor and the consummation by
it of the transactions contemplated hereby do not require the consent, waiver,
approval or authorization of or any filing with any person or public authority
and will not violate, result in a breach of or the acceleration of any
obligation under, or constitute a default under, any provision of the Grantor's
Organizational Documents (as defined in the Merger Agreement), or any indenture,
mortgage, lien, lease, agreement, contract, instrument, order, rule, regulation,
judgment, ordinance, or decree, or restriction by which the Grantor or any of
its subsidiaries or any of their respective properties or assets is bound; and
(e) no "fair price", "moratorium", "control share acquisition," "interested
shareholder" or other form of antitakeover statute or regulation (including but
not limited to Chapters 110C, 110D, 110E
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and 110F of the General Laws of the Commonwealth of Massachusetts) is or shall
be applicable to the acquisition of Shares pursuant to this Agreement.
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that (a) the Grantee is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement, (b) the execution and delivery of this Agreement by the
Grantee and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Grantee and this Agreement has been duly executed and delivered by a duly
authorized officer of the Grantee and constitutes a valid and binding obligation
of the Grantee, enforceable in accordance with its terms; and (c) the Grantee is
acquiring the Option and, if and when it exercises the Option, will be acquiring
the Shares issuable upon the exercise thereof for its own account and not with a
view to distribution or resale in any manner which would be in violation of the
Securities Act.
6. Filings; Governmental Consents. After the Option becomes exercisable
hereunder, the Grantor will use its reasonable best efforts to obtain approval
of such listing and to effect all necessary filings by the Grantor under the HSR
Act. Each of the parties hereto will use its reasonable best efforts to obtain
consents of all third parties and governmental authorities, if any, necessary to
the consummation of the transactions contemplated by this Agreement.
7. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
8. Modification or Amendment. Subject to the provisions of applicable
law, the parties hereto may modify or amend this Agreement, by written agreement
executed and delivered by duly authorized officers of the respective parties.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
10. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(A) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The
parties hereby irrevocably submit to the jurisdiction of the courts of the State
of Delaware and the Federal courts of the United States of America located in
Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement, the Merger Agreement and of the other documents
referred to in this Agreement and the Merger Agreement, and in respect of the
transactions contemplated hereby and thereby, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement, the Merger Agreement, or any such document may not be enforced in or
by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
Delaware State or Federal court. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
11 or in such other manner as may be permitted by law, shall be valid and
sufficient service thereof.
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(B) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.
11. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to the Grantee:
General Counsel: Vern Norviel
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
fax: (408) 481-4709
with copies to:
Neil T. Anderson
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
if to the Grantor:
Jean Montagu
Genetic MicroSystems, Inc.
34 Commerce Way
Woburn, MA 01801
fax: (781) 932-9433
with copies to:
Michael E. Lytton
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
fax: (617) 227-4420
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
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12. Entire Agreement. This Agreement (including any exhibits and
schedules hereto), the Merger Agreement and the other documents referred to in
this Agreement and the Merger Agreement, constitute the entire agreement, and
supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the subject
matter hereof.
13. No Third Party Beneficiaries. This Agreement is not intended to
confer upon any person or entity other than the parties hereto any rights or
remedies hereunder.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
15. Specific Performance. The parties hereto each acknowledge that, in
view of the uniqueness of the subject matter hereof, the parties hereto would
not have an adequate remedy at law for money damages if this Agreement were not
performed in accordance with its terms, and therefore agree that the parties
hereto shall be entitled to specific enforcement of the terms hereof in addition
to any other remedy to which the parties hereto may be entitled at law or in
equity.
16. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that (i) the Grantee may assign this
Agreement to any entity that acquires substantially all of the business or
assets of the Grantee and (ii) the Grantee may assign its rights and obligations
under this Agreement to any of its direct or indirect wholly owned subsidiaries
(including Merger Sub). Any purported assignment made in contravention of this
Agreement shall be null and void.
17. Captions. The Section captions herein are for convenience of
reference only and do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
18. Termination.
(a) The right to exercise the Option granted pursuant to this Agreement
shall terminate at (and the Option shall no longer be exercisable after) the
earliest of (i) the Effective Time (as defined in the Merger Agreement), (ii)
the first anniversary of the earliest to occur of the events set forth in any of
clauses (i), (ii), (iii) or (iv) of Section 2(d), and (iii) the thirtieth day
following the termination of the Merger Agreement if prior to such thirtieth day
the events set forth in any of clauses (i), (ii), (iii) or (iv) of Section 2(d)
shall not have occurred (such earliest date being referred to in this Agreement
as the "Termination Date"); provided that, if the Option cannot be exercised or
the Shares cannot be delivered to the Grantee upon such exercise because one or
more of the conditions set forth in Section 2(a) or (b) hereof have not yet been
satisfied, the Termination Date shall be extended until thirty days after such
impediment to exercise or delivery has been removed.
(b) All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
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19. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $5,000,000 and, if it otherwise would exceed such amount, the Grantee
shall repay such excess amount to Grantor in cash so that Grantee's Total Profit
shall not exceed $5,000,000 after taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of (i) the amount of cash actually received by Grantee pursuant
to Section 9.5 of the Merger Agreement and Section 1(c) hereof, less (ii) any
repayment of a portion of such cash to Grantor.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
duly authorized officers of the parties hereto as of the date hereof.
GENETIC MICROSYSTEMS, INC.
By: /s/ JEAN MONTAGU
------------------------------------
Name: Jean Montagu
Title: President
AFFYMETRIX, INC.
By: /s/ VERN NORVIEL
------------------------------------
Name: Vern Norviel
Title: Vice President, General
Counsel, and Corporate
Secretary
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APPENDIX C
ESCROW AGREEMENT
ESCROW AGREEMENT (hereinafter called this "Agreement"), dated as of
September 10, 1999, among Genetic MicroSystems, Inc., a Massachusetts
corporation (the "Company"), Affymetrix, Inc., a Delaware corporation
("Parent"), GMS Acquisition, Inc., a Massachusetts corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), Jean Montagu (the "Stockholder
Representative") and Bank One Trust Company, NA, as the Escrow Agent (the
"Escrow Agent").
WHEREAS, Parent, Merger Sub, the Company, the Stockholder Representative
and certain stockholders of the Company have entered into an Agreement and Plan
of Merger dated as of September 10, 1999 (the "Merger Agreement") pursuant to
which, among other things, the Company shall merge with and into Merger Sub (the
"Merger");
WHEREAS, pursuant to the terms of the Merger Agreement, Parent Indemnified
Parties (as defined below) are to be indemnified by the Company's stockholders
for certain events or occurrences specified in Article X of the Merger
Agreement, including breaches of representations, warranties, covenants and
agreements made, entered into or to be performed pursuant to the terms of the
Merger Agreement;
NOW THEREFORE, in consideration of mutual promises and good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, the parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meaning:
"business day" means any day other than a Saturday, a Sunday or a day
on which banks in California are authorized or obligated by law or
executive order to close.
"Closing Date" means the date on which the Merger becomes effective.
"Escrow Account" means a separate account established by the Escrow
Agent for the purpose of holding shares of Parent Stock delivered to it
pursuant to Section 3 (collectively, the "Assets").
"Officer's Certificate" means a certificate signed by the President or
any Vice-President of Parent substantially in the form attached hereto as
Exhibit A stating that a Parent Indemnified Party has incurred or suffered
any damages, losses, liabilities and expenses (including reasonable
attorney fees and expenses) as a result of certain events or occurrences
specified in Article X of the Merger Agreement, including a breach of any
representation, warranty, covenant or agreement set forth in the Merger
Agreement, for which indemnification is available pursuant to the Merger
Agreement in the aggregate amount set forth in such Officer's Certificate
(the "Indemnity Amount") that is delivered by Parent on the same day to the
Escrow Agent and the Stockholder Representative.
"Parent Indemnified Party" means Parent and any of its affiliates,
including, effective upon the closing of the Merger, the Surviving
Corporation.
"Parent Stock" means the common stock, par value $0.01 per share, of
Parent.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or
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other persons performing similar functions are at any time directly or
indirectly owned by such Person.
2. Appointment of the Escrow Agent. Parent, Merger Sub, the Company and
the Stockholder Representative hereby appoint Bank One Trust Company, NA to act
as the Escrow Agent on the terms and conditions set forth herein and Bank One
Trust Company, NA hereby accepts such appointment on such terms and conditions.
3. Deposit of Shares. In accordance with the Merger Agreement, Parent
shall deposit with the Escrow Agent at the closing of the Merger 107,000 shares
of Parent Stock.
4. Escrow Account. The Escrow Agent shall deposit such shares, upon
receipt, into the Escrow Account and shall hold, safeguard and distribute such
shares in accordance with and subject to the terms of this Agreement. The shares
of Parent Stock held in the Escrow Account (i) shall not, so long as the Escrow
Account is in existence, be sold by the Stockholder Representative, any record
holder thereof or the Escrow Agent and (ii) shall be recorded on the stock
transfer books of Parent as being held in the name of the stockholder(s) who own
such shares of record and the Stockholder Representative shall execute any
assignment on behalf of such holders that is reasonably requested by the Escrow
Agent to permit the Escrow Agent to perform its duties hereunder. The Escrow
Agent shall exercise the voting rights associated with shares of Parent Stock
remaining in the Escrow Account in accordance with such instructions as the
Stockholder Representative may from time to time deliver to the Escrow Agent.
5. Purpose. It is understood and agreed that the Escrow Account and the
Assets are for the purpose of satisfying the indemnification obligations owed to
Parent by the Stockholder Representative and the other stockholders of the
Company and no Assets shall be used for any other purpose except as explicitly
set forth in this Agreement.
6. Distributions on Parent Stock. Parent shall pay to the Escrow Agent
all cash or stock dividends and other distributions (including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares) with respect to shares of Parent Stock held in the
Escrow Account. The Escrow Agent shall (i) deposit dividends and distributions
declared by reason of any reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares of Parent Stock into the Escrow
Account in accordance with and subject to the terms of this Agreement and such
dividends and distributions will be held and distributed in accordance with the
terms of this Agreement and (ii) distribute cash or stock dividends and
distributions not declared by reason of any reclassification, recapitalization,
stock split or combination, exchange or readjustment of shares of Parent Stock
to the Stockholder Representative for distribution to the stockholders of the
Company in accordance with the relative ownership percentage of each such
stockholder.
7. Rights to the Escrow Account. In accordance with and subject to the
terms of this Agreement, Parent Indemnified Parties shall be entitled to recover
from the Escrow Account the Indemnity Amount or the Final Indemnity Amount (as
defined below), as the case may be.
8. Indemnity Payments by the Escrow Agent. (a) Subject to Section 8(b),
on the fifteenth business day after receipt by the Escrow Agent of an Officer's
Certificate, the Escrow Agent shall deliver to Parent from the Assets in a
manner specified in writing by Parent the number of shares of Parent Stock equal
to the quotient obtained by dividing the Indemnity Amount by the closing price
on the NASDAQ stock market of the Parent Stock on the Closing Date.
(b) If the Stockholder Representative shall, within fifteen business days
after the Escrow Agent's and the Stockholder Representative's receipt of the
Officer's Certificate, notify the Escrow Agent and Parent in writing that the
Stockholder Representative objects to the Indemnity Amount, (i) the Indemnity
Amount shall not be delivered to Parent, (ii) Parent and the Stockholder
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Representative shall (A) endeavor in good faith to agree on the amount the
Parent Indemnified Party shall be entitled to recover from the Escrow Account or
have such amount determined by a court of competent jurisdiction pursuant to the
Merger Agreement (such amount being the "Final Indemnity Amount") and (B) either
deliver to the Escrow Agent a certificate signed by the President or any
Vice-President of Parent and the Stockholder Representative setting forth the
Final Indemnity Amount (the "Joint Certificate") or deliver to the Escrow Agent
the court order or judgment by a court of competent jurisdiction, certified by
either the Stockholder Representative or Parent as an original (or as a true and
complete copy thereof) (a "Final Judgment") and (iii) the Escrow Agent shall
deliver to Parent the Final Indemnity Amount from the Assets in the manner set
forth in Section 8(a). If the Stockholder Representative fails so to notify
Parent or the Escrow Agent of the Stockholder Representative's objection to the
Indemnity Amount within such ten business day period, the Indemnity Amount shall
be deemed conclusive and binding on all the parties hereto, whereupon the Escrow
Agent shall make distributions from the Escrow Account in the manner set forth
in Section 8(a).
(c) Notwithstanding any of the foregoing, the Escrow Account and any
payments hereunder shall be subject to equitable adjustment to reflect through
proportionate increase or decrease any change in the outstanding capital stock
of Parent for any reason, including, without limitation, by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares of Parent Stock, or any stock dividend thereon. Parent
hereby undertakes to notify the Escrow Agent promptly of any event requiring
such equitable adjustment.
9. The Stockholder Representative. (a) Pursuant to the terms of the
Merger Agreement each stockholder of the Company, who has not perfected
statutory dissenters' rights, has granted the Stockholder Representative the
authority to act as agent for each such stockholder in connection with the
transactions contemplated hereunder and to perform all acts required hereby,
including, but not limited to, receiving and delivering all notices, giving all
approvals and waivers, and exercising all other rights of each such stockholder
hereunder.
(b) In the event of the death or incapacity of the Stockholder
Representative, such other Person as may be designated by the vote or written
consent of a majority in interest of the stockholders of the Company (as set
forth on Exhibit C hereto) shall, upon notice to Parent and the Escrow Agent, be
appointed as the successor Stockholder Representative.
(c) Parent and the Escrow Agent shall be entitled to rely, without any
investigation or inquiry by Parent or the Escrow Agent, upon all actions by the
Stockholder Representative as having been taken upon the authority of the
stockholders of the Company. Any action by the Stockholder Representative shall
be conclusively deemed to be the action of the stockholders of the Company and
Parent and the Escrow Agent shall not have any liability or responsibility to
the stockholders of the Company for any action taken in reliance thereon.
(d) The Stockholder Representative shall not be liable to the stockholders
of the Company for any action taken or omitted to be taken hereunder as
Stockholder Representative, except due to the Stockholder Representative's gross
negligence or bad faith. The Stockholders of Genetic MicroSystems shall
indemnify the Stockholder Representative and hold the Stockholder Representative
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholder Representative and
arising out of or in connection with the acceptance or administration of the
Stockholder Representative's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Stockholder Representative.
10. Termination of the Escrow Account. (a) Five business days after the
one-year anniversary of the Effective Time (the "Termination Date"), the Escrow
Agent shall distribute all Assets then remaining including any dividends and
distributions not yet distributed pursuant to Section 6 hereof
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(except a sufficient amount of Assets to satisfy any unsatisfied claim specified
in any Officer's Certificate, Joint Certificate or Final Judgment theretofore
delivered to the Escrow Agent) to the stockholders of the Company pro rata in
accordance with the relative ownership percentage of each such stockholder;
provided, however, that if the Escrow Agent shall receive a certificate signed
by the President or any Vice-President of Parent instructing the Escrow Agent
not to distribute such Assets until any unsatisfied indemnification claim
hereunder has been resolved, the Escrow Agent shall hold such Assets until such
time as it receives a certificate signed by the President or any Vice-President
of Parent and the Stockholder Representative and dispose of such Assets in
accordance with the instructions set forth therein.
(b) It is understood and agreed that no party to this Agreement shall take
any action or omit to take any action pursuant to this Article to the extent
that such action or omission would result in the Merger not qualifying for
pooling-of-interests accounting treatment under GAAP.
11. Notices. All notices, requests and other communications to any party
hereunder shall be in wilting (including facsimile transmission) and shall be
given,
if to Parent or Merger Sub to:
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
Attention: General Counsel (Vern Norviel)
fax: (408) 481-4709
with copies to:
Neil T. Anderson
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
fax: (212) 558-3588
if to the Stockholder Representative to:
Jean Montagu
Genetic MicroSystems, Inc.
34 Commerce Way
Woburn, MA 01801
fax: (781) 932-9433
with a copy to:
Michael E. Lytton
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
fax: (617) 227-4420
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if to the Escrow Agent to:
Bank One Trust Company, NA
Global Corporate Trust Services
611 Woodward Avenue, M11-8110
Detroit, Michigan 48226
Attention: Amy J. Brehler
Fax: (313) 225-3945
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. (Eastern Time), and
such day is a business day, in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the
next succeeding business day in the place of receipt.
12. The Escrow Agent. (a) The Escrow Agent shall have no duty or
obligation hereunder other than to take such specific actions as are required of
it from time to time under the provisions hereof, and it shall incur no
liability hereunder or in connection herewith for anything whatsoever other than
as a result of its own gross negligence or willful misconduct. The party
primarily responsible for causing any and all losses, claims, liabilities and
expenses, including the reasonable fees of counsel, to the Escrow Agent shall
indemnify, hold harmless and defend the Escrow Agent from and against any and
all losses, claims, liabilities and expenses, including the reasonable fees of
counsel, which it may suffer or incur hereunder, or in connection herewith,
except such as shall result solely and directly from the Escrow Agent's own
gross negligence or willful misconduct; provided, however, that if no party is
primarily responsible for causing such losses, claims, liabilities and expenses,
including the reasonable fees of counsel, Parent and the Stockholder
Representative shall jointly and severally indemnify the Escrow Agent in
accordance with this Section 12. The Escrow Agent shall not be bound in any way
by any agreement or contract among Parent, Merger Sub, the Company and the
Stockholder Representative (whether or not the Escrow Agent has knowledge
thereof) and the only duties and responsibilities of the Escrow Agent shall be
to hold the Assets in accordance with the terms of this Escrow Agreement. All
reasonable fees and expenses of the Escrow Agent shall be paid 50% by the
Stockholder Representative (on behalf of the stockholders of the Company) and
50% by Parent.
(b) Notwithstanding any provision contained herein to the contrary, the
Escrow Agent, including its officers, directors, employees and agents, shall:
(i) have no responsibility to inquire into or determine the
genuineness, authenticity, or sufficiency of any securities, checks, or
other documents or instruments submitted to it in connection with its
duties hereunder;
(ii) be entitled to deem the signatories of any documents or
instruments submitted to it hereunder as being those purported to be
authorized to sign such documents or instruments on behalf of the parties
hereto, and shall be entitled to rely upon the genuineness of the signature
of such signatories without inquiry and without requiring substantiating
evidence of any kind;
(iii) have no responsibility or liability for any diminution in value
of any assets held hereunder which may result from any investments or
reinvestments made in accordance with any provision which may be contained
herein;
(iv) be entitled to compensation for its services hereunder as per
Schedule B, which is attached hereto and made a part hereof, and for
reimbursement of its out-of-pocket expenses including, but not by way of
limitation, the fees and costs of attorneys or agents which it may find
necessary to
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engage in performance of its duties hereunder, and the Escrow Agent shall have,
and is hereby granted, a prior lien upon the Assets with respect to its unpaid
fees and non reimbursed expenses, superior to the interests of any other persons
or entities; and
(iv) be under no obligation to invest the deposited funds or the income
generated thereby until it has received a Form W-9 or W-8, as applicable, from
each of the parties hereto, regardless of whether any party is exempt from
reporting or withholding requirements under the Internal Revenue Code of 1986,
as amended.
13. Further Assurances. Subject to the terms and conditions of this
Agreement, the parties hereto shall use their reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable to perform their obligations hereunder including, without
limitation, determining the amount a Parent Indemnified Party shall be entitled
to recover from the Escrow Account and delivering to the Escrow Agent a Joint
Certificate or a Final Judgment upon such determination.
14. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
written consent of each other party hereto. Any such purported assignment,
delegation or transfer made without such written consent shall be null and void.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, without regard to the
conflicts of law rules of such state.
16. VENUE; WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE FEDERAL COURTS
OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF DELAWARE SOLELY IN
RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THE
TRANSACTION AGREEMENTS, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED THEREBY,
AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR
PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT,
THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT
BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY
NOT BE APPROPRIATE OR THAT ANY OF THE TRANSACTION AGREEMENTS MAY NOT BE ENFORCED
IN OR BY SUCH COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS
WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH
A DELAWARE STATE OR FEDERAL COURT. THE PARTIES HEREBY CONSENT TO AND GRANT ANY
SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT
MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN
CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION
11 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL BE VALID AND
SUFFICIENT SERVICE THEREOF. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESEN-
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TATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 16.
17. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto. No provision of
this Agreement is intended to confer any rights, benefits, remedies, obligations
or liabilities hereunder upon any Person other than the parties hereto and their
respective successors and assigns.
18. Resignation or Removal of the Escrow Agent. (a) The Escrow Agent may
resign as such upon 30 days' prior written notice to the other parties hereto.
The Escrow Agent may be removed and replaced upon 30 days' prior written notice
to the Escrow Agent from Parent and the Stockholder Representative. If the
Escrow Agent resigns or is removed, the duties of the Escrow Agent shall
terminate 30 days after receipt of such notice (or as of such earlier date as
may be agreed by the parties hereto) and the Escrow Agent shall then deliver the
balance of the Assets then in its possession to a successor escrow agent as
shall be appointed by the other parties hereto as evidenced by a written notice
filed with the Escrow Agent.
(b) If the other parties hereto are unable to agree upon a successor to the
Escrow Agent or shall have failed to appoint such successor prior to the
expiration of 30 days following receipt of the notice of resignation or removal,
the Escrow Agent may petition any court of competent jurisdiction for the
appointment of a successor escrow agent or for other appropriate relief, and any
such resulting appointment shall be binding upon all of the parties hereto. Upon
acknowledgment by any successor escrow agent of the receipt of the balance of
the Assets in escrow, the Escrow Agent shall be fully released and relieved of
all duties, responsibilities, and obligations under this Agreement.
19. Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement among the parties with respect to the subject matter of
this Agreement and supersede all prior agreements and understandings, both oral
and written, among the parties with respect to the subject matter of this
Agreement.
20. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
21. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.
22. Specific Performance. The parties hereto agree that irreparable
damage would occur if any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement or to
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enforce specifically the performance of the terms and provisions hereof in any
court set forth in Section 16 in addition to any other remedy to which they are
entitled at law or in equity.
23. Amendments; Waiver. This Agreement may be amended, modified or
supplemented in each case only by a written instrument duly executed by or on
behalf of the parties to this Agreement. Any of the terms of this Agreement may
be waived only by a written instrument duly executed by or on behalf of the
parties against whom enforcement is sought and no such waiver by any party of
any term or condition contained in this Agreement shall be deemed to be a waiver
of the same or any other term or condition of this Agreement on any future
occasion.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AFFYMETRIX, INC.
By: /s/ VERN NORVIEL
------------------------------------
Name: Vern Norviel
Title: Senior Vice President and
General Counsel
GMS ACQUISITION, INC.
By: /s/ SUSAN E. SIEGEL
------------------------------------
Name: Susan E. Siegel
Title: President
GENETIC MICROSYSTEMS, INC.
By: /s/ JEAN MONTAGU
------------------------------------
Name: Jean Montagu
Title: President
STOCKHOLDER REPRESENTATIVE
/s/ JEAN MONTAGU
--------------------------------------
Jean Montagu
BANK ONE TRUST COMPANY, NA
By: /s/ AMY J. BREHLER
------------------------------------
Name: Amy J. Brehler
Title: Authorized Officer
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APPENDIX D
FORM OF STOCKHOLDER VOTING AGREEMENT
FORM OF STOCKHOLDER VOTING AGREEMENT, dated as of September 10, 1999 (this
"Agreement"), between ("Stockholder") and Affymetrix, Inc., a
Delaware corporation ("Purchaser").
WHEREAS, Genetic MicroSystems, Inc., a Massachusetts corporation (the
"Company"), Purchaser, GMS Acquisition, Inc., a Massachusetts corporation and a
wholly owned subsidiary of Purchaser ("Merger Sub") and Jean Montagu as
"Stockholder Representative", are contemporaneously herewith entering into an
Agreement and Plan of Merger, dated the date hereof (the "Merger Agreement"),
which provides, among other things, for the merger of the Company with and into
Merger Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Purchaser and Merger Sub have requested that Stockholder make certain
agreements with respect to the aggregate number of shares of Common Stock, no
par value per share ("Shares"), of the Company set forth opposite the
Stockholder's name on Schedule A attached hereto as to all of which Shares the
Stockholder has sole voting and dispositive power (such Shares, as such Shares
may be adjusted by any stock dividend, stock split, reorganization, combination
or exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by the Company, being referred to herein as the "Subject
Shares"), upon the terms and subject to the conditions hereof; and
WHEREAS, in order to induce Purchaser and Merger Sub to enter into the
Merger Agreement, Stockholder is willing to make certain agreements with respect
to the Subject Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Voting Agreements; Proxy.
(a) For so long as this Agreement is in effect, at any meeting of
stockholders of the Company, however called, and in any action by consent
of the stockholders of the Company or in any other circumstances upon which
a vote, consent or other approval is sought, Stockholder shall vote (or
cause to be voted), or, if applicable, give consent or approval with
respect to, all of the Subject Shares (and any other Shares over which
Stockholder has voting power whether issued heretofore or hereafter) that
Stockholder has the right to vote or is able to control the voting of in
favor of the Merger Agreement and the Merger and any other transaction
contemplated by the Merger Agreement, as such agreement may be modified or
amended from time to time. Any such vote shall be cast or consent shall be
given in accordance with such procedures relating thereto as shall ensure
that it is duly counted for purposes of determining that a quorum is
present and for purposes of recording the results of such vote or consent.
(b) For so long as this Agreement is in effect, at any meeting of
stockholders of the Company, however called, and in any action by consent
of the stockholders of the Company or in any other circumstances upon which
a vote, consent or other approval is sought, Stockholder shall vote (or
cause to be voted), or, if applicable, give consent or approval with
respect to, all of the Subject Shares (and any other Shares over which
Stockholder has voting power whether issued heretofore or hereafter) that
Stockholder has the right to vote, or is able to control the voting of,
against (i) any merger or merger agreement (other than the Merger and the
Merger Agreement) or any other proposal that would constitute an
Acquisition Proposal (as defined in
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the Merger Agreement), (ii) any amendment to the Company's articles of
organization or by-laws and (iii) any other amendment, proposal or
transaction involving the Company, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Merger or which is reasonably likely to result in any of the conditions to
the Company's obligations under the Merger Agreement not being fulfilled.
(c) In furtherance of the transactions contemplated hereby and by the
Merger Agreement, and in order to secure the performance of Stockholder of
his duties under this Agreement, Stockholder hereby grants to Purchaser and
its designees, an irrevocable proxy, or, if applicable, a power of
attorney, and irrevocably appoints Purchaser or its designees, with full
power of substitution, its attorney and proxy to vote or, if applicable, to
give consent with respect to, all Subject Shares with regard to any of the
matters referred to in paragraph (a) above at any meeting of the
stockholders of the Company, however called, or in connection with any
action by written consent by the stockholders of the Company. Stockholder
acknowledges and agrees that such proxy is coupled with an interest,
constitutes, among other things, an inducement for Purchaser to enter into
the Merger Agreement, is irrevocable and shall not be terminated by
operation of law or otherwise upon the occurrence of any event (other than
as provided in Section 16 hereof) and that no subsequent proxies with
respect to the Subject Shares shall be given (and if given shall not be
effective).
(d) No Limitation on Discretion as Director. Nothing in this Agreement
shall be deemed to apply to, or to limit in any manner, the discretion of
the Stockholder with respect to any action to be taken (or omitted) by the
Stockholder in the Stockholder's fiduciary capacity as a director or
officer of the Company including, without limitation, in connection with
any action taken in accordance with Section 9.3(a) of the Merger Agreement;
provided, however, it is agreed and understood by the parties to this
Agreement that the obligations, covenants and agreements of Stockholder
contained in this Agreement are separate and apart from the Stockholder's
fiduciary duties as a director or officer of the Company and no fiduciary
obligations that Stockholder may have as a director or officer of the
Company shall countermand the obligations, covenants and agreements of
Stockholder, in his capacity as a stockholder of the Company, contained in
this Agreement.
2. Covenants. (a) From and after the date of this Agreement, Stockholder
agrees not to, and to use best efforts to cause any investment banker, attorney
or other adviser or representative of Stockholder not to (i) sell, transfer,
pledge, assign, hypothecate, encumber, tender or otherwise dispose of, or enter
into any contract, option or other arrangement with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of the Subject Shares; (ii) grant any proxies with respect to any
Subject Shares, deposit any such Subject Shares into a voting trust or enter
into a voting or option agreement with respect to any of such Subject Shares;
(iii) except to the extent permitted by Section 7.2 of the Merger Agreement with
respect to Stockholder's position as an officer or director of the Company,
directly or indirectly, solicit, initiate, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to an Acquisition
Proposal or engage in any negotiation concerning, or provide any confidential
information or data to, or have any discussions with any person relating to an
Acquisition Proposal; or (iv) take any action which would make any
representation or warranty of Stockholder herein untrue or incorrect or prevent,
burden or materially delay the consummation of the transactions contemplated by
this Agreement. As used in this Agreement, "person" shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
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3. Representations and Warranties of Stockholder. Stockholder represents
and warrants to Purchaser that:
(a) Capacity; No Violations. Stockholder has the necessary authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Stockholder, and constitutes a valid and binding agreement of Stockholder
enforceable against Stockholder in accordance with its terms; and such
execution and delivery and performance by Stockholder of this Agreement
will not (i) conflict with, require a consent, waiver or approval under, or
result in a breach or default under, any of the terms of any governing
instrument, contract, commitment or other obligation of Stockholder or to
which Stockholder is a party or by which Stockholder is, or the Subject
Shares are, bound; (ii) violate any order, writ, injunction, decree or
statute, or any law, rule or regulation applicable to Stockholder or the
Subject Shares; or (iii) result in the creation of, or impose any
obligation on Stockholder to create, any Lien upon the Subject Shares. In
this Agreement, "Lien" shall mean any lien, pledge, security interest,
claim, third party right or other encumbrance.
(b) Subject Shares. Except as set forth on Schedule B to this
Agreement, (i) Stockholder is the record holder of, has sole voting and
dispositive power over, and has good and valid title to, the Subject Shares
free and clear of all Liens and (ii) there are no options or rights to
acquire or other contracts (including proxies, voting trusts or voting
agreements) relating to the Subject Shares to which Stockholder is a party.
Except as otherwise disclosed on Schedule A to this Agreement, as of the
date hereof, the Subject Shares are the only shares of any class of capital
stock of the Company which Stockholder has the right, power or authority
(sole or shared) to sell or vote, and, other than the options on Shares
held by Stockholder as of the date hereof, Stockholder does not have any
right to acquire, nor is it the beneficial owner of, any other shares of
any class of capital stock of the Company or any securities convertible
into or exchangeable or exercisable for any shares of any class of capital
stock of the Company.
(c) Investment Intent. Stockholder is acquiring the shares of Common
Stock of purchaser to be received by Stockholder in the Merger (the
"Purchaser Shares") for its own account and not with a view to their
distribution within the meaning of Section 2.11 of the Securities Act of
1933 ("Securities Act") in any manner that would be in violation of the
Securities Act. Stockholder has not, directly or indirectly, offered the
Purchaser Shares to anyone or solicited any offer to buy the Purchaser
Shares from anyone, so as to bring such offer and sale of the Purchaser
Shares by Stockholder within the registration requirements of the
Securities Act. Stockholder will not sell, convey, transfer or offer for
sale any of the Purchaser Shares except upon compliance with the Securities
Act and any applicable state securities laws or pursuant to any exemption
therefrom.
(d) Accredited Investor Status. Stockholder is and at the time of
delivery of any Purchaser Shares will be an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act.
Stockholder has, and at the time of such delivery will have, such knowledge
and experience in financial and business matters that Stockholder is and
will be capable of evaluating the merits and risks of an investment in
Purchaser Shares and represents and warrants that Stockholder has not
received and will not receive any representations from Purchaser or any of
its officers or representatives with regard to the Purchaser Shares or
Purchaser.
4. Adjustments; Additional Shares. In the event (i) of any stock dividend,
stock split, recapitalization, reclassification. combination or exchange of
Shares on, of or affecting the Subject Shares, or (ii) Stockholder shall become
the beneficial owner of any additional Shares or other securities entitling the
holder thereof to vote or give consent with respect to the matters set forth in
Section 1 hereof, then such Shares held by Stockholder immediately following the
effectiveness of the
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events described in clause (i) or Stockholder becoming the beneficial owner of
the Shares or other securities, as described in clause (ii) shall become Subject
Shares hereunder.
5. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
6. Specific Performance. Stockholder acknowledges and agrees that if it
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to Purchaser for which money damages
would not be an adequate remedy. In such event, Stockholder agrees that
Purchaser shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Purchaser should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, Stockholder hereby waives the claim or defense that Purchaser has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. Stockholder
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief.
7. Appointment of Stockholder Representative. Stockholder hereby consents
in all respects to the appointment of Jean Montagu as Stockholder Representative
and to the performance by the Stockholder Representative of all rights and
obligations conferred on the Stockholder Representative under the Merger
Agreement and the Escrow Agreement.
8. Notices. All notices or other communications under this Agreement shall
be in writing and shall be deemed duly given, effective (i) three business days
later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by facsimile, provided that the
facsimile is promptly confirmed by telephone confirmation thereof, (iii) when
served, if delivered personally to the intended recipient, and (iv) one business
day later, if sent by overnight delivery via a national courier service, and in
each case, addressed to the intended recipient at the address set forth in the
preamble hereof. Any party may change the address to which notices or other
communications hereunder are to be delivered by giving the other party notice in
the manner herein set forth:
If to the Purchaser:
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
Attention: General Counsel (Vern Norviel)
Phone: (408) 731-5035
Fax: (408) 481-4709
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Neil T. Anderson
Phone: (212) 558-4000
Fax: (212) 558-3588
If to Stockholder:
To the address for notice set forth on Schedule A to this Agreement.
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With a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02115
Attention: Michael E. Lytton
Phone: (617) 573-0100
Fax: (617) 227-4420
9. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Purchaser, Stockholder or their successors or assigns, any rights or remedies
under or by reason of this Agreement.
10. Entire Agreement; Amendments. This Agreement contains the entire
agreement between Stockholder and Purchaser with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
11. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto, except that Purchaser may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries (including
Merger Sub), but no such transfer shall relieve Purchaser of its obligations
hereunder if such transferee does not perform such obligations.
12. Further Assurances. The Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, consents and other instruments as
Purchaser may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
13. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
15. 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 Delaware principles of conflicts of
law).
16. Termination. This Agreement shall terminate at the earlier of (i) the
Effective Time (as defined in the Merger Agreement) and (ii) the termination of
the Merger Agreement.
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IN WITNESS WHEREOF, Purchaser and Stockholder have caused this Agreement to
be duly executed and delivered on the day and year first above written.
AFFYMETRIX, INC.
By:
------------------------------------
Name:
Title:
--------------------------------------
[Stockholder]
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APPENDIX E
MASSACHUSETTS LAW REGARDING APPRAISAL RIGHTS
SECTION 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eight-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating the he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective,
payments for his shares and an appraisal of the value thereof. Such corporation
and any such stockholder shall in such cases have the rights and duties and
shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter
156B of the General Laws of Massachusetts."
SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
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SECTION 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eight-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SECTION 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and
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shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SECTION 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholders
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting
E-3
<PAGE> 176
stockholder would have been converted had he not objected to such consolidation
or merger shall have the status of treasury stock or securities.
SECTION 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
E-4
<PAGE> 177
APPENDIX F
GENETIC MICROSYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements -- Year ended December 31, 1998
and period from August 7, 1997 (date of inception) to
December 31, 1997
Balance Sheets.............................................. F-3
Statements of Operations and Comprehensive Loss............. F-4
Statements of Shareholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
Unaudited Condensed Financial Statements -- Six month
periods ended July 3, 1999 and June 30, 1998
Condensed Balance Sheet..................................... F-14
Condensed Statements of Operations and Comprehensive Loss... F-15
Condensed Statements of Cash Flows.......................... F-16
Notes to Condensed Financial Statements..................... F-17
</TABLE>
F-1
<PAGE> 178
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Genetic MicroSystems, Inc.
We have audited the accompanying balance sheets of Genetic MicroSystems,
Inc. (the Company) as of December 31, 1998 and 1997, and the related statements
of operations and comprehensive loss, shareholders' equity (deficit), and cash
flows for the year ended December 31, 1998 and the period from August 7, 1997
(date of inception) to December 31, 1997. 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 the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the period from August 7, 1997 (date of
inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 12, 1999
F-2
<PAGE> 179
GENETIC MICROSYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $4,365,446 $ 33,654
Available-for-sale equity securities...................... 1,518,000
Accounts receivable....................................... 213,575
Inventories............................................... 421,809
Prepaid expenses and other assets......................... 87,356 11,115
---------- -----------
Total current assets.............................. 5,088,186 1,562,769
Property and equipment, net................................. 605,811 94,766
Deposits.................................................... 64,000
---------- -----------
$5,757,997 $ 1,657,535
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 252,569 $ 138,152
Accrued expenses.......................................... 291,159 46,342
Due to shareholder........................................ 120,000
Deferred tax liability.................................... 540,665
---------- -----------
Total current liabilities......................... 543,728 845,159
Deferred rent............................................... 49,529
Common stock purchase rights................................ 3,000,000
Series B Redeemable Convertible Preferred Stock, $.01 par
value; 582,353 shares authorized; 347,134 shares issued
and outstanding (aggregate liquidation preference of
$2,950,639)............................................... 2,950,639
Shareholders' equity (deficit):
Series A Convertible Preferred Stock, $.01 par value;
2,054,000 shares authorized; 2,000,000 shares issued
and outstanding (aggregate liquidation preference of
$4,000,000)............................................ 20,000
Common Stock, no par value; 5,000,000 shares in 1998 and
200,000 shares in 1997 authorized; 1,048,000 shares in
1998 and 10,000 shares in 1997 issued.................. 215,600 120,000
Additional paid-in capital................................ 3,075,218 1,587,924
Notes receivable from shareholders........................ (159,840)
Treasury Stock (46,864 shares of Common Stock, at cost)... (12,933)
Unrealized loss on available-for-sale equity securities... (641,777)
Accumulated deficit....................................... (3,923,944) (253,771)
---------- -----------
Total shareholders' equity (deficit).............. (785,899) 812,376
---------- -----------
$5,757,997 $ 1,657,535
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 180
GENETIC MICROSYSTEMS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 7, 1997
DECEMBER 31, (DATE OF INCEPTION)
1998 TO DECEMBER 31, 1997
------------ --------------------
<S> <C> <C>
Revenues:
Net product sales.................................... $ 287,625
Licensing revenue.................................... 99,980
-----------
387,605
Costs and expenses:
Costs of sales....................................... 367,605
Research and development............................. 2,479,915 $ 421,694
Selling, general and administrative.................. 1,877,541 59,159
----------- ---------
4,725,061 480,853
----------- ---------
Loss from operations................................... (4,337,456) (480,853)
Other income (expense):
Gain (loss) on sale of available-for-sale equity
securities........................................ (664,505) 57,082
Interest and dividend income......................... 63,172
----------- ---------
(601,333) 57,082
----------- ---------
Loss before income tax benefit......................... (4,938,789) (423,771)
Income tax benefit..................................... 1,268,616 170,000
----------- ---------
Net loss............................................... (3,670,173) (253,771)
Change in unrealized loss on available-for-sale equity
securities........................................... 641,777 (641,777)
----------- ---------
Comprehensive net loss................................. $(3,028,396) $(895,548)
=========== =========
Loss per share:
Net loss per share -- basic and diluted.............. $ 6.21 $ 25.38
=========== =========
Comprehensive net loss per share -- basic and
diluted........................................... $ 5.12 $ 89.55
=========== =========
Weighted average common shares -- basic and
diluted........................................... 591,227 10,000
=========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 181
GENETIC MICROSYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
SERIES A CONVERTIBLE ADDITIONAL RECEIVABLE
PREFERRED STOCK COMMON STOCK PAID-IN FROM
SHARES AMOUNTS SHARES AMOUNTS CAPITAL SHAREHOLDERS
---------- -------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock in exchange for
contribution of available-for-sale
securities to capital, net of deferred taxes
of $1,138,616............................... 10,000 $ 120,000 $1,587,924
Unrealized loss on available-for-sale
securities, net of deferred taxes of
$427,951....................................
Net loss for the period from August 7, 1997
(date of inception) to December 31, 1997....
--------- ----------- ----------
BALANCE AT DECEMBER 31, 1997.................. 10,000 120,000 1,587,924
Change in unrealized loss.....................
Contribution of available-for-sale securities
to capital, net of deferred taxes of
$300,000.................................... 450,000
Contribution of cash.......................... 10,082
Issuance of Common Stock in exchange for
capital contributions....................... 140,000 2,048,006 (2,048,006)
Conversion of Common Stock into Series A
Convertible Preferred Stock in 1998......... 1,500,000 $15,000 (150,000) (2,168,006) 2,153,006
Issuance of Series A Convertible Preferred
Stock in 1998............................... 500,000 5,000 952,212
Issuance of Common Stock...................... 1,048,000 215,600 (30,000) $(213,600)
Repurchase of Treasury Stock.................. 12,600
Net loss......................................
Collection of notes receivable from
stockholders................................ 41,160
--------- ------- --------- ----------- ---------- ---------
BALANCE AT DECEMBER 31, 1998.................. 2,000,000 $20,000 1,048,000 $ 215,600 $3,075,218 $(159,840)
========= ======= ========= =========== ========== =========
<CAPTION>
UNREALIZED DEFICIT
LOSS ON ACCUMULATED
AVAILABLE- DURING THE
TREASURY FOR-SALE DEVELOPMENT
STOCK SECURITIES STAGE
-------------- ---------- -----------
<S> <C> <C> <C>
Issuance of Common Stock in exchange for
contribution of available-for-sale
securities to capital, net of deferred taxes
of $1,138,616...............................
Unrealized loss on available-for-sale
securities, net of deferred taxes of
$427,951.................................... $(641,777)
Net loss for the period from August 7, 1997
(date of inception) to December 31, 1997.... $ (253,771)
--------- -----------
BALANCE AT DECEMBER 31, 1997.................. (641,777) (253,771)
Change in unrealized loss..................... 641,777
Contribution of available-for-sale securities
to capital, net of deferred taxes of
$300,000....................................
Contribution of cash..........................
Issuance of Common Stock in exchange for
capital contributions.......................
Conversion of Common Stock into Series A
Convertible Preferred Stock in 1998.........
Issuance of Series A Convertible Preferred
Stock in 1998...............................
Issuance of Common Stock......................
Repurchase of Treasury Stock.................. $(12,933)
Net loss...................................... (3,670,173)
Collection of notes receivable from
stockholders................................
-------- --------- -----------
BALANCE AT DECEMBER 31, 1998.................. $(12,933) $ -0- $(3,923,944)
======== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 182
GENETIC MICROSYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 7, 1997
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, TO DECEMBER 31,
1998 1997
------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................. $(3,670,173) $(253,771)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 103,198 13,918
Deferred taxes......................................... (1,268,616) (170,000)
Deferred rent.......................................... 49,529
Gain (loss) on sale of available-for-sale equity
securities.......................................... 664,505 (57,082)
Changes in operating assets and liabilities:
Prepaid expenses and other assets................... (140,241) (11,115)
Accounts receivable................................. (213,575)
Inventories......................................... (421,809)
Accounts payable and accrued expenses............... 359,234 184,494
----------- ---------
Net cash used in operating activities.................... (4,537,948) (293,556)
INVESTING ACTIVITIES
Purchase of property and equipment....................... (614,243) (108,684)
Sale of available-for-sale equity securities............. 2,673,223 315,894
----------- ---------
Net cash provided by investing activities................ 2,058,980 207,210
FINANCING ACTIVITIES
Issuance of Series A and B Preferred Stock............... 3,877,851
Issuance of Common Stock purchase rights................. 3,000,000
Capital contribution..................................... 10,082
Issuance of Common Stock................................. 2,000
Purchase of Treasury Stock............................... (333)
Collection of notes receivable from shareholders......... 41,160
Due to shareholder....................................... (120,000) 120,000
----------- ---------
Net cash provided by financing activities................ 6,810,760 120,000
----------- ---------
Increase in cash and cash equivalents.................... 4,331,792 33,654
Cash and cash equivalents at beginning of period......... 33,654
----------- ---------
Cash and cash equivalents at end of period............... $ 4,365,446 $ 33,654
=========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 183
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
THE COMPANY
Genetic MicroSystems, Inc. (the Company) was incorporated on August 7, 1997
to develop, manufacture and sell a new generation of enabling products for
genomics research and drug discovery. The Company was a development-stage
company until the commencement of substantial operations in 1998 and has
operated in a single segment since inception.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of those highly liquid investments having
maturities of three months or less at the date of purchase. The carrying value
of cash equivalents approximates fair value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash and cash equivalents and
available-for-sale securities. The Company invests its excess cash primarily in
high-quality securities. Available-for-sale securities represented shares of
common stock of a publicly traded company contributed to the Company by the
founding shareholder. These securities were sold for cash by the Company based
on the working capital requirements of the Company.
AVAILABLE-FOR-SALE EQUITY SECURITIES
The Company classifies its equity securities contributed by its founding
shareholder as available-for-sale, which are reported at fair value, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, unrealized holding gains and losses on available-for-sale securities are
excluded from income and reported as a separate component in shareholders'
equity, net of applicable taxes. Realized gains and losses from securities
classified as available-for-sale are included in income using the
specific-identification method for determining the cost of investments sold.
INVENTORIES
Inventories, which consist of purchased components, units in process and
finished units, are valued at the lower of cost (first-in, first-out) or market.
F-7
<PAGE> 184
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Provisions for depreciation and
amortization on property and equipment are computed using the straight-line
method over expected useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
---------------------------------------------
<S> <C>
Equipment 3-5 years
Leasehold improvements Term of the lease or useful life, whichever
is shorter.
</TABLE>
REVENUE RECOGNITION
Product sales are recognized at the time finished units are shipped.
License revenue is recognized as earned based on the terms of the related
license agreement.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
LOSS PER SHARE
Loss per share is presented in accordance with SFAS No. 128, Earnings Per
Share, which requires the disclosure of basic and diluted earnings (loss) per
share. Basic loss per share is based upon the Company's net loss divided by the
number of weighted shares outstanding during the reporting period. Diluted loss
per share for loss periods is the same as basic loss per share since the effect
of including the conversion of preferred stock and common stock equivalents of
warrants, options and other stock rights is anti-dilutive.
STOCK-BASED COMPENSATION
As provided for under SFAS No. 123, Accounting for Stock Based
Compensation, the Company accounts for stock-based compensation for employees
based on the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25). The Company discloses, as
required under SFAS No. 123, pro forma net loss in the notes to the financial
statements as if the measurement provisions of SFAS No. 123 had been adopted.
The Company accounts for stock-based compensation to nonemployees based on
the provisions of SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENT
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
which requires presentation of a statement of comprehensive income that adjusts
net income (loss) and net income (loss) per share for changes in unrealized
gains and losses from available-for-sale securities. The adoption of this
Standard is reflected in the statements of operations and comprehensive loss for
each period presented.
F-8
<PAGE> 185
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. AVAILABLE-FOR-SALE EQUITY SECURITIES
Information related to this balance at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
MARKET UNREALIZED
COST VALUE HOLDING LOSS
---------- ---------- ------------
<S> <C> <C> <C>
Equity securities......................... $2,587,728 $1,518,000 $1,069,728
Deferred income tax benefit............... 427,951
----------
Net unrealized holding loss............... $ 641,777
==========
</TABLE>
4. INVENTORIES
Inventories consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Purchased components........................................ $288,439
Units in process............................................ 102,035
Finished units.............................................. 31,335
--------
$421,809
========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Equipment................................................. $606,945 $102,465
Leasehold improvements.................................... 115,982 6,219
-------- --------
722,927 108,684
Less accumulated depreciation and amortization............ 117,116 13,918
-------- --------
$605,811 $ 94,766
======== ========
</TABLE>
6. ACCRUED EXPENSES
The balance consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Accrued compensation and related taxes..................... $164,575 $13,042
Other...................................................... 126,584 33,300
-------- -------
$291,159 $46,342
======== =======
</TABLE>
7. OPERATING LEASE
The Company leases its present offices under an operating lease expiring in
2001. At December 31, 1998, future minimum lease payments amounted to $316,000
in 1999, $316,000 in
F-9
<PAGE> 186
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2000 and $78,978 in 2001. Rent expense amounted to $230,000 in 1998 and $4,800
for the period from August 7, 1997 to December 31, 1997.
The Company's lease contains certain rent inducements which are being
amortized over the term of the lease. The unamortized balance of the deferred
rent amounted to $49,529 at December 31, 1998.
8. COMMON STOCK PURCHASE RIGHTS
In August 1998, the Company entered into an agreement with Takara Shuzo Co.
Ltd. (Takara), a distributor, which calls for the sale of microarray
manufacturing instruments and the sale of microarray manufacturing services
utilizing the Company's equipment, provided a 5% royalty is paid to the Company
for the sale of these services. The agreement also provides for the purchase,
subject to certain requirements, of the Company's shares by Takara through an
advance payment of $3.0 million, which has been included in the caption of
common stock purchase rights in the accompanying financial statements. The
number of shares issuable will be determined on August 19, 2003 (Closing) based
on the fair market value of the Company's stock at the time. Of the $3 million
advance, $2 million is repayable to Takara if certain milestones with respect to
the instrumentation have not been met.
To the extent the two remaining milestone payments are returned to Takara
due to the Company's nonperformance, the Company is to issue Takara shares of
Common Stock equal to $1.0 million divided by the fair market value of the stock
at the Closing. In no event is the number of common shares issued to Takara to
exceed 10% of the total shares of outstanding Common Stock of the Company at the
time of the Closing. In the event that the Company's common stock issuable to
Takara is valued at less than $3.0 million or the amount not returned to Takara,
as described above, the Company will pay Takara the difference between the value
of the Company's common stock and $3.0 million or the amount not returned to
Takara.
In connection with the agreement, the Company granted an employee warrants
to purchase 10% of the Common Stock ultimately issued to Takara at the fair
market value of the Common Stock on the date the shares are issued.
F-10
<PAGE> 187
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Deferred income taxes consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards...................... $ 120,000 $ 56,535
Start-up costs........................................ 520,000 10,000
--------- ---------
640,000 66,535
Valuation allowance................................... (640,000)
--------- ---------
0 66,535
Deferred tax liability:
Book basis of available-for-sale equity securities in
excess of tax basis................................ (607,200)
--------- ---------
Net deferred tax liability............................ $ 0 $(540,665)
========= =========
</TABLE>
The income tax benefit of $1,268,166 in 1998 and $170,000 in 1997
represents the elimination of deferred tax liabilities recognized in connection
with the capital contributions described in Note 10, which are no longer payable
due to operating losses incurred by the Company in 1997 and 1998. At December
31, 1998, the Company had net operating loss carryforwards for income tax
reporting purposes of approximately $300,000 to offset future federal taxable
income, which begin to expire in 2012. A full valuation allowance has been
established due to the uncertainty of the realization of these benefits in
future years. In accordance with section 382 of the Internal Revenue Code, the
use of the above carryforward will be subject to annual limitations based upon
ownership changes of the Company's stock which have occurred.
10. SHAREHOLDERS' CAPITAL
COMMON STOCK
The Company's founding shareholder contributed 150,000 shares of marketable
equity securities with a fair value (based on quoted market values) of $2.2
million, net of applicable taxes, to the Company in 1997 and 1998. These capital
contributions have been recorded net of applicable taxes since the tax basis of
the marketable equity securities contributed to the Company is nominal and the
Company is required to pay the applicable income taxes based on the fair value
of the investments when the investments are sold.
In 1998, the Company sold 1,048,000 shares of restricted Common Stock to
certain employees in exchange for notes receivable due in 2003. The notes
receivable bear interest at the applicable minimum federal rate and are
collateralized by the shares of Common Stock.
PREFERRED STOCK
Series A Convertible Preferred Stock
Each share of Series A Convertible Preferred Stock has the same number of
Common Stock votes as its conversion rights provide, as defined in the amended
Articles of Incorporation. Holders of Series A Convertible Preferred Stock have
preference over Common shareholders with respect to
F-11
<PAGE> 188
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
payment of dividends and distribution of assets in the event of liquidation.
Holders of Series A Convertible Preferred Stock are entitled to a liquidation
value of $2.00 per share, respectively, plus all declared and unpaid dividends
as of the liquidation date.
Each share of Series A Convertible Preferred Stock is convertible at any
time into the number of shares of Common Stock which results from dividing the
conversion price per share in effect at the time of conversion into $2.00 per
share for each share of Series A Convertible Preferred Stock being converted and
automatically convert upon an initial public offering. The conversion price is
subject to adjustment for, among other things, stock splits, dividends and
recapitalizations, as defined in the Articles of Incorporation.
Series B Redeemable Convertible Preferred Stock
Each share of Series B Redeemable Convertible Preferred Stock has the same
number of common stock votes as its conversion rights provide, as defined in the
amended Articles of Incorporation. Holders of Series B Redeemable Convertible
Preferred Stock have preference over holders of Series A Convertible Preferred
Stock who have preference over Common Stockholders with respect to payment of
dividends and distribution of assets in the event of liquidation. Holders of
Series A Convertible Preferred Stock are entitled to a liquidation value of
$8.50 per share, respectively, plus all declared and unpaid dividends as of the
liquidation date.
Each share of Series B Redeemable Convertible Preferred Stock is
convertible at any time into the number of shares of Common Stock which results
from dividing the conversion price per share in effect at the time of conversion
into $8.50 per share for each share of Series A Convertible Preferred Stock
being converted and automatically convert upon an initial public offering. The
conversion price is subject to adjustment for, among other things, stock splits,
dividends and recapitalization, as defined in the Articles of Incorporation.
The Company is required, at the option of the majority of Series B
Redeemable Convertible Preferred stockholders, to redeem one-third of the shares
on December 30, 2004, 2005 and 2006, respectively, at $8.50 per share plus all
declared and unpaid dividends.
Series A and B Preferred Stock Warrants
In connection with the sale of Series A Preferred Stock, the Company issued
warrants to an employee and a vendor to purchase 50,000 and 4,000 shares,
respectively, of Series A Preferred Stock at $2.00 per share which expire in
2008. Additionally, in connection with the sale of Series B Preferred Stock, the
Company issued warrants to an employee to purchase 34,713 shares of Series B
Preferred Stock at $8.50 per share which expire in 2008.
The Company has also entered into an agreement with an employee that
obligates the Company to issue options, at the same price as any new equity
raised up to $13.5 million, to preserve his percentage of the Company. In the
event this occurs, the Company intends to settle this obligation by issuing
additional options or making a cash payment. If no settlement agreement is
reached, the obligation will continue until the earlier of the date at which
$13.5 million is raised or December 31, 2004.
F-12
<PAGE> 189
GENETIC MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
The Company's Stock Plan allows for the granting of options to purchase
300,000 shares of Common Stock. Options generally vest over four years and
expire ten years from the grant date or 90 days from termination of employment,
whichever is sooner.
Pro forma information regarding net loss was computed in accordance with
SFAS No. 123 and has been determined as if the Company accounted for its
employee stock options granted under the fair value methods of that Statement.
The fair value of these options was estimated at the date of grant using the
minimal value option pricing model with the following weighted-average
assumptions for 1998: risk-free interest rate of 5.4%, dividend yield of 0% and
a weighted-average expected life of the option of 4.0 years. The pro forma net
loss and net loss per share as computed under SFAS No. 123 for 1998 amounted to
$3,030,096 and $5.13 per share, respectively.
The following table presents the option activity for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------ ---------
<S> <C> <C>
Outstanding at beginning of year............................ 0
Granted..................................................... 60,000 $.34
------ ----
Outstanding at end of year.................................. 60,000 $.34
====== ====
</TABLE>
The weighted average per share fair value of options granted during 1998
was $.07.
At December 31, 1998, there were 240,000 options available for grant under
the Plan. There were no options exercisable at December 31, 1998.
The Company has reserved 3,021,066 shares of Common Stock at December 31,
1998 for conversion of Preferred Stock and exercise of options and warrants to
purchase Common Stock.
11. NONCASH FINANCING ACTIVITIES
In 1998, 140,000 shares of Common Stock were issued in exchange for $10,082
of cash and $2,048,006 of available-for-sale securities previously contributed
to the Company. These shares, along with 10,000 shares of Common Stock, were
then converted into 1.5 million shares of Series A Convertible Preferred Stock.
F-13
<PAGE> 190
INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS
JULY 3, 1999
GENETIC MICROSYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,526,577
Available for sale securities............................. --
Accounts receivable, net of allowance of $75,603 for
doubtful accounts...................................... 1,999,759
Inventories............................................... 999,361
Prepaid expenses and other assets......................... 70,561
-----------
Total current assets........................................ 5,596,258
Property and equipment, net................................. 732,767
Deposits.................................................... 64,000
-----------
$ 6,393,025
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 773,280
Accrued expenses.......................................... 534,901
Due to shareholder........................................ --
Deferred revenue.......................................... 543,837
-----------
Total current liabilities................................... 1,852,018
Deferred rent............................................... 38,099
Common stock purchase rights................................ 3,000,000
Series B Redeemable Convertible Preferred Stock, $.01 par
value; 582,353 shares authorized; 431,977 shares issued
and outstanding (aggregate liquidation preference of
$3,671,825 in 1999)....................................... 3,671,825
Shareholders' equity (deficit):
Series A Convertible Preferred Stock, $.01 par value;
2,054,000 shares authorized; 2,000,000 shares issued
and outstanding (aggregate liquidation preference of
$4,000,000)............................................ 20,000
Common Stock, no par value; 5,000,000 shares authorized;
1,054,499 shares issued................................ 216,900
Additional paid-in capital................................ 3,063,216
Notes receivable from shareholders........................ (159,391)
Treasury Stock (47,797 shares of Common Stock), at cost... (13,120)
Accumulated deficit....................................... (5,296,522)
-----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........................ (2,168,917)
-----------
$ 6,393,025
===========
</TABLE>
See accompanying notes.
F-14
<PAGE> 191
GENETIC MICROSYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------
JULY 3, 1999 JUNE 30, 1998
------------ -------------
<S> <C> <C>
REVENUES
Net product Sales......................................... $ 5,081,572 $ --
COSTS AND EXPENSES:
Cost of sales............................................. 3,153,091 --
Research and development.................................. 1,381,309 1,070,532
Selling, general and administrative....................... 1,984,137 705,615
----------- -----------
6,518,537 1,776,147
----------- -----------
LOSS FROM OPERATIONS........................................ (1,436,965) (1,776,147)
OTHER INCOME (LOSS)
Gain (loss) on sale of available for sale securities...... -- (664,505)
Interest and dividend income, net......................... 64,387 17,975
----------- -----------
64,387 (646,530)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (1,372,578) (2,422,677)
INCOME TAX BENEFIT.......................................... -- 808,411
----------- -----------
NET LOSS.................................................... (1,372,578) (1,614,266)
CHANGE IN UNREALIZED LOSS ON AVAILABLE-FOR-SALE EQUITY
SECURITIES................................................ -- 641,777
----------- -----------
COMPREHENSIVE NET LOSS...................................... $(1,372,578) $ (972,489)
=========== ===========
LOSS PER SHARE
NET LOSS PER SHARE -- BASIC AND DILUTED..................... $ (1.36) $ (10.35)
=========== ===========
COMPREHENSIVE NET LOSS PER SHARE -- BASIC AND DILUTED....... $ (1.36) $ (6.24)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES -- BASIC AND DILUTED......... 1,009,499 155,901
=========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 192
GENETIC MICROSYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------
JULY 3, 1999 JUNE 30, 1998
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(1,372,578) $(1,614,266)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 106,685 24,840
Deferred taxes......................................... -- (808,411)
Deferred rent.......................................... (11,430) --
Gain (loss) on sale of available for sale equity
securities........................................... -- 664,505
Loss on the disposal of property and equipment......... 4,044 --
Provision for doubtful accounts........................ 75,603 --
Changes in operating assets and liabilities:
Prepaid expenses and other assets...................... 16,795 (61,296)
Accounts receivable.................................... (1,861,787) --
Inventories............................................ (577,552) --
Accounts payable and accrued expenses.................. 764,453 73,825
Deferred revenue....................................... 543,837 --
----------- -----------
Net cash used in operating activities....................... (2,311,930) (1,720,803)
INVESTING ACTIVITIES
Purchase of property and equipment........................ (237,685) (282,958)
Sale of available-for-sale equity securities.............. -- 2,673,223
----------- -----------
Net cash (used in) provided by investing activities......... (237,685) 2,390,265
FINANCING ACTIVITIES
Issuance of Series A and B Convertible Preferred Stock.... 709,184 957,212
Issuance of Common Stock.................................. 1,300 --
Purchase of Treasury Stock................................ (187) --
Collection of notes receivable............................ 449 --
Due to shareholder........................................ -- (120,000)
----------- -----------
Net cash provided by financing activities................... 710,746 837,212
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (1,838,869) 1,506,674
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 4,365,446 33,654
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,526,577 $ 1,540,328
=========== ===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 193
GENETIC MICROSYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 3, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
THE COMPANY
Genetic MicroSystems, Inc. (the "Company") was incorporated on August 7,
1997 to develop, manufacture and sell a new generation of enabling products for
genomics research and drug discovery. The Company was a development-stage
company until the commencement of substantial operations in 1998.
The interim unaudited condensed financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed. In the opinion of
management, all necessary adjustments (consisting of only normal recurring
accruals) have been made to provide a fair presentation. The operating results
for the six months ended July 3, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. Effective
January 1, 1999, for quarterly interim reporting, the company adopted a fiscal
quarter ending on the Saturday nearest to the end of the calendar quarter with
the exception of year end, which ends on December 31.
2. INVENTORIES
Inventories at July 3, 1999 consist of the following at:
<TABLE>
<S> <C>
Purchased components........................................ $640,128
Units in process............................................ 209,300
Finished units.............................................. 34,945
Demonstration inventory..................................... 114,988
--------
$999,361
========
</TABLE>
3. INCOME TAXES
Deferred income taxes consist of the following at July 3, 1999:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss and tax credits carry-forwards......... $ 850,000
Start-up costs............................................ 480,000
----------
1,330,000
Valuation allowance....................................... 1,330,000
----------
$ 0
==========
</TABLE>
The income tax benefit of $808,411 in 1998 represents the elimination of
deferred tax liabilities recognized in connection with capital contributions,
which are no longer payable due to the operating losses incurred by the Company
in 1997 and 1998. At July 3, 1999, the Company had net operating loss
carryforwards for income tax reporting purposes of approximately $1,400,000, to
offset future
F-17
<PAGE> 194
GENETIC MICROSYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
JULY 3, 1999
(UNAUDITED)
federal taxable income which begin to expire in 2012. At July 3, 1999, the
Company had tax credit carryforwards for income tax purposes of approximately
$310,000 to offset future federal taxable income which begin to expire in 2012.
A full valuation allowance has been established due to the uncertainty of the
realization of these benefits in future years. In accordance with section 382 of
Internal Revenue Code, the use of the above carry forward will be subject to
annual limitations based upon ownership changes of the Company's stock which
have occurred.
4. SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company closed its second round of sales of the Series B Redeemable
Convertible Preferred Stock in January 1999, selling an additional 84,845 shares
for net proceeds of $721,186.
Each share of Series B Redeemable Convertible Preferred Stock has the same
number of common stock votes as its conversion rights provide, as defined in the
amended Articles of Incorporation. Holders of Series B Redeemable Convertible
Preferred Stock have preference over Series A Convertible Preferred Stock who
have preference over common stock shareholders with respect to payment of
dividends and distribution of assets in event of liquidation. Holders of Series
A Convertible Preferred Stock are entitled to a liquidation value of $8.50 per
share, respectively, plus all declared and unpaid dividends as of the
liquidation date.
Each share of Series B Redeemable Convertible Preferred Stock is
convertible at any time into the number of shares of common stock which results
from dividing the conversion price per share in effect at the time of conversion
into $8.50 per share for each share of Series B Redeemable Convertible Preferred
Stock being converted. Each share of Series B Redeemable Convertible Preferred
Stock will automatically convert upon an initial public offering. The conversion
price is subject to adjustment for, among other things, stock splits, dividends
and recaptalizations, as defined in the Articles of Incorporation.
The Company is required, at the option of the majority of Series B
Redeemable Convertible Preferred Stock stockholders, to redeem one-third of the
shares on December 30, 2004, 2005, and 2006, respectively, at $8.50 per share
plus all declared and unpaid dividends.
SERIES B PREFERRED STOCK WARRANTS
The Company issued additional warrants to an employee to purchase 33,485
shares of Series B Preferred Stock at $8.50 per share which expire in 2008. No
value has been assigned to these warrants.
5. SUBSEQUENT EVENTS:
The Company has entered into an Agreement and Plan of Merger dated
September 10, 1999 with Affymetrix Corporation of Santa Clara, California. The
agreement is subject to the satisfaction of certain closing conditions, among
which are a Hart-Scott-Rodino filing and an effective Form S-4 Registration
Statement.
F-18
<PAGE> 195
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Affymetrix' charter includes a provision that eliminates the personal liability
of a director to Affymetrix or its stockholders for monetary damages arising out
of the director's breach of his or her fiduciary duty. The charter provides,
however, that unless otherwise permitted by applicable law, a director remains
potentially liable for monetary damages for:
- breach of the director's duty of loyalty to Affymetrix or its
stockholders;
- acts or omissions not in good faith or which involve misconduct or a
knowing violation of law;
- an improper payment of a dividend or an improper redemption or repurchase
of Affymetrix' stock (as provided in Section 174 of the Delaware General
Corporation Law); or
- any transaction from which a director derives an improper personal
benefit.
Any repeal or modification of this provision will not affect any right or
protection of a director that exists at the time of such repeal or modification.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such officer, director, employee or agent
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his or her conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or
director actually and reasonably incurred.
Article VIII of the bylaws of Affymetrix provides in terms similar to those
of Section 145 of the Delaware General Corporation Law that Affymetrix has the
power and is required to indemnify its directors and officers in accordance with
Delaware Law.
The right to indemnification includes the right to be paid by Affymetrix
the expenses (including attorneys' fees) incurred in defending any suits brought
in advance of their final disposition; provided, however, that if the Delaware
General Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by the indemnitee, including,
without limitation, service to an employee benefit plan) will be made only upon
delivery to Affymetrix of an undertaking, by or on behalf of the indemnitee, to
repay all amounts so advanced if it will ultimately be determined by final
judicial decision from which there is no further right to appeal. The rights to
indemnification
II-1
<PAGE> 196
and to the advancement of expenses covered in Sections 1 and 2 of Article VII of
Affymetrix' bylaws are contract rights and these rights continue as to an
indemnitee who has ceased to be a director or officer and will inure to the
benefit of his or her heirs, executors and administrators.
If a claim covered by Affymetrix' bylaws (Article VIII, Sections 1 and 2)
is not paid in full by Affymetrix within 60 days after a written claim has been
received by Affymetrix, except in the case of advancement of expenses pursuant
to the terms of an undertaking, in which case the applicable period is 20 days,
an indemnitee will be entitled to be paid also the expense of prosecuting or
defending the suit. The failure of the indemnitee to meet any applicable
standard for indemnification set forth in the Delaware General Corporation Law:
- is a defense in any suit brought by the indemnitee to enforce a right to
indemnification (but not in a suit brought by the indemnitee to enforce a
right to an advancement of expenses), and
- entitles Affymetrix to recover an advancement of expenses pursuant to the
terms of an undertaking upon a final adjudication in any suit brought by
Affymetrix to recover an advancement of expenses pursuant to the terms of
an undertaking.
Neither the failure of Affymetrix, including its board of directors, independent
legal counsel, or its stockholders, to have made a determination prior to the
commencement of the suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by Affymetrix, including its board of directors, independent legal counsel, or
its stockholders, that the indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the indemnitee, is a defense
to the suit. In any suit brought by an indemnitee to enforce a right to
indemnification or to an advancement of expenses, or brought by Affymetrix to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to an advancement of
expenses under Article VIII of the bylaws or otherwise will be on Affymetrix.
The rights to indemnification and to the advancement of expenses conferred
in Affymetrix' bylaws are not exclusive of any other right which any person may
have or acquire under Affymetrix' charter, any statute, agreement, vote of
stockholders or disinterested directors or otherwise.
Affymetrix may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of Affymetrix or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not Affymetrix would have the power to indemnify
that person against the expense, liability, or loss under the Delaware General
Corporation Law.
Affymetrix may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of expenses to
any officer, employee or agent of Affymetrix to the fullest extent of the
provisions allowed by its bylaws with respect to the indemnification and
advancement of expenses of directors and officers of Affymetrix.
II-2
<PAGE> 197
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 10,
1999, among Affymetrix, Inc., GMS Acquisition, Inc., Genetic
MicroSystems, Inc., Jean Montagu and the stockholders set
forth on the signature pages thereto (attached as Appendix A
to the Proxy Statement/ Prospectus contained in this
Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of
Affymetrix, Inc. (incorporated by reference to Exhibit 3.1
of Affymetrix' Registration Statement on Form S-3 as filed
July 12, 1999).
3.2 Bylaws of Affymetrix, Inc. (incorporated by reference to
Appendix C of Affymetrix' Definitive Proxy Statement on
Schedule 14A as filed on April 29, 1998).
4.1 Rights Agreement dated as of October 15, 1998 between
Affymetrix, Inc. and America Stock Transfer & Trust Company,
as Rights Agent (incorporated by reference to Exhibit 1 of
Affymetrix' Form 8-A as filed on October 16, 1998).
4.2 Indenture dated as of September 22, 1999, between
Affymetrix, Inc. and The Bank of New York, as Trustee.
5.1 Opinion of Vern Norviel, Senior Vice President, General
Counsel and Corporate Secretary of Affymetrix, Inc.,
regarding the validity of the shares of Affymetrix, Inc.
Common Stock to be registered under this Registration
Statement.
8.1 Opinion of Sullivan & Cromwell regarding certain United
States federal income tax consequences of the Merger.
8.2 Opinion of Palmer & Dodge LLP regarding certain United
States federal income tax consequences of the Merger.
10.1 Stock Option Agreement, dated as of September 10, 1999,
between Affymetrix, Inc. and Genetic MicroSystems, Inc.
(attached as Appendix B to the Proxy Statement/Prospectus
contained in this Registration Statement).
23.1 Consent of Ernst & Young LLP, Independent Auditors (Boston,
Massachusetts).
23.2 Consent of Ernst & Young LLP, Independent Auditors (Palo
Alto, California).
23.3 Consent of Vern Norviel, Senior Vice President, General
Counsel & Corporate Secretary (contained in Exhibit 5.1).
23.4 Consent of Sullivan & Cromwell (contained in Exhibit 8.1).
23.5 Consent of Palmer & Dodge LLP (contained in Exhibit 8.2).
24.1 Power of Attorney
99.1 Form of Proxy for holders of Genetic MicroSystems, Inc.
Common Stock, Genetic MicroSystems, Inc. Series A
Convertible Preferred Stock, and Series B Convertible
Preferred Stock Genetic MicroSystems, Inc.
</TABLE>
II-3
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.2 Escrow Agreement, dated as of September 10, 1999, among
Genetic MicroSystems, Inc., Affymetrix, Inc., GMS
Acquisition, Inc., Jean Montagu, as Stockholder
Representative, and Bank One Trust Company, N.A., as Escrow
Agent (attached as Appendix C to the Proxy
Statement/Prospectus contained in this Registration
Statement).
99.3 Form of Stockholder Voting Agreement entered into by
Affymetrix and Jean Montagu, Dominic Montagu, Sasha Montagu,
Stanley Rose, Peter Honkanen and Myles L. Mace, Jr.
(attached as Appendix D to the Proxy Statement/Prospectus
contained in this Registration Statement).
</TABLE>
(b) Financial Data Schedule.
Schedules are omitted because they either are not required or are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act 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
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to
II-4
<PAGE> 199
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement 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.
(c) (1) 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 this form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other Items of this form; and
(2) the registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the
Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) 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 Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to items 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of 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 this registration statement when it became
effective.
II-5
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Affymetrix, Inc. has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on October 14, 1999.
AFFYMETRIX, INC.
By: /s/ VERN NORVIEL
------------------------------------
Name: Vern Norviel
Title: Senior Vice President,
General Counsel &
Corporate Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and October 14, 1999
- --------------------------------------------------- Chairman of the Board
Stephen P.A. Fodor, Ph.D.
* Vice President and Chief October 14, 1999
- --------------------------------------------------- Financial Officer (Principal
Edward M. Hurwitz Financial and Accounting
Officer)
* Vice Chairman of the Board October 14, 1999
- ---------------------------------------------------
John D. Diekman, Ph.D.
* Director October 14, 1999
- ---------------------------------------------------
Paul Berg, Ph.D.
* Director October 14, 1999
- ---------------------------------------------------
Vernon R. Loucks, Jr.
* Director October 14, 1999
- ---------------------------------------------------
Barry C. Ross, Ph.D.
* Director October 14, 1999
- ---------------------------------------------------
David B. Singer
* Director October 14, 1999
- ---------------------------------------------------
Lubert Stryer, M.D.
* Director October 14, 1999
- ---------------------------------------------------
John A. Young
*By Power of Attorney
/s/ VERN NORVIEL Attorney-in-Fact
- ---------------------------------------------------
Vern Norviel
</TABLE>
II-6
<PAGE> 201
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 10,
1999, among Affymetrix, Inc., GMS Acquisition, Inc., Genetic
MicroSystems, Inc., Jean Montagu and the stockholders set
forth on the signature pages thereto (attached as Appendix A
to the Proxy Statement/ Prospectus contained in this
Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of
Affymetrix, Inc. (incorporated by reference to Appendix B of
Affymetrix' Definitive Proxy Statement on Schedule 14A as
filed April 29, 1998).
3.2 Bylaws of Affymetrix, Inc. (incorporated by reference to
Appendix C of Affymetrix' Definitive Proxy Statement on
Schedule 14A as filed on April 29, 1998).
4.1 Rights Agreement dated as of October 15, 1998 between
Affymetrix, Inc. and America Stock Transfer & Trust Company,
as Rights Agent (incorporated by reference to Exhibit 1 of
Affymetrix' Form 8-A as filed on October 16, 1998).
4.2 Indenture dated as of September 22, 1999, between
Affymetrix, Inc. and The Bank of New York, as Trustee.
5.1 Opinion of Vern Norviel, Senior Vice President, General
Counsel and Corporate Secretary of Affymetrix, Inc.,
regarding the validity of the shares of Affymetrix, Inc.
Common Stock to be registered under this Registration
Statement.
8.1 Opinion of Sullivan & Cromwell regarding certain United
States federal income tax consequences of the Merger.
8.2 Opinion of Palmer & Dodge LLP regarding certain United
States federal income tax consequences of the Merger.
10.1 Stock Option Agreement, dated as of September 10, 1999,
between Affymetrix, Inc. and Genetic MicroSystems, Inc.
(attached as Appendix B to the Proxy Statement/Prospectus
contained in this Registration Statement).
23.1 Consent of Ernst & Young LLP, Independent Auditors (Boston,
Massachusetts).
23.2 Consent of Ernst & Young LLP, Independent Auditors (Palo
Alto, California). Consent of Vern Norviel, Senior Vice
President, General Counsel &
23.3 Consent of Vern Norviel, Senior Vice President, General
Counsel and Corporate Secretary (contained in Exhibit 5.1).
23.4 Consent of Sullivan & Cromwell (contained in Exhibit 8.1).
23.5 Consent of Palmer & Dodge LLP (contained in Exhibit 8.2).
24.1 Power of Attorney
99.1 Form of Proxy for holders of Genetic MicroSystems, Inc.
Common Stock, Genetic MicroSystems, Inc. Series A
Convertible Preferred Stock, and Series B Convertible
Preferred Stock Genetic MicroSystems, Inc.
</TABLE>
<PAGE> 202
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
99.2 Escrow Agreement, dated as of September 10, 1999, among
Genetic MicroSystems, Inc., Affymetrix, Inc., GMS
Acquisition, Inc., Jean Montagu, as Stockholder
Representative, and Bank One Trust Company, N.A., as Escrow
Agent (attached as Appendix C to the Proxy
Statement/Prospectus contained in this Registration
Statement).
99.3 Form of Stockholder Voting Agreement entered into by
Affymetrix and Jean Montagu, Dominic Montagu, Sasha Montagu,
Stanley Rose, Peter Honkanen and Myles L. Mace, Jr.
(attached as Appendix D to the Proxy Statement/Prospectus
contained in this Registration Statement).
</TABLE>
<PAGE> 1
EXHIBIT 4.2
INDENTURE
AFFYMETRIX, INC.
to
THE BANK OF NEW YORK
Trustee
5% Convertible Subordinated Notes Due 2006
Dated as of September 22, 1999
<PAGE> 2
Page
Table of Contents
Page
ARTICLE I
Definitions and Other Provisions of General Application
<TABLE>
<S> <C> <C>
SECTION 1.01. Definitions................................................................ 1
SECTION 1.02. Compliance Certificates and Opinions....................................... 8
SECTION 1.03. Form of Documents Delivered to Trustee..................................... 9
SECTION 1.04. Acts of Holders: Record Dates............................................. 9
SECTION 1.05. Notices, etc., to Trustee and Company...................................... 11
SECTION 1.06. Notices to Holders: Waiver................................................ 12
SECTION 1.07. Conflict with Trust Indenture Act.......................................... 12
SECTION 1.08. Effect of Headings and Table of Contents................................... 12
SECTION 1.09. Successors and Assigns..................................................... 12
SECTION 1.10. Severability Clause........................................................ 12
SECTION 1.11 Benefits of Indenture...................................................... 12
SECTION 1.12. Governing Law.............................................................. 13
SECTION 1.13. Legal Holidays............................................................. 13
</TABLE>
ARTICLE II
Security Forms
<TABLE>
<S> <C> <C>
SECTION 2.01. Forms Generally............................................................ 13
SECTION 2.02. Form of Face of Security................................................... 14
SECTION 2.03. Form of Reverse of Security................................................ 17
SECTION 2.04. Form of Trustee's Certificate of Authentication............................ 21
SECTION 2.05. Form of Conversion Notice.................................................. 21
SECTION 2.06. Form of Purchase Notice.................................................... 23
SECTION 2.07. Form of Certification...................................................... 23
</TABLE>
ARTICLE III
The Securities
<TABLE>
<S> <C> <C>
SECTION 3.01. Title and Terms............................................................ 24
SECTION 3.02. Denominations.............................................................. 25
SECTION 3.03. Execution, Authentication, Delivery and Dating............................. 25
SECTION 3.04. Global and Non-Global Securities........................................... 26
SECTION 3.05. Registration; Registration of Transfer and Exchange........................ 27
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities........................... 30
SECTION 3.07. Payment of Interest; Interest Rights Preserved............................. 31
SECTION 3.08. Persons Deemed Owners...................................................... 32
SECTION 3.09. Cancellation............................................................... 33
SECTION 3.10. Computation of Interest.................................................... 33
SECTION 3.11. CUSIP Numbers.............................................................. 33
</TABLE>
-ii-
<PAGE> 3
Page
ARTICLE IV
Satisfaction and Discharge
<TABLE>
<S> <C> <C>
SECTION 4.01. Satisfaction and Discharge of Indenture.................................... 33
SECTION 4.02. Application of Trust Money................................................. 34
</TABLE>
ARTICLE V
Remedies
<TABLE>
<S> <C> <C>
SECTION 5.01. Events of Default.......................................................... 35
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment......................... 36
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee............................................ 37
SECTION 5.04. Trustee May File Proofs of Claim........................................... 38
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities......................................... 38
SECTION 5.06. Application of Money Collected............................................. 38
SECTION 5.07. Limitation on Suits........................................................ 39
SECTION 5.08. Unconditional Right of Holders to Receive Principal,
Premium and Interest and To Convert................ 39
SECTION 5.09. Restoration of Rights and Remedies......................................... 40
SECTION 5.10. Rights and Remedies Cumulative............................................. 40
SECTION 5.11. Delay or Omission Not Waiver............................................... 40
SECTION 5.12. Control by Holders......................................................... 40
SECTION 5.13. Waiver of Past Defaults.................................................... 40
SECTION 5.14. Undertaking for Costs...................................................... 41
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.................................... 41
</TABLE>
ARTICLE VI
The Trustee
<TABLE>
<S> <C> <C>
SECTION 6.01. Certain Duties and Responsibilities........................................ 41
SECTION 6.02. Notice of Defaults......................................................... 42
SECTION 6.03. Certain Rights of Trustee.................................................. 42
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities..................... 43
SECTION 6.05. May Hold Securities........................................................ 44
SECTION 6.06. Money Held in Trust........................................................ 44
SECTION 6.07. Compensation and Reimbursement............................................. 44
SECTION 6.08. Disqualification; Conflicting Interests.................................... 44
SECTION 6.09. Corporate Trustee Required; Eligibility.................................... 45
SECTION 6.10. Resignation and Removal; Appointment of Successor.......................... 45
SECTION 6.11. Acceptance of Appointment by Successor..................................... 46
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business........................................... 46
SECTION 6.13. Preferential Collection of Claims Against Company.......................... 47
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 6.14. Appointment of Authenticating Agent........................................ 47
SECTION 6.15. Appointment of Co-Trustee.................................................. 48
</TABLE>
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
<TABLE>
<S> <C> <C>
SECTION 7.01. Company to Furnish Trustee Names and Addresses to
Holders............................................ 49
SECTION 7.02. Preservation of Information; Communications to Holders..................... 49
SECTION 7.03. Reports by Trustee......................................................... 49
SECTION 7.04. Reports by Company......................................................... 50
</TABLE>
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
<TABLE>
<S> <C> <C>
SECTION 8.01. Company May Consolidate, etc., Only on Certain Terms....................... 50
SECTION 8.02. Successor Substituted...................................................... 51
</TABLE>
ARTICLE IX
Supplemental Indentures
<TABLE>
<S> <C> <C>
SECTION 9.01. Supplemental Indentures Without Consent of Holders......................... 51
SECTION 9.02. Supplemental Indentures with Consent of Holders............................ 52
SECTION 9.03. Execution of Supplemental Indentures....................................... 53
SECTION 9.04. Effect of Supplemental Indentures.......................................... 53
SECTION 9.05. Conformity with Trust Indenture Act........................................ 53
SECTION 9.06. Reference in Securities to Supplemental Indentures......................... 53
</TABLE>
ARTICLE X
Covenants
<TABLE>
<S> <C> <C>
SECTION 10.01. Payment of Principal, Premium and Interest................................. 53
SECTION 10.02. Maintenance of Office or Agency............................................ 54
SECTION 10.03. Money for Security Payments To Be Held in Trust............................ 54
SECTION 10.04. Statement by Officers as to Default........................................ 55
SECTION 10.05. Existence.................................................................. 55
SECTION 10.06. Maintenance of Properties.................................................. 56
SECTION 10.07. Payment of Taxes and Other Claims.......................................... 56
SECTION 10.08. Waiver of Certain Covenants................................................ 56
SECTION 10.09. Delivery of Certain Information............................................ 56
SECTION 10.10. Resale of Certain Securities; Reporting Issuer............................. 56
SECTION 10.11. Registration Rights........................................................ 57
</TABLE>
-iv-
<PAGE> 5
Page
ARTICLE XI
Redemption of Securities
<TABLE>
<S> <C> <C>
SECTION 11.01. Rights of Redemption....................................................... 58
SECTION 11.02. Applicability of Article................................................... 58
SECTION 11.03. Election to Redeem; Notice to Trustee...................................... 58
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed......................... 58
SECTION 11.05. Notice of Redemption....................................................... 59
SECTION 11.06. Deposit of Redemption Price............................................... 59
SECTION 11.07. Securities Payable on Redemption Date...................................... 60
SECTION 11.08. Securities Redeemed in Part................................................ 60
SECTION 11.09. Conversion Arrangement on Call for Redemption.............................. 60
</TABLE>
ARTICLE XII
Subordination of Securities
<TABLE>
<S> <C> <C>
SECTION 12.01. Securities Subordinate to Senior Indebtedness.............................. 61
SECTION 12.02. Payment over of Proceeds upon Dissolution, Etc............................. 61
SECTION 12.03. No Payment When Senior Indebtedness in Default............................. 62
SECTION 12.04. Payment Permitted If No Default............................................ 63
SECTION 12.05. Subrogation to Rights of Holders of Senior Indebtedness.................... 63
SECTION 12.06. Provisions Solely to Define Relative Rights................................ 63
SECTION 12.07. Trustee to Effectuate Subordination........................................ 64
SECTION 12.08. No Waiver of Subordination Provisions...................................... 64
SECTION 12.09. Notice to Trustee.......................................................... 64
SECTION 12.10. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................................... 65
SECTION 12.11. Trustee Not Fiduciary for Holders of Senior Indebtedness................... 65
SECTION 12.12. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights........................................ 66
SECTION 12.13. Article Applicable to Paying Agents........................................ 66
SECTION 12.14. Certain Conversions Deemed Payment......................................... 66
</TABLE>
ARTICLE XIII
Conversion of Securities
<TABLE>
<S> <C> <C>
SECTION 13.01. Conversion Privilege and Conversion Price.................................. 66
SECTION 13.02. Exercise of Conversion Privilege........................................... 67
SECTION 13.03. Fractions of Shares........................................................ 68
SECTION 13.04. Adjustment of Conversion Price............................................. 69
SECTION 13.05. Notice of Adjustments of Conversion Price.................................. 74
SECTION 13.06. Notice of Certain Corporate Action......................................... 74
SECTION 13.07. Company to Reserve Common Stock............................................ 75
SECTION 13.08. Taxes on Conversions....................................................... 75
</TABLE>
-v-
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 13.09. Covenant as to Common Stock................................................ 75
SECTION 13.10. Cancellation of Converted Securities....................................... 75
SECTION 13.11. Provisions in Case of Reclassification, Consolidation, Merger
or Sale of Assets.................................. 75
SECTION 13.12. Trustee Adjustment Disclaimer.............................................. 76
</TABLE>
ARTICLE XIV
Right to Require Purchase
<TABLE>
<S> <C> <C>
SECTION 14.01. Right to Require Purchase.................................................. 76
SECTION 14.02. Conditions and Procedures Relating to the Company's
Election to Pay the Purchase Price in Common Stock....................... 76
SECTION 14.03. Notice, Method of Exercising Purchase Right................................ 78
SECTION 14.04. Deposit of Purchase Price.................................................. 79
SECTION 14.05. Securities Not Purchased in Part........................................... 79
SECTION 14.06. Securities Purchased in Part............................................... 79
SECTION 14.07. Certain Definitions........................................................ 79
</TABLE>
ARTICLE XV
Defeasance and Covenant Defeasance
<TABLE>
<S> <C> <C>
SECTION 15.01. Company's Option to Effect Defeasance or Covenant
Defeasance......................................... 81
SECTION 15.02. Defeasance and Discharge................................................... 81
SECTION 15.03. Covenant Defeasance........................................................ 81
SECTION 15.04. Conditions to Defeasance or Covenant Defeasance............................ 81
SECTION 15.05. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions...... 83
SECTION 15.06. Reinstatement.............................................................. 84
</TABLE>
ARTICLE XVI
Immunity
<TABLE>
<S> <C> <C>
SECTION 16.01. Personal Immunity of Incorporators, Shareholders, Directors
and Officers............................................................. 84
</TABLE>
-vi-
<PAGE> 7
INDENTURE dated as of September 22, 1999,
between AFFYMETRIX, INC., a corporation duly
organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its
principal office at 3380 Central Expressway, Santa
Clara, California 95051, and THE BANK OF NEW YORK, as
Trustee (herein called the "Trustee").
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its 5% Convertible Subordinated
Notes due 2006 (herein called the "Securities"), to be issued as in this
Indenture provided.
All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
W I T N E S S E T H :
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities or of any series thereof,
as follows:
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
1. The terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the singular.
2. All other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein.
3. All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation.
4. Unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or Section, as the case may be, of
this Indenture.
5. The words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms used in Article XIV have the meanings specified
therein.
<PAGE> 8
2
"Act", when used with respect to any Holder, has the meaning
specified in Section 1.04.
"Additional Interest" has the meaning specified in Section
10.11.
"Affiliate" of any specified Person means any other Person who
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the
Depositary.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities.
"Beneficial Owner" has the meaning specified in Section 14.07.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means a day on which banking institutions are
open for business and carrying out transactions in Dollars at the relevant place
of payment.
"Change in Control" has the meaning specified in Section
14.07.
"Closing Price" on any Trading Day with respect to the per
share price of Common Stock means the last reported sales price regular way or,
in case no such reported sale takes place on such Trading Day, the average of
the reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if the Common Stock is not listed or admitted to trading
on the New York Stock Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange, on Nasdaq or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or Nasdaq, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
<PAGE> 9
3
"Commencement Date" has the meaning specified in Section
13.04.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" includes any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which is not subject to redemption by the Company. However,
subject to the provisions of Section 13.11, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock of
the Company at the date of this instrument or shares of any class or classes
resulting from any reclassification or reclassifications thereof and which have
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which are not subject to redemption by the Company; provided that if at any
time there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Order" has the meaning specified in the definition of
Company Request in this Section 1.01.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Corporate Trust Office" means the principal office of the
Trustee in the city at which at any particular time its corporate trust business
shall be administered. As of the date hereof, the Corporate Trust Office of the
Trustee is located at 101 Barclay Street, Floor 21 West, New York, New York
10286.
"Corporation" means a corporation, association, company,
joint-stock company or business trust.
"Current Event" has the meaning specified in Section 13.04.
"Defaulted Interest" has the meaning specified in Section
3.07.
"Depositary" means, with respect to the Securities issued in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the
<PAGE> 10
4
Exchange Act that is designated to act as Depositary for such Securities as
contemplated by Section 2.01 (or any successor securities clearing agency so
registered).
"Distribution Date" has the meaning specified in Section
13.04.
"Dollar" or "U.S.$" means a Dollar or other equivalent unit in
such coin or currency of the United States as at the time shall be legal tender
for the payment of public and private debts.
"DTC" means The Depository Trust Company, a New York
corporation.
"Event of Default" has the meaning specified in Section 5.01.
"ex date" has the meaning specified in Section 13.04.
"Exchange Act" means the Securities Exchange Act of 1934 as it
may be amended from time to time, and any successor act thereto, and the rules
and regulations of the Commission promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.04.
"Expiration Time" has the meaning specified in Section 13.04.
"Global Security" means a Security that is registered in the
Security Register in the name of a Depositary or a nominee thereof.
"Group" has the meaning specified in Section 14.07.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchasers" means Credit Suisse First Boston
Corporation, BancBoston Robertson Stephens Inc., ING Barings LLC, Lehman
Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Issue Date" means the date of first issuance of the
Securities under this Indenture.
"junior securities" has the meaning specified in Section
12.14.
<PAGE> 11
5
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, call for redemption, exercise of the
purchase right or otherwise.
"Nasdaq" means Nasdaq Stock Market, Inc.
"Notice of Default" means a written notice of the kind
specified in Section 5.01(4) or 5.01(5).
"Officers' Certificate" means a certificate signed by any of
the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President or a Vice President, and by any of the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 10.04 shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who
may be internal counsel for the Company.
"Other Event" has the meaning specified in Section 13.04.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
separated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if
such Securities are to be redeemed, notice of such redemption shall
have been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee shall have been made;
(iii) Securities which have been paid pursuant to Section 3.07
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company; and
(iv) Securities which have been defeased pursuant to Section
15.02;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or of such other
obligor shall be disregarded and deemed not to
<PAGE> 12
6
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which a Responsible
Officer of the Trustee knows to be so owned shall be so disregarded. Securities
so owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or of such other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.06 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Date" has the meaning specified in Section 14.01.
"Purchase Price" has the meaning specified in Section 14.01.
"Purchased Shares" has the meaning specified in Section 13.04.
"Qualified Institutional Buyer" means a "qualified
institutional buyer" as defined in Rule 144A.
"Redemption Date", when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed as set forth in the
Securities.
"Reference Date" has the meaning specified in Section 13.04.
"Registration Default" has the meaning specified in Section
10.11.
"Registration Rights Agreement" has the meaning specified in
Section 10.11.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the September 15 or March 15 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee,
means any officer in the corporate trust department of the Trustee, including
any vice president,
<PAGE> 13
7
assistant vice president, assistant secretary, assistant treasurer, trust
officer or any other officer of the Trustee who customarily performs functions
similar to those performed by the Persons who at the time shall be such
officers, respectively, or to whom any corporate trust matter is referred
because of such person's knowledge of and familiarity with the particular
subject and who shall have direct responsibility for the administration of this
Indenture.
"Restricted Global Security" has the meaning specified in
Section 2.01.
"Restricted Security" means a Security required to bear the
restricted securities legend set forth in Section 2.02.
"Rule 144A" means Rule 144A under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Rule 144A Information" has the meaning specified in Section
10.09.
"Securities" has the meaning stated in the first recital of
this Indenture and more particularly means any Securities authenticated and
delivered under this Indenture and "Security" means one of such Securities.
"Securities Act" means the Securities Act of 1933 as it may be
amended from time to time, and any successor act thereto, and the rules and
regulations of the Commission promulgated thereunder.
"Security Register" has the meaning specified in Section 3.05.
"Security Registrar" has the meaning specified in Section
3.05.
"Senior Indebtedness" means the principal of and premium, if
any, and interest on all indebtedness of the Company for money borrowed, other
than the Securities, whether outstanding on the date of execution of the
Indenture or thereafter created, incurred, guaranteed or assumed, except such
indebtedness that by the terms of the instrument or instruments by which such
indebtedness was created or incurred expressly provides that it (i) is junior in
right of payment to the Securities or (ii) ranks pari passu in right of payment
to the Securities. The term "indebtedness for money borrowed" when used with
respect to the Company is defined to mean (i) any obligation of, or any
obligation guaranteed by, the Company for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) all obligations of the Company with respect to interest rate
hedging agreements to hedge interest rates, (iii) any deferred payment
obligation of, or any such obligation guaranteed by, the Company for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iv) any obligation of, or any such obligation guaranteed by,
the Company for the payment of rent or other amounts under a lease of property
or assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Company under generally accepted
accounting principles.
"Shelf Registration Statement" has the meaning specified in
Section 10.11.
<PAGE> 14
8
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or
any installment of principal thereof or interest thereon, means the date
specified in such Security as the fixed date on which the principal of such
Security or such installment of principal or interest is due and payable.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
"Surrendered Securities" has the meaning specified in Section
2.07.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
"Transfer Restricted Securities" has the meaning specified in
the Registration Rights Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed and the rules and
regulations thereunder; provided, however, that in the event the Trust Indenture
Act of 1939 or such rules and regulations are amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 and such rules and regulations as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States" means the United States of America (including
the States thereof and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.
"U.S. Government Obligation" has the meaning specified in
Section 15.04.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate, if to be given by an officer of the Company, or an
Opinion of Counsel, if to be
<PAGE> 15
9
given by counsel, stating that all conditions precedent, if any, provided for in
this Indenture relating to the proposed action have been complied with.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 1.04. Acts of Holders; Record Dates. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given or taken by Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument
<PAGE> 16
10
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such instrument
or instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section 1.04.
The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security
Register.
Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
The Company may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given or taken by Holders
of Securities; provided that the Company may not set a record date for, and the
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
Outstanding Securities on such record date, and no other Holders, shall be
entitled to take the relevant action, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record date;
and provided further, that for the purpose of determining whether Holders of the
requisite principal amount of such Securities have taken such action, no
Security shall be deemed to have been Outstanding on such record date unless it
is also Outstanding on the date such action is to become effective. Nothing in
this paragraph shall prevent the Company from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), nor shall anything in
this paragraph be construed to render ineffective any action taken by Holders of
the requisite principal amount of Outstanding Securities on the date such action
is taken. Promptly after any record date is set pursuant to this paragraph, the
Company, at its own expense, shall cause notice of such record date, the
proposed action by Holders and the applicable Expiration Date to be given to the
Trustee in writing and to each Holder of Securities in the manner set forth in
Section 1.06.
<PAGE> 17
11
The Trustee may set any day as a record date for the purpose
of determining the Holders of Outstanding Securities entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.02, (iii) any request to institute
proceedings referred to in Section 5.07(2), or (iv) any direction referred to in
Section 5.12. If any record date is set pursuant to this paragraph, the Holders
of Outstanding Securities on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities on such record date; and provided, further, that for the purpose of
determining whether Holders of the requisite principal amount of such Securities
have taken such action, no Security shall be deemed to have been Outstanding on
such record date unless it is also Outstanding on the date such action is to
become effective. Nothing in this paragraph shall be construed to prevent the
Trustee from setting a new record date for any action (whereupon the record date
previously set shall automatically and without any action by any Person be
cancelled and of no effect), nor shall anything in this paragraph be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date, the proposed action
by Holders and the applicable Expiration Date to be given to the Company in
writing and to each Holder of Securities in the manner set forth in Section
1.06.
With respect to any record date set pursuant to this Section,
the party hereto that sets such record date may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities in the manner set forth in Section
1.06, on or before the existing Expiration Date. Notwithstanding the foregoing,
no Expiration Date shall be later than the 180th day after the applicable record
date and, if an Expiration Date is not designated with respect to any record
date set pursuant to this Section, the party hereto that set such record date
shall be deemed to have designated the 180th day after such record date as the
Expiration Date with respect thereto.
Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents, each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 1.05. Notices, etc. to Trustee and Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficiently given if made, given, furnished or filed in writing to or with the
Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or at any other address previously furnished in writing to the
Company by the Trustee, or
<PAGE> 18
12
(2) the Company by the Trustee or by any Holder shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to the Company, addressed to it at the
address of its principal office specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee by the Company.
SECTION 1.06. Notice to Holders; Waiver. Where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 1.07. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with a provision of the Trust
Indenture Act which is required under such Act to be a part of and govern this
Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act which
may be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be. To the
extent a Security conflicts with a provision in the Indenture, the Indenture
governs.
SECTION 1.08. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and
agreements in this Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 1.10. Severability Clause. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture
or in the Securities, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder, the holders of Senior
Indebtedness and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
<PAGE> 19
13
SECTION 1.12. Governing Law. THIS INDENTURE AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
SECTION 1. 13. Legal Holidays. In any case where any Interest
Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Security
or the last date on which a Holder has the right to convert his Securities shall
not be a Business Day then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest or principal (and premium,
if any) or conversion of the Securities need not be made on such date, but may
be made on the next succeeding Business Day with the same force and effect as if
made on the Interest Payment Date, Redemption Date, Purchase Date or at the
Stated Maturity, or on such last day for conversion; provided that no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date, Purchase Date or Stated Maturity, as the case may be.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities, the conversion
notice and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
In certain cases described elsewhere herein, the legends set
forth in the first four paragraphs of Section 2.02 may be omitted from
Securities issued hereunder.
Upon their original issuance, Securities offered and sold as
provided in the Purchase Agreement, shall be issued in the form of a single
Global Security in definitive, fully registered form without interest coupons,
substantially in the form of Security set forth in Sections 2.02 and 2.03, with
such applicable legends as are provided for in Section 2.02, except as otherwise
permitted herein. Such Global Security shall be registered in the name of DTC,
as Depositary, or its nominee or successor, duly executed by the Company and
authenticated by the Trustee as hereinafter provided, and deposited with the
Trustee, as custodian for DTC, for credit by DTC to the respective accounts of
beneficial owners of the Securities represented thereby (or such other accounts
as they may direct). Such Global Security, together with its Successor
Securities which are Global Securities, are collectively herein called the
"Restricted Global Security".
Except as provided in this Section 2.01 or Section 3.05,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of
<PAGE> 20
14
certificated Securities. Upon transfer of definitive Securities to a Qualified
Institutional Buyer, such definitive Securities will, unless the Restricted
Global Security has previously been exchanged, be exchanged for an interest in
the Restricted Global Security pursuant to the provisions of Section 3.05.
Neither the Company nor the Trustee shall have any
responsibility for any defect in the CUSIP number that appears on any Security,
check, advice of payment or redemption or purchase notice, and any such document
may contain a statement to the effect that CUSIP numbers have been assigned by
an independent service for convenience of reference and that neither the Company
nor the Trustee shall be liable for any inaccuracy in such numbers.
SECTION 2.02. Form of Face of Security.
[INCLUDE IF SECURITY IS A RESTRICTED SECURITY OR A
DEFINITIVE SECURITY OTHER THAN A RESTRICTED GLOBAL SECURITY:
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY AND THE COMMON STOCK ISSUABLE
UPON THE CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT
TO, THE SECURITIES ACT. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY, AND THE COMMON STOCK ISSUABLE UPON THE CONVERSION
THEREOF, MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON THE CONVERSION
THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (III)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH OF CASES (I) THROUGH (III) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY AND ANY
SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION THEREOF OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.]
[INCLUDE IF SECURITY IS A RESTRICTED GLOBAL SECURITY:
THE SECURITIES EVIDENCED BY THIS GLOBAL SECURITY (OR
ITS PREDECESSOR) WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
<PAGE> 21
15
FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND SUCH SECURITIES AND THE COMMON STOCK ISSUABLE UPON THE
CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO,
THE SECURITIES ACT. EACH PURCHASER OF ANY BENEFICIAL INTEREST IN THE SECURITIES
IS HEREBY NOTIFIED THAT THE SELLER OF SUCH BENEFICIAL INTEREST MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER.
EACH BENEFICIAL OWNER OF AN INTEREST IN ANY OF THE SECURITIES
EVIDENCED BY THIS GLOBAL SECURITY (INCLUDING ANY PARTICIPANT IN THE DEPOSITARY
HOLDING THE GLOBAL SECURITY THAT IS SHOWN AS HOLDING SUCH AN INTEREST ON THE
RECORDS OF SUCH DEPOSITARY AND EACH BENEFICIAL OWNER THAT HOLDS THROUGH SUCH
PARTICIPANT) AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) ANY BENEFICIAL
INTEREST IN THE SECURITIES AND THE COMMON STOCK ISSUABLE UPON THE CONVERSION
THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (III)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH OF CASES (I) THROUGH (III) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE BENEFICIAL OWNER WILL, AND
EACH SUBSEQUENT BENEFICIAL OWNER OF THIS SECURITY OR ANY SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF IS REQUIRED TO, NOTIFY ANY PURCHASER OF ANY
BENEFICIAL INTEREST IN THE SECURITIES AND ANY SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION THEREOF FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A)
ABOVE.]
[INCLUDE IF SECURITY IS A GLOBAL SECURITY:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY
BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
<PAGE> 22
16
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Affymetrix, Inc.
5% Convertible Subordinated Notes due 2006
CUSIP No. [ ]
No. ____ U. S. $
--------------
Affymetrix, Inc., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to ________, or registered assigns, the
principal sum of United States Dollars (U.S.$________ ) on October 1, 2006 and
to pay interest thereon from September 22, 1999, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on October 1 and April 1 in each year, commencing April
1, 2000, at the rate of 5% per annum, until the principal hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the September 15 or March 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest
(including payment of any Additional Interest) on this Security will be made at
the Corporate Trust Office, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts by a U.S. Dollar check drawn on an account maintained with a bank
in the Borough of Manhattan, The City of New York; provided, however, that upon
written application by the Holder to the Security Registrar setting forth wire
instructions not later than 5 days prior to the relevant payment date (in
<PAGE> 23
17
the case of payment of principal) or not later than the relevant Record Date (in
the case of payment of interest), such Holder may receive payment by wire
transfer of Dollars to a U.S. Dollar account maintained by the payee with a bank
in the United States or in Europe and designated by the payee to the Security
Registrar. [Include if a Global Security--All payments by the Company in respect
of a Global Security shall be wire transfer.]
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
AFFYMETRIX, INC.
By: _______________________________
Name:
Title:
SECTION 2.03. Form of Reverse of Security. This Security is
one of a duly authorized issue of Securities of the Company designated as its 5%
Convertible Subordinated Notes due 2006 (herein called the "Securities"),
limited in aggregate principal amount to U.S.$150,000,000, issued and to be
issued under an Indenture, dated as of September 22, 1999 (herein called the
"Indenture"), between the Company and The Bank of New York, as Trustee for the
Holders of Securities issued under said Indenture (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Indebtedness and
the Holders of the Securities and of the terms upon which the Securities are,
and are to be, authenticated and delivered.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Security is entitled, at his option, at any time
on or before the close of business on the Business Day immediately preceding
October 1, 2006, or in case this Security or a portion hereof is called for
redemption, then in respect of this Security or such portion hereof until and
including, but (unless the Company defaults in making the payment due upon
redemption or is otherwise due) not after, the close of business on the Business
Day immediately preceding the Redemption Date or Purchase Date, as the case may
be, to convert this Security (or any portion of the principal amount hereof
which is U.S.$1,000 or an integral multiple thereof), at the principal amount
hereof, or of such
<PAGE> 24
18
portion, into fully paid and non-assessable shares of Common Stock of the
Company at a conversion price equal to U.S.$123.00 aggregate principal amount of
Securities for each share of Common Stock (or at the current adjusted conversion
price if an adjustment has been made as provided in Article XIII of the
Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency in the Borough of
Manhattan, The City of New York, accompanied by the conversion notice hereon
executed by the Holder hereof evidencing such Holder's election to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
during the period from the close of business on any Regular Record Date to the
opening of business on the corresponding Interest Payment Date (unless this
Security or the portion hereof being converted has been called for redemption on
a Redemption Date within such period between and including such Regular Record
Date and such Interest Payment Date), also accompanied by payment in cash of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of this Security then being converted. Subject to the aforesaid
requirement for payment of interest and, in the case of a conversion after the
close of business on any Regular Record Date and on or before the corresponding
Interest Payment Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (even if the Security has been called for redemption on
a Redemption Date within such period), no payment or adjustment is to be made on
conversion for interest accrued hereon or for dividends on the Common Stock
issued on conversion. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest the
Company shall pay a cash adjustment or round up to the next higher whole share
as provided in Article XIII of the Indenture. The conversion price is subject to
adjustment as provided in Article XIII of the Indenture. In addition, the
Indenture provides that in case of certain reclassifications, consolidations,
mergers, sales or transfers of assets or other transactions pursuant to which
the Common Stock is converted into the right to receive other securities, cash
or other property, the Indenture shall be amended automatically, without the
consent of any Holders of Securities, so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the transaction by a holder
of the number of shares of Common Stock into which this Security might have been
converted immediately prior to such transaction.
The Company will furnish to any Holder, upon request and
without charge, copies of the Certificate of Incorporation and By-laws of the
Company then in effect. Any such request may be addressed to the Company.
The Securities are subject to redemption at the option of the
Company upon not less than 30 days' or more than 60 days' notice by mail, as a
whole or from time to time in part, at any time on or after October 7, 2002
through September 30, 2003 at 102.50% of the principal amount, and thereafter,
at the following Redemption Prices (expressed as percentages of the principal
amount), if redeemed during the 12-month period beginning on October 1 of the
years indicated,
<PAGE> 25
19
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
2003................................ 101.67%
2004................................ 100.83%
2005 and thereafter................. 100%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest to
(but not including) the Redemption Date, but interest installments whose Stated
Maturity is on or prior to such Redemption Date will be payable to the Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Dates referred to on the face hereof,
all as provided in the Indenture.
In certain circumstances involving a Change in Control, each
Holder shall have the right to require the Company to redeem all or part of its
Securities at a purchase price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest through the Purchase Date. The
Purchase Price is payable in cash or, at the Company's option but subject to the
satisfaction of certain conditions set forth in the Indenture, in shares of
Common Stock valued at 95% of the average Closing Prices of the Common Stock for
the five Trading Days preceding and including the third Trading Day prior to the
Purchase Date.
The Securities do not have the benefit of any sinking fund.
In the event of redemption, conversion or purchase of this
Security in part only, a new Security or Securities for the unredeemed,
unconverted or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
Subject to certain limitations in the Indenture, at any time
when the Company is not subject to Section 13 or 15(d) of the United States
Securities Exchange Act of 1934, as amended, upon the request of a Holder or the
holder of shares of Common Stock issued upon conversion thereof, the Company
will promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder or such holder of shares of Common Stock issued upon
conversion, or to a prospective purchaser of any such security designated by any
such Holder or holder of shares of Common Stock, as the case may be, to the
extent required to permit compliance by such Holder or holder of shares of
Common Stock with Rule 144A under the United States Securities Act of 1933 (the
"Securities Act"), in connection with the resale of any such security. "Rule
144A Information" shall be such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto).
If this Security is a Transfer Restricted Security, then the
Holder of this Security [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT-
(including any Person that has a beneficial interest in this Security)] and the
Common Stock issuable upon conversion thereof is entitled to the benefits of a
Registration Rights Agreement, dated as of September 22, 1999 (the "Registration
Rights Agreement") executed by the Company. If a Registration Default occurs (as
defined in the Registration Rights Agreement and in the Indenture), Additional
Interest will accrue on this Security from and including the day following such
Registration Default to but excluding the day on
<PAGE> 26
20
which such Registration Default has been cured. Additional Interest will be paid
semi-annually in arrears, with the first semi-annual payment due on the first
Interest Payment Date in respect of the Securities following the date on which
such Additional Interest begins to accrue, and will accrue at a rate per annum
equal to an additional one-half of one percent (0.50%) of the principal amount
of the Securities.
Whenever in this Security there is a reference, in any
context, to the payment of the principal of, premium, if any, or interest on, or
in respect of, any Security, such mention shall be deemed to include mention of
the payment of Additional Interest payable as described in the preceding
paragraph to the extent that, in such context, Additional Interest is, was or
would be payable in respect of such Security and express mention of the payment
of Additional Interest (if applicable) in any provisions of this Security shall
not be construed as excluding Additional Interest in those provisions of this
Security where such express mention is not made.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Security is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in Article V of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities under
the Indenture at any time by the Company and the Trustee with the written
consent of the Holders of a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be written, with
a copy delivered to the Trustee, and shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, premium,
if any, and interest on (including Additional Interest) this Security at the
times, place and rate, and in the coin or currency, herein prescribed or to
convert this Security as provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of
<PAGE> 27
21
this Security for registration of transfer at the Corporate Trust Office duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of U.S.$1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not payment of or on this Security is
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
Interest on this Security shall be computed on the basis of a
360-day year of twelve 30-day months.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES.
SECTION 2.04. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the
within-mentioned Indenture.
Dated: The Bank of New York, not in its
individual capacity but solely as
Trustee
By
------------------------
Authorized Signatory
SECTION 2.05. Form of Conversion Notice.
CONVERSION NOTICE
To: Affymetrix, Inc.
<PAGE> 28
22
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
U.S.$1,000 or an integral multiple thereof) below designated, at any time
following the date of original issuance thereof, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon conversion, together with
any check in payment for a fractional share and any Security representing any
unconverted principal amount hereof, be issued and delivered to the registered
owner hereof unless a different name has been provided below. If shares or any
portion of this Security not converted are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith a certificate in proper form
certifying that the applicable restrictions on transfer have been complied with.
Any amount required to be paid by the undersigned on account of interest
accompanies this Security.
The Applicant hereby agrees that, promptly after request of
the Company, he or it will furnish such proof in support of this certification
as the Company or the Security Registrar for the Common Stock may, from time to
time, request.
Dated:
---------------------------
Signature*
---------------------------
Signature Guaranty
<TABLE>
<S> <C>
If shares or Securities are to be Principal amount to be converted
registered in the name of a Person (if less than all):
other than the Holder, please print $ ,000
such Person's name and address:*
</TABLE>
- ---------------------------------- -------------------------------
Name Social Security or
Taxpayer Identification Number
- ----------------------------------
Street Address
- ----------------------------------
City, State and Zip Code
* Signature(s) must be guaranteed by an eligible guarantor institution (banks,
stock brokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program) pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be delivered,
or unconverted Securities are to be issued, other than to and in the name of the
registered owner.
<PAGE> 29
23
SECTION 2.06. Form of Purchase Notice.
ELECTION OF HOLDER TO REQUIRE PURCHASE
1. Pursuant to Section 14.01 of the Indenture, the undersigned
hereby elects to have this Security purchased by the Company.
2. The undersigned hereby directs the Trustee or the Company
to pay it or ________________ an amount in cash, or, at the Company's election,
Common Stock valued as set forth in the Indenture, equal to 100% of the
principal amount to be purchased (as set forth below), plus interest accrued to
the Purchase Date, as provided in the Indenture.
Dated:________________________
------------------------------
Signature
------------------------------
Signature Guaranteed
Principal amount to be purchased (must be an integral multiple of U.S. $1,000):
Remaining principal amount following such purchase:
--------------------
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
SECTION 2.07. Form of Certification. Whenever any
certification is required to be given to evidence compliance with certain
restrictions relating to transfers of Restricted Securities contemplated by
Section 3.05(b)(iv), Section 3.05(c) or Section 13.02, such certification shall
be provided substantially in the form of the following certificate, with only
such changes as shall be approved by the Company and the Initial Purchasers,
TRANSFER CERTIFICATE
The undersigned Holder hereby certifies with respect to U.S.$
principal amount of the above-captioned securities presented or surrendered on
the date hereof (the "Surrendered Securities") for registration of transfer, or
for exchange or conversion where the securities issuable upon such exchange or
conversion are to be registered in a name other than that of the undersigned
Holder (each such transaction
<PAGE> 30
24
being a "transfer"), that such transfer complies with the restrictive legend set
forth on the face of the Surrendered Securities for the reason checked below:
_______ The transfer of the Surrendered Securities complies with Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act"); or
_______ The transfer of the Surrendered Securities complies with
Rule 144A under the Securities Act; or
_______ The transfer of the Surrendered Securities is
pursuant to an effective registration statement under
the Securities Act, the prospectus delivery
requirements under the Securities Act have been
satisfied with respect to such transfer, the
undersigned Holder is named as a "Selling
Securityholder" in the prospectus relating to such
registration statement, or in amendments or
supplements thereto, and the aggregate principal
amount of Surrendered Securities transferred are all
or a portion of the securities listed in such
prospectus opposite the undersigned's name.
Dated: _________________________________*
* To be dated the date of surrender.
---------------------------
Signature
(If the registered owner is
a corporation, partnership
or fiduciary, the title of
the Person signing on
behalf of such registered
owner must be stated.)
ARTICLE III
The Securities
SECTION 3.01. Title and Terms. The aggregate principal amount
of Securities which may be authenticated and delivered under this Indenture is
limited to U.S.$150,000,000, except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, other
Securities pursuant to Sections 3.04, 3.05, 3.06, 9.06, 11.08, 13.02 or 14.06
and except for Securities which, pursuant to Section 3.03, are deemed never to
have been authenticated and delivered hereunder.
The Stated Maturity of the Securities shall be October 1,
2006, and they shall bear interest at the rate of 5% per annum, payable
semi-annually on October 1 and April 1 of each year commencing on April 1, 2000,
until the principal thereof is paid or made available for payment.
Payment of the principal of, premium, if any, and interest
(including payment of any Additional Interest) on this Security will be made at
the Corporate Trust Office, in such coin or currency of the United States of
America as at the time of payment
<PAGE> 31
25
is legal tender for payment of public and private debts by a U.S. Dollar check
drawn on an account maintained with a bank in the Borough of Manhattan, The City
of New York; provided, however, that upon written application by the Holder to
the Security Registrar setting forth wire instructions not later than 15 days
prior to the relevant payment date (in the case of payment of principal) or not
later than the relevant Record Date (in the case of payment of interest), such
Holder may receive payment by wire transfer of Dollars to a U.S. Dollar account
maintained by the payee with a bank in the United States or in Europe and
designated by the payee to the Security Registrar.
The Securities shall be redeemable by the Company as provided
in Article XI.
The Securities shall be subordinated in right of payment to
the prior payment in full of Senior Indebtedness as provided in Article XII.
The Securities shall be convertible as provided in Article
XIII.
The Securities shall be subject to purchase by the Company at
the option of the Holder as provided in Article XIV.
SECTION 3.02. Denominations. The Securities shall be issuable
only in registered form without coupons and only in denominations of U.S.$1,000
and any integral multiple thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by any of its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series
executed by the Company to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities; and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities as in this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature, and such certificate upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
<PAGE> 32
26
The Trustee shall have the right to decline to authenticate and deliver
any Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken or if the Trustee in good
faith shall determine that such action would expose the Trustee to personal
liability to existing Holders.
SECTION 3.04. Global and Non-Global Securities. (a) Global
Securities. (i) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(ii) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (A) such Depositary (1) has notified the Company and the
Trustee that it is unwilling or unable to continue as Depositary for such Global
Security or (2) has ceased to be a clearing agency registered as such under the
Exchange Act or announces an intention permanently to cease business or in fact
does so, in each case unless a successor Depositary is appointed by the Company,
(B) there shall have occurred and be continuing an Event of Default with respect
to such Global Security, or (C) the Company in its discretion at any time
determines not to have all the Securities represented by a Global Security. Any
Global Security exchanged pursuant to clause (i) above shall be so exchanged in
whole and not in part and any Global Security exchanged pursuant to clause (ii)
or (iii) above may be exchanged in whole or from time to time in part as
directed by the Depositary. Any Security issued in exchange for a Global
Security or any portion thereof shall be a Global Security; provided that any
such Security so issued that is registered in the name of a Person other than
the Depositary or a nominee thereof shall not be a Global Security.
(iii) If any Global Security is to be exchanged for other
Securities or cancelled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation as provided in this Article III. If any Global Security is to be
exchanged for other Securities or cancelled in part, or if another Security is
to be exchanged in whole or in part for a beneficial interest in any Global
Security, in each case, as provided in Section 3.05, then either (i) such Global
Security shall be so surrendered for exchange or cancellation as provided in
this Article III or (ii) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
cancelled, or equal to the principal amount of such other Security to be so
exchanged for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Trustee, as Security
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security, the Trustee shall, subject to Section 3.05(c) and as
otherwise provided in this Article III, authenticate and deliver any Securities
issuable in exchange for such Global Security (or any portion thereof) to or
upon the order of, and registered in such names as may be directed by, the
Depositary or its authorized representative. Upon the request of the Trustee in
connection with the occurrence of any of the events specified in the preceding
paragraph, the Company shall promptly make available to the Trustee a reasonable
supply of Securities that are not in the form of Global Securities. The Trustee
<PAGE> 33
27
shall be entitled to rely upon any order, direction or request of the Depositary
or its authorized representative which is given or made pursuant to this Article
III if such order, direction or request is given or made in accordance with the
Applicable Procedures.
(iv) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global Security
or any portion thereof, whether pursuant to this Article III or otherwise, shall
be authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof, in which case such
Security shall be authenticated and delivered in definitive, fully registered
form, without interest coupons.
(v) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members and
such owners of beneficial interests in a Global Security will not be considered
the owners or holders thereof. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or such nominee, as the case may be,
or impair, as between the Depositary, its Agent Members and any other person on
whose behalf an Agent Member may act, the operation of customary practices of
such Persons governing the exercise of the rights of a holder of any Security.
SECTION 3.05. Registration; Registration of Transfer and
Exchange. (a) The Company shall cause to be kept at the Corporate Trust Office
of the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 10.02 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Securities and of transfers and exchanges thereof. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers and exchanges thereof as herein provided. Upon
surrender for registration of transfer or exchange of any Security at an office
or agency of the Company designated pursuant to Section 10.02 for such purpose,
accompanied by a written instrument of transfer or exchange in the form provided
by the Company, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of any authorized denominations and of a like aggregate
principal amount.
(b) Notwithstanding any other provisions of this Indenture or
the Securities, transfers and exchanges of Securities and beneficial interests
in a Global Security of the kinds specified in this Section 3.05(b) shall be
made only in accordance with this Section 3.05(b).
(i) Transfer of Global Security. Other than as set forth in
Section 3.04(a), a Global Security may not be transferred, in whole or in
part, to any Person other than the Depositary or a nominee thereof, and no
such transfer to any such other Person may be registered; provided that
this Section 3.05(b)(i) shall not prohibit any
<PAGE> 34
28
transfer of a Security that is issued in exchange for a Global Security
but is not itself a Global Security. No transfer of a Security to any
Person shall be effective under this Indenture or the Securities unless
and until such Security has been registered in the name of such Person.
Nothing in this Section 3.05(b)(i) shall prohibit or render ineffective
any transfer of a beneficial interest in a Global Security effected in
accordance with the other provisions of this Section 3.05(b).
(ii) Transfer of Beneficial Interests in the Global Security.
Transfer of beneficial interests in the Global Security shall be effected
through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depositary therefor, if applicable.
(iii) Other Exchanges. In the event that a Global Security or
any portion thereof is exchanged for Securities other than Global
Securities, such other Securities may in turn be exchanged (on transfer or
otherwise) for Securities that are not Global Securities or for beneficial
interests in a Global Security (if any is then outstanding) only in
accordance with such procedures, which shall be substantially consistent
with the provisions of this Section 3.05(b) (including the certification
requirements set forth on the reverse of the Security intended to insure
that transfers of beneficial interests in a Global Security comply with
Rule 144A or Rule 144 under the Securities Act, as the case may be) and
any Applicable Procedures, as may be from time to time adopted by the
Company and the Trustee.
(iv) Transfer and Exchange of Definitive Securities. When
definitive Securities are presented to the Security Registrar with a
request:
(A) to register the transfer of such definitive
Securities; or
(B) to exchange such definitive Securities for an
equal principal amount of definitive Securities of other
authorized denominations, the Security Registrar shall
register the transfer or make the exchange as requested if its
reasonable requirements for such transaction are met;
provided, however, that the definitive Securities surrendered
for transfer or exchange:
(x) shall be duly endorsed or accompanied by
a written instrument of transfer in form reasonably
satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(y) are being transferred or exchanged
pursuant to an effective registration statement under
the Securities Act, pursuant to Section 3.05(b)(v),
or pursuant to clause (1), (2) or (3) below, and are
accompanied by the following additional information
and documents, as applicable:
(1) if such definitive Securities
are being delivered to the Security
Registrar by a Holder for registration in
the name of such Holder, without transfer, a
certification from such Holder to that
effect (in the form set forth in Section
2.07); or
<PAGE> 35
29
(2) if such definitive Securities
are being transferred to the Company, a
certification to that effect (in the form
set forth in Section 2.07); or
(3) if such definitive Securities
are being transferred pursuant to an
exemption from registration in accordance
with Rule 144, (i) a certification to that
effect (in the form set forth in Section
2.07) and (ii) if the Company or Security
Registrar so requests, an opinion of counsel
or other evidence reasonably satisfactory to
them as to the compliance with the
restrictions set forth in the legend set
forth in Section 2.02.
(v) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the
Trustee of a definitive Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(A) certification in the form set forth on the
reverse of the Security that such definitive Security is being
transferred to a Qualified Institutional Buyer in accordance
with Rule 144A; and
(B) written instructions directing the Trustee to
make, or to direct the Securities Registrar to make, an
adjustment on its books and records with respect to such
Global Security to reflect an increase in the aggregate
principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding
the Depositary account to be credited with such increase,
then the Trustee shall cancel such definitive Security and cause, or
direct the Securities Registrar to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Securities Registrar, the aggregate principal amount of Securities
represented by the Global Security to be increased by the aggregate
principal amount of the definitive Security to be exchanged and shall
credit or cause to be credited to the account of the Person specified in
such instructions a beneficial interest in the Global Security equal to
the principal amount of the definitive Security so cancelled. If no Global
Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate principal
amount.
(c) Subject to the succeeding paragraph, every Security shall
be subject to the restrictions on transfer provided in the legends required by
Section 2.02 to be applied to such Security. Whenever any Security is presented
or surrendered for registration of transfer or for exchange for a Security
registered in a name other than that of the Holder, such Security must be
accompanied by a certificate in substantially the form set forth in Section
2.07, dated the date of such surrender and signed by the Holder of such
Security, as to compliance with such restrictions on transfer. The Security
Registrar shall not be
<PAGE> 36
30
required to accept for such registration of transfer or exchange any Security
not so accompanied by a properly completed certificate.
(d) The restrictions imposed by the legend set forth in the
first or fourth paragraph, as the case may be, of Section 2.02 upon the
transferability of any Security shall cease and terminate when such Security has
been sold pursuant to an effective registration statement under the Securities
Act, transferred in compliance with Rule 144 under the Securities Act (or any
successor provision thereto), or after the second anniversary of the original
issuance date of the Security (or such earlier date after which the Security may
be freely transferred without registration under the Securities Act or without
being subject to transfer restrictions pursuant to the Securities Act, as may be
provided in Rule 144(k) under the Securities Act (or any successor provision
thereto) or otherwise). Any Security as to which such restrictions on transfer
shall have expired in accordance with their terms or shall have terminated may,
upon surrender of such Security for exchange to the Security Registrar in
accordance with the provisions of this Section 3.05 (accompanied, in the event
that such restrictions on transfer have terminated by reason of a transfer in
compliance with Rule 144 or any successor provision, by an opinion of counsel
having substantial experience in practice under the Securities Act and otherwise
reasonably acceptable to the Company, addressed to the Company and in form
acceptable to the Company, to the effect that the transfer of such Security has
been made in compliance with Rule 144 or such successor provision), be exchanged
for a new Security, of like tenor and aggregate principal amount, which shall
not bear the restrictive legend set forth in the first paragraph of Section
2.02. The Company shall inform the Trustee of the effective date of any
registration statement registering the Securities under the Securities Act. The
Trustee shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the aforementioned opinion of counsel or notice of
an effective registration statement.
(e) As used in the preceding two paragraphs (c) and (d) of
this Section 3.05, the term "transfer" encompasses any sale, pledge, transfer,
hypothecation or other disposition of any Security.
(f) No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.04, 9.06, 11.08, 13.02 or 14.06 not
involving any transfer.
(g) The Company shall not be required (i) to issue, register
the transfer of or exchange any Security during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of Securities selected for redemption under Section 11.04 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any Security so selected for redemption in whole or in
part, except the unredeemed portion of any Security being redeemed in part.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities. If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
<PAGE> 37
31
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of written
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion,
but subject to any conversion rights, may, instead of issuing a new Security,
pay such Security.
Upon the issuance, authentication and delivery by the Trustee
of any new Security under this Section 3.06, the Company may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every new Security issued, authenticated and delivered by the
Trustee pursuant to this Section 3.06 in lieu of any destroyed, lost or stolen
Security shall constitute an original additional contractual obligation of the
Company, whether or not the destroyed, lost or stolen Security shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved .
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for payment of such interest.
If the Company shall be required by law to deduct any taxes
from any sum of interest payable hereunder to a Holder, (i) the Company shall
make such deductions and shall pay the full amount deducted to the relevant
taxing authority in accordance with applicable law and (ii) the amount of such
deduction shall be treated for purposes hereof as a payment of interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the
<PAGE> 38
32
payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause (1) provided. Thereupon, the Trustee
shall, on behalf of, and upon the instructions of, the Company,
fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than
10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee, in the name and at the expense
of the Company, shall forward a notice prepared by the Company of
the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at his address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date
at the expense of the Company. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, if,
after written notice given by the Company to the Trustee of the
proposed payment pursuant to this clause (2), such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
In the case of any Security which is converted after any
Regular Record Date and on or prior to the corresponding Interest Payment Date,
interest on such Security whose Stated Maturity is on such Interest Payment Date
shall be deemed to continue to accrue and shall be payable on such Interest
Payment Date notwithstanding such conversion and notwithstanding that such
Security may have been called for redemption on a Redemption Date within such
period, and such interest (whether or not punctually paid or duly provided for)
shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on such Regular
Record Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security which is converted, interest whose Stated
Maturity is after the date of conversion of such Security shall not be payable.
SECTION 3.08. Persons Deemed Owners . Prior to due presentment
of a Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name such
Security is registered in the Security Register as the owner of such Security
for the purpose of receiving
<PAGE> 39
33
payment of principal of, premium, if any, and (subject to Section 3.07) interest
on such Security and for all other purposes whatsoever, whether or not such
Security be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
SECTION 3.09. Cancellation . All Securities surrendered for
payment, redemption, purchase, registration of transfer or exchange or
conversion shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly cancelled
by the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of as directed by a Company Order; provided however, the Trustee
shall not be required to destroy such cancelled Securities..
SECTION 3.10. Computation of Interest . Interest on the
Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.
SECTION 3.11 CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Company will promptly notify the Trustee of any change in the "CUSIP"
numbers.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture . This
Indenture shall upon Company Request cease to be of further effect (except as to
any surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated
and delivered (other than (i) Securities which have
been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.06 and (ii)
Securities for whose payment money has theretofore
been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in
Section 10.03) have been delivered to the Trustee for
cancellation;
<PAGE> 40
34
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited irrevocably with the Trustee as trust funds in trust for
the benefit of Holders of Outstanding Securities in an amount sufficient to pay
and discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any)
and interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied
with; and
(4) no Event of Default which, with notice or lapse of time,
or both, would become an Event of Default with respect to the
Securities shall have occurred and be continuing on the date of
such deposit.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07, the obligations of
the Company to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.02 and the last
paragraph of Section 10.03 shall survive.
SECTION 4.02. Application of Trust Money . Subject to the
provisions of the last paragraph of Section 10.03, all money deposited with the
Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee. All moneys deposited
with the Trustee pursuant to Section 4.01 (and held by it or any Paying Agent)
for the payment of Securities subsequently converted shall be returned to the
Company upon Company Request.
<PAGE> 41
35
ARTICLE V
Remedies
SECTION 5.01. Events of Default . "Event of Default", wherever
used herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be occasioned by the provisions of Article
XII or be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest (including
Additional Interest) upon any Security when it becomes due and
payable, and continuance of such default for a period of 30 days
(whether or not such payment is prohibited by the provisions of
Article XII); or
(2) default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity (whether or not such
payment is prohibited by the provisions of Article XII); or
(3) failure by the Company to provide the notice of a Change
in Control in accordance with Section 14.03 or default in the
payment of the Purchase Price in respect of any Security on the
Purchase Date therefor (whether or not such payment is prohibited
by the provisions of Article XII); or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant
or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default
or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) a default under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed by the Company or a
Subsidiary or under any mortgages, indentures or instruments
under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by the Company
or a Subsidiary, whether such indebtedness now exists or shall
hereafter be created which indebtedness, individually or in the
aggregate, has a principal amount outstanding in excess of
U.S.$10,000,000, which default shall constitute a failure to pay
any portion of the principal of such indebtedness when due and
payable after the expiration of any applicable grace or cure
period with respect thereto or shall have resulted in such
indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable,
without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period
of 30 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying
such default and requiring the Company to cause such
<PAGE> 42
36
indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice
of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or
a Subsidiary in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order
adjudging the Company or a Subsidiary bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company or a Subsidiary under any applicable Federal or State
law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or
a Subsidiary or of any substantial part of their respective
properties, or ordering the winding up or liquidation of the
affairs of the Company or a Subsidiary, and the continuance of
any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days;
or
(7) the commencement by the Company or a Subsidiary of a
voluntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law
or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by either the Company or a
Subsidiary to the entry of a decree or order for relief in
respect of the Company or a Subsidiary in an involuntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding
against either the Company or a Subsidiary, or the filing by
either the Company or a Subsidiary of a petition or answer or
consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by either the Company or a
Subsidiary to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the
Company or a Subsidiary or of any substantial part of their
respective properties, or the making by either the Company or a
Subsidiary of an assignment for the benefit of creditors, or the
admission by either the Company or a Subsidiary in writing of an
inability to pay the debts of either the Company or a Subsidiary
generally as they become due, or the taking of corporate action
by the Company or a Subsidiary in furtherance of any such action.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified in
Section 5.01(6) or 5.01(7)) occurs and is continuing, then in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal and
any accrued interest (including Additional Interest) thereon shall become
immediately due and payable. If an Event of Default specified in Section 5.01(6)
or 5.01(7) occurs, the principal of, and accrued interest (including Additional
Interest) on, all the Securities shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the
<PAGE> 43
37
Trustee as hereinafter in this Article V provided, the Holders of a majority in
principal amount of the Outstanding Securities, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including Additional
Interest) on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as
provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee. If
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such
default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof,
the Trustee is authorized to recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest, and, to the
extent that payment of such interest shall be legally enforceable, interest on
any overdue principal (and premium, if any) and on any overdue interest, at the
rate borne by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such
<PAGE> 44
38
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of any
judicial proceeding relative to the Company (or any other obligor upon the
Securities), its property or its creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding,
and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claim and to distribute the
same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding;
provided, however, that the Trustee may, on behalf of the Holders, vote for the
election of a trustee in bankruptcy or similar official and be a member of a
creditors' or other similar committee.
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money
collected by the Trustee pursuant to this Article V shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on
<PAGE> 45
39
account of principal (or premium, if any) or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: to the payment of all amounts due the Trustee under
Section 6.07;
SECOND: subject to Article XII, to the payment of the amounts
then due and unpaid for first, interest (including Additional Interest)
on, and, second, for principal of (and premium, if any, on) the
Securities in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for
interest and principal (and premium, if any) respectively;
THIRD: the balance, if any, to the Person or Persons entitled
thereto, as their interest may appear or as a court of competent
jurisdiction shall direct; and
FOURTH: to the Company.
SECTION 5.07. Limitation on Suits. No Holder of any Security
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(1) such Holder has previously given written notice to a
Responsible Officer the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee written
indemnity satisfactory to it (which indemnity shall not be
unreasonable) against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the fights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 5.08. Unconditional Right of Holders To Receive
Principal, Premium and Interest and To Convert. Notwithstanding any other
provision in this
<PAGE> 46
40
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment of the principal of (and premium, if any)
and (subject to Section 3.07) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption or
purchase, on the Redemption Date or Purchase Date, as the case may be) and to
convert such Security in accordance with Article XIII and to institute suit for
the enforcement of any such payment and right to convert, and such rights shall
not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Securities to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. Control by Holders. The Holders of a majority in
principal amount of the Outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee;
provided that the Trustee may seek the advice of counsel and
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less
than a majority in principal amount of the Outstanding Securities may on behalf
of the Holders of all the Securities waive any past default hereunder and its
consequences, except a default
<PAGE> 47
41
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon. A copy of
such waiver shall be delivered by the Company to the Trustee.
SECTION 5.14. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, a court
may require any party litigant in such suit to file an undertaking to pay the
costs of such suit, and may assess costs against any such party litigant, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; provided, that this Section 5.14 shall not be deemed to
authorize any court to require such an undertaking or to make such an assessment
in any suit instituted by the Trustee or the Company or in any suit for the
enforcement of the right to convert any Security in accordance with Article
XIII.
SECTION 5.15. Waiver of Usury, Stay or Extension Laws. The
Company covenants (to the extent that it may lawfully do so) that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a) Except
during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether
<PAGE> 48
42
or not they conform to the requirements of this Indenture (but need not
confirm or investigate the accuracy of mathematical calculations or
other facts stated therein).
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this paragraph (c) shall not be construed to limit the
effect of paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee (as Trustee, Paying Agent,
Authenticating Agent or Security Registrar) shall be subject to the provisions
of this Section.
SECTION 6.02. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder, the Trustee shall give the Holders, in the
manner provided in Section 1.06, notice of any default hereunder actually known
to a Responsible Officer of the Trustee; provided, however, that in the case of
any default of the character specified in Section 5.01(3), no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. The
Trustee shall not be deemed to have notice of a default unless (i) the Trustee
has received written notice thereof from the Company or any Holder or (ii) a
Responsible Officer of the Trustee shall have actual knowledge thereof. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 6.03. Certain Rights of Trustee. Subject to the
provisions of Section 6.01:
(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting upon any resolution, certificate,
statement, instrument,
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opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors shall be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may
require and, in the absence of bad faith on its part, conclusively rely
upon an Opinion of Counsel and Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of 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 reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee (which security or indemnity shall not be
unreasonable) against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney at the Company's expense; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
(h) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers.
SECTION 6.04. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
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44
SECTION 6.05. May Hold Securities. The Trustee, any
Authenticating Agent, any Paying Agent, any Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities and, subject to Section 6.08 and Section 6.13,
may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other agent.
SECTION 6.06. Money Held in Trust. Money held by the Trustee
in trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company in
writing.
SECTION 6.07. Compensation and Reimbursement. The Company
agrees:
(1) to pay to the Trustee from time to time such compensation
as shall be agreed in writing between the Company and the Trustee for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or willful misconduct;
(3) to indemnify each of the Trustee and any predecessor
Trustee for, and to hold each harmless against, any loss, liability or
expense incurred without negligence or willful misconduct on its part,
arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself
against any claim (whether asserted by the Company, a Holder of
Securities or any other Person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company of any claim asserted against it for
which it may seek indemnity;
(4) all indemnifications and releases from liability granted
hereunder to the Trustee shall extend to its officers, directors,
employees, agents, successors and assigns;
(5) when the Trustee incurs expenses or renders services after
the occurrence of any Event of Default specified in Section 5.01, the
expenses and the compensation for the services are intended to
constitute expenses of administration under any bankruptcy, insolvency
or similar laws; and
(6) the obligations of the Company under this Section shall
survive the satisfaction and discharge of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests. If the
Trustee has or shall acquire a conflicting interest within the meaning of the
Trust Indenture Act, the
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Trustee shall either eliminate such interest or resign, to the extent and in the
manner provided by, and subject to the provisions of, the Trust Indenture Act
and this Indenture.
SECTION 6.09. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall be a corporation organized
and doing business under the laws of the United States, authorized under such
laws to exercise corporate trust powers, which shall have (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company shall have) a combined capital and surplus of at least U.S.$50,000,000,
subject to supervision or examination by Federal or State authority, in good
standing and having an established place of business or agency in the Borough of
Manhattan, The City of New York. If such corporation or related bank holding
company publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
or related bank holding company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article VI.
SECTION 6.10. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.11.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.11 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company. If the instrument of acceptance by
a successor Trustee required by Section 6.11 shall not have been delivered to
the Trustee within 30 days after the giving of such notice of removal, the
removed Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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46
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 6.11,
become the successor Trustee and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner required by
Section 6.11, any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.06. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article VI.
SECTION 6.12. Merger, Conversion, Consolidation or Succession
to Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder;
provided such corporation shall be otherwise qualified and eligible under this
Article VI without the execution or filing of any paper or any further act on
the
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47
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against
Company. If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 6.14. Appointment of Authenticating Agent. The Trustee
may appoint an Authenticating Agent or Agents which shall be authorized to act
on behalf of the Trustee to authenticate Securities issued upon original issue
and upon exchange, registration of transfer, partial conversion, partial
redemption, or partial purchase or pursuant to Section 3.06, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States, authorized under such laws to act as Authenticating Agent, which shall
have (or, in the case of a corporation included in a bank holding company
system, the related bank holding company shall have) a combined capital and
surplus of not less than U.S.$50,000,000 and be subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then, for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
or related bank holding company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time an Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to all or
substantially all the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent; provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.14, the Trustee may
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48
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section 6.14.
The Company agrees to pay to each Authenticating Agent from
time to time compensation for its services under this Section 6.14.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the
within-mentioned Indenture.
The Bank of New York
Dated: __________ ______________________________
As Trustee
By ______________________________
As Authenticating Agent
By______________________________
Authorized Signatory
SECTION 6.15. Appointment of Co-Trustee. Subject to the
qualifications set forth in Section 6.09, the Trustee may appoint an additional
institution as a separate trustee or co-trustee. If the Trustee appoints an
additional institution as a separate trustee or co-trustee, each and every
remedy, power, fight, claim, demand, cause of action, immunity, estate, duty,
obligation, title, interest and lien expressed or intended by this Indenture to
be exercised by, vested in and conveyed by the Trustee with respect thereto
shall be exercisable by, vested in and conveyed to such separate trustee or
co-trustee, but only to the extent necessary to enable such separate trustee or
co-trustee to exercise such powers, rights and remedies, and every covenant and
obligation necessary for the exercise thereby by such separate trustee or
co-trustee shall run to and be enforceable by either of them. Should any
instrument in writing from the Company be required by the separate trustee or
co-trustee so appointed by the Trustee for more fully vesting in and confirming
to them such properties, rights, powers, trusts, duties and obligations, any and
all such instruments in writing shall, on request, be executed, acknowledged and
delivered by the Company. If any separate trustee or co-trustee, or a successor
to either, shall become incapable of acting or not qualified to act, resign or
be removed, all the estate, properties, rights, powers, trusts, duties and
obligations of such separate trustee or co-trustee, so far as permitted by law,
shall vest in and be exercised by the Trustee until the appointment of a
successor to such separate trustee or co-trustee. The appointment of any
separate trustee or co-trustee shall be subject to written approval of the
Company so long as no Event of Default has occurred and is continuing under this
Indenture.
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ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and Addresses
of Holders. The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 7.02. Preservation of Information; Communications to
Holders. (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
any disclosure of information as to names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 7.03. Reports by Trustee. (a) The Trustee shall
transmit to Holders within 60 days after May 15th of each year such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission, if applicable, and with
the Company. The Company will promptly notify the Trustee when the Securities
are listed on any stock exchange and of any delisting thereof.
SECTION 7.04. Reports by Company. (a) The Company shall file
with the Trustee and the Commission, if applicable, and transmit to Holders,
such information, documents and other reports, and such summaries thereof, as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant to such Act;
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50
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be
filed with the Trustee within 15 days after the same is so required to be filed
with the Commission. Delivery of such reports, information and documents to the
Trustee is for informational purposes only, and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates). Notwithstanding
anything to the contrary contained herein, the Trustee shall have no duty to
review such documents for the purpose of determining compliance with this
Indenture.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(b) The Company shall provide the Trustee with at least 30
days' prior written notice of any change in location of its principal executive
offices or other principal place of business.
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Company May Consolidate, etc., Only on Certain
Terms. The Company shall not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person, and the
Company shall not permit any Person to consolidate with or merge into the
Company or convey, transfer, sell, lease or otherwise dispose of all or
substantially all of its properties and assets to the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person
formed by such consolidation or into which the Company is merged
or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as
an entirety (i) shall be a corporation, partnership or trust,
(ii) shall be an entity (A) organized and validly existing under
the laws of the United States of America, any State thereof or
the District of Columbia or (B) organized and validly existing
under the laws of a jurisdiction outside of the United States of
America, with its common stock, or American Depositary Shares
representing such shares of common stock, traded on a national
securities exchange in the United States of America or through
Nasdaq and a worldwide total market capitalization of its equity
securities of at least U.S. $5 billion, and (iii) shall expressly
assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of (and premium, if
any) and interest (including Additional Interest) on all the
Securities and the performance or observance of every covenant of
this Indenture on the part of the Company to be
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performed or observed and shall have provided for conversion
rights in accordance with Article XIII; (2) immediately after
giving effect to such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with this Article
VIII and that all conditions precedent herein provided for
relating to such transaction have been complied with.
SECTION 8.02. Successor Substituted. Upon any consolidation of
the Company with, or merger of the Company into, any other Person or any
conveyance, transfer or lease of the properties and assets of the Company
substantially as an entirety in accordance with Section 8.01, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be released from its obligations and covenants under
this Indenture and the Securities.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Holders. Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the equal and
ratable benefit of the Holders, or to surrender any right or power
herein conferred upon the Company; or
(3) to secure the Company's obligations in respect of the
Securities; or
(4) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article XIII; or
(5) to make any changes or modifications to this Indenture
necessary in connection with the registration of any Transfer
Restricted Securities under the
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Securities Act as contemplated by Section 10.11; provided that such
action pursuant to this clause (5) shall not adversely affect the
interests of the Holders of Securities; or
(6) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, to correct or supplement any provision herein which limits,
qualifies or conflicts with a provision of the Trust Indenture Act
which is required under such Act to be a part of and govern this
Indenture, in any case to the extent necessary to qualify this
Indenture under the Trust Indenture Act, or to make any other
provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture; provided that such action pursuant to this clause (6) shall
not adversely affect the interests or legal rights of the Holders in
any material respect.
SECTION 9.02. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount
of the Outstanding Securities, by the Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or
the coin or currency in which, any Security or any premium or interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption or purchase, on or after the Redemption
Date or Purchase Date, as the case may be), or adversely affect the
right to convert any Security as provided in Article XIII (except as
permitted by Section 9.01(4)), or modify the provisions of this
Indenture with respect to the subordination of the Securities in a
manner adverse to the Holders, or modify the redemption provisions in a
manner adverse to the Holders, or modify the provisions relating to the
Company's requirement to offer to purchase Notes upon a Change in
Control in a manner adverse to the Holders, or
(2) modify any of the provisions of this Section 9.02, Section
5.13 or Section 10.08, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Security affected thereby, or
(3) modify the obligation of the Company to maintain an office
or agency in the Borough of Manhattan, The City of New York pursuant to
Section 10.02, or
(4) modify any of the provisions of Section 10.09 or Section
10.10, or
(5) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental
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indenture, or the consent of whose Holders is required for any waiver
(of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture.
It shall not be necessary for any Act of Holders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 9.03. Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Trustee shall receive, and (subject to
Section 6.01 and Section 6.03) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture, complies with its terms and will,
upon the execution and delivery thereof, be valid and binding upon the Company
in accordance with its terms. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.05. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act.
SECTION 9.06. Reference in Securities to Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities so modified as to
conform, in the judgment of the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest. The
Company will duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 10.02. Maintenance of Office or Agency. The Company
will maintain in the Borough of Manhattan, The City of New York an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange, where
Securities may be surrendered for conversion and where notices and demands to or
upon the Company in respect of the
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Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee or the office or agency
of the Trustee in the Borough of Manhattan, The City of New York, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside the Borough of Manhattan, The City of
New York) where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 10.03. Money for Security Payments To Be Held in
Trust. If the Company shall at any time act as its own Paying Agent, it will,
prior to 11:00 a.m., New York City time, on each due date of the principal of
(and premium, if any) or interest (together with any Additional Interest in
respect thereof) on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
(and premium, if any) or interest (together with any Additional Interest in
respect thereof) so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of (and premium, if any) or
interest (together with any Additional Interest in respect thereof) on any
Securities, deposit with a Paying Agent a sum sufficient to pay such amount,
such sum to be held in trust for the benefit of the Persons entitled to such
principal, premium, if any, or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee in writing of its action
or failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section
10.03, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee written notice of any default by the
Company (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest; and
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(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest (together with any Additional Interest in respect
thereof) on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 10.04. Statement by Officers as to Default. The
Company shall deliver to the Trustee, within 120 days after the end of each
fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
SECTION 10.05. Existence. Subject to Article VIII, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 10.06. Maintenance of Properties. The Company shall
cause all properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of
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the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 10.06 shall prevent the Company from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposition is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Holders.
SECTION 10.07. Payment of Taxes and Other Claims. The Company
shall pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any Subsidiary; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.08. Waiver of Certain Covenants. The Company may
omit in any particular instance to comply with any covenant or condition set
forth in Sections 10.05 to 10.07, inclusive, if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
SECTION 10.09. Delivery of Certain Information. At any time
when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon
the request of a Holder or the holder of shares of Common Stock issued upon
conversion thereof, the Company shall promptly furnish or cause to be furnished
Rule 144A Information (as defined below) to such Holder or such holder of shares
of Common Stock issued upon conversion of Securities, or to a prospective
purchaser of any such security designated by any such Holder or holder, as the
case may be, to the extent required to permit compliance by such Holder or
holder with Rule 144A under the Securities Act in connection with the resale of
any such security. "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 10.10. Resale of Certain Securities; Reporting Issuer.
During the period beginning on the last date of original issuance of the
Securities and ending on the date that is two years from such date, the Company
will not, and will use its best efforts not to permit any of its "affiliates"
(as defined under Rule 144 under the Securities Act or any successor provision
thereto) to, resell (x) any Securities which constitute "restricted securities"
under Rule 144 or (y) any securities into which the Securities have been
converted under this Indenture which constitute "restricted securities" under
Rule 144, that in either case have been reacquired by any of them. The Trustee
shall have no responsibility in respect of the Company's performance of its
agreement in the preceding sentence.
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SECTION 10.11. Registration Rights. (a) The Company agrees
that the Holders (and any Person that has a beneficial interest in a Security)
from time to time of Transfer Restricted Securities are entitled to the benefits
of a Registration Rights Agreement, dated as of September 22, 1999 (the
"Registration Rights Agreement"), executed by the Company. Pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
Holders from time to time of Transfer Restricted Securities, at the Company's
expense, (i) to file within 90 days after the first date of original issuance of
the Securities, a shelf registration statement (the "Shelf Registration
Statement") with the Commission with respect to resales of the Transfer
Restricted Securities, (ii) to use its commercially reasonable best efforts to
cause such Shelf Registration Statement to be declared effective by the
Commission not later than 150 days after the first date of original issuance of
the Securities, and (iii) to use its commercially reasonable best efforts to
maintain such Shelf Registration Statement continuously effective under the
Securities Act subject to and in accordance with the terms of the Registration
Rights Agreement.
Additional interest (the "Additional Interest") with respect
to the Securities shall be assessed as follows if any of the following events
occur (each such event in clauses (i) through (iii) below being herein called a
"Registration Default"):
(i) if on or prior to the 90th day after the first date of
original issuance of the Securities the Shelf Registration Statement
has not been filed with the Commission;
(ii) if on or prior to the 150th day after the first date of
original issuance of the Securities the Shelf Registration Statement
has not been declared effective by the Commission; or
(iii) if after the Shelf Registration Statement is declared
effective (A) the Shelf Registration Statement thereafter ceases to be
effective; or (B) the Shelf Registration Statement or the related
prospectus ceases to be usable subject to certain exceptions set forth
in the Registration Rights Agreement, including the right to suspend
the use of the Shelf Registration Statement under certain circumstances
for up to 90 days) in connection with resales of Transfer Restricted
Securities in accordance with and during the periods specified herein
because either (1) any event occurs as a result of which the related
prospectus forming part of such Shelf Registration Statement would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of
the circumstances under which they were made not misleading, or (2) it
shall be necessary to amend such Shelf Registration Statement or
supplement the related prospectus, to comply with the Securities Act or
the Exchange Act or the respective rules thereunder.
Additional Interest shall accrue on the Securities over and
above the interest set forth in the title of the Securities from and including
the date on which any such Registration Default shall occur, to but excluding
the date on which all such Registration Defaults have been cured, at a rate of
0.50% per annum. Written notice of any such Registration Default shall be
provided to the Trustee by the Company.
(b) Any amounts of Additional Interest due pursuant to clause
(a)(i), (a)(ii) or (a)(iii) of this Section 10.11 shall be payable in cash on
the regular Interest
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Payment Dates in the manner provided for by the Indenture. The amount of
Additional Interest shall be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Securities, multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
Whenever in this Indenture there is mentioned, in any context, the payment of
the principal of, premium, if any, or interest on, or in respect of, any
Security, such mention shall be deemed to include mention of the payment of
Additional Interest provided for in this Section to the extent that, in such
context, Additional Interest are, were or would be payable in respect thereof
pursuant to the provisions of this Section 10.11 and express mention of the
payment of Additional Interest (if applicable) in any provisions hereof shall
not be construed as excluding Additional Interest in those provisions hereof
where such express mention is not made.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Right of Redemption. The Securities may be
redeemed at the election of the Company, as a whole or from time to time in
part, at any time on or after October 7, 2002, at the Redemption Prices
specified in the form of Security hereinbefore set forth, together with accrued
interest to the Redemption Date.
SECTION 11.02. Applicability of Article. Redemption of
Securities at the election of the Company or otherwise, as permitted or required
by any provision of this Indenture, shall be made in accordance with such
provision and this Article XI.
SECTION 11.03. Election to Redeem; Notice to Trustee. The
election of the Company to redeem any Securities pursuant to Section 11.01 shall
be evidenced by a Board Resolution. In case of any redemption at the election of
the Company, the Company shall, at least 45 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date in writing and of the
principal amount of Securities to be redeemed.
SECTION 11.04. Selection by Trustee of Securities to Be
Redeemed. If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days or more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, by lot or by such method as the
Trustee shall deem fair and appropriate in the circumstances and which may
provide for the selection for redemption of portions (equal to U.S.$1,000 or any
integral multiple thereof) of the principal amount of Securities of a
denomination larger than U.S.$1,000.
If any Security selected for partial redemption is converted
in part before termination of the conversion right with respect to the portion
of the Security so selected, the converted portion of such Security shall be
deemed (so far as may be) to be the portion selected for redemption. Securities
which have been converted during a selection
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of Securities to be redeemed shall be treated by the Trustee as Outstanding for
the purpose of such selection.
The Trustee shall promptly notify the Company and each
Security Registrar in writing of the Securities selected for redemption and, in
the case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.
SECTION 11.05. Notice of Redemption. Notice of redemption
shall be given by first-class mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the Redemption Date, to each Holder of Securities to
be redeemed, at his address appearing in the Security Register.
All notices of redemption shall describe the Securities,
including CUSIP number, and state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption of
any Securities, the principal amounts) of the particular Securities to
be redeemed;
(4) that on the Redemption Date the Redemption Price shall
become due and payable upon each such Security to be redeemed and that
interest thereon shall cease to accrue on and after said date;
(5) the conversion price, the date on which the right to
convert the Securities to be redeemed will terminate and the place or
places where such Securities may be surrendered for conversion; and
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company, and shall
be irrevocable.
SECTION 11.06. Deposit of Redemption Price. Prior to 11:00
a.m., New York City time, on any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 10.03) an
amount of money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date other than any Securities
called for redemption on that date which have been converted prior to the date
of such deposit.
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If any Security called for redemption is converted, any money
deposited with the Trustee or with any Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 3.07) be paid to the Company as soon
as practicable upon Company Request or, if then held by the Company, shall be
released from such trust.
SECTION 11.07. Securities Payable on Redemption Date. Notice
of redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear or accrue any interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with accrued interest
to (but not including) the Redemption Date; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.07.
If the Company shall fail to deposit the Redemption Price with
the Trustee and any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear and accrue interest from the Redemption Date at the rate borne
by the Security.
SECTION 11.08. Securities Redeemed in Part. Any Security
which is to be redeemed only in part shall be surrendered at an office or agency
of the Company designated for that purpose pursuant to Section 10.02 (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney-in-fact duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal amount of the Security so surrendered.
SECTION 11.09. Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities, the Company may arrange for the
purchase and conversion of any Securities by an agreement with one or more
investment bankers or other purchasers to purchase such Securities by paying to
the Trustee in trust for the Holders, on or before the Redemption Date, an
amount not less than the applicable Redemption Price, together with interest
accrued to the Redemption Date, of such Securities. Notwithstanding anything to
the contrary contained in this Article XI, the obligation of the Company to pay
the Redemption Price of such Securities, together with interest accrued to, but
excluding, the Redemption Date, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such purchasers. If such an agreement is
entered into, a copy of which shall be filed with the Trustee prior to the
Redemption Date, any Securities not duly surrendered for conversion by the
holders thereof may, at the option of the Company, be deemed, to the fullest
extent permitted by law, acquired by such purchasers from such holders and
(notwithstanding anything to the contrary contained in Article XIII) surrendered
by such purchasers for conversion, all as
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of immediately prior to the close of business on the Redemption Date (and the
right to convert any such Securities shall be deemed to have been extended
through such time), subject to payment of the above amount as aforesaid. At the
written direction of the Company, the Trustee shall hold and dispose of any such
amount paid to it in the same manner as it would monies deposited with it by the
Company for the redemption of Securities. Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the purchase
and conversion of any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as set forth in
this Indenture, and the Company agrees to indemnify the Trustee from, and hold
it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers to which the Trustee has not
consented in writing, including the costs and expenses incurred by the Trustee
in the defense of any claim or liability arising out of or in connection with
the exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture. Nothing in the preceding sentence shall be
deemed to limit the rights and protections afforded to the Trustee in Article VI
hereof, including, but not limited to, the right to indemnification pursuant to
Section 6.07.
ARTICLE XII
Subordination of Securities
SECTION 12.01. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article XII, the indebtedness
represented by the Securities and the payment of the principal of (and premium,
if any) and interest on each and all of the Securities and all obligations of
the Company under this Indenture are hereby expressly made subordinate and
subject in right of payment to the prior payment in full of all Senior
Indebtedness.
SECTION 12.02. Payment over of Proceeds upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (b) any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Indebtedness, or provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, before the Holders of the Securities are entitled to receive any
payment on account of principal of (or premium, if any) or interest on the
Securities, and to that end the holders of Senior Indebtedness shall be entitled
to receive, for application to the payment thereof, any payment or distribution
of any kind or character, whether in cash, property or securities, which may be
payable or deliverable in respect of the Securities in any such case,
proceeding, dissolution, liquidation or other winding-up or event.
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In the event that, notwithstanding the foregoing provisions of
this Section 12.02, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of the Company prohibited by the
foregoing paragraph of any kind or character, whether in cash, property or
securities, before all Senior Indebtedness is paid in full or payment thereof
provided for, and if such fact shall, at or prior to the time of such payment or
distribution, have been made actually known to a Responsible Officer of the
Trustee or, as the case may be, such Holder, then and in such event such payment
or distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
For purposes of this Article XII only, the words "cash,
property or securities" shall not be deemed to include shares of capital stock
of the Company as reorganized or readjusted, or securities of the Company or any
other corporation provided for by a plan of reorganization or readjustment which
in either case are subordinated in right of payment to all Senior Indebtedness
which may at the time be outstanding to substantially the same extent as, or to
a greater extent than, the Securities are so subordinated as provided in this
Article XII. The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Article
VIII shall not be deemed a dissolution, winding-up, liquidation, reorganization,
assignment for the benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Section 12.02 if the Person formed by
such consolidation or into which the Company is merged or which acquires by
conveyance or transfer such properties and assets substantially as an entirety,
as the case may be, shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions set forth in Article VIII.
SECTION 12.03. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the payment of
principal of (or premium, if any) or interest on any Senior Indebtedness beyond
any applicable grace period with respect thereto (unless and until such payment
default shall have been cured or waived in writing by the holders of such Senior
Indebtedness), or (b) in the event any judicial proceeding shall be pending with
respect to any such default, then no payment shall be made by the Company on
account of principal of (or premium, if any) or interest on the Securities or on
account of the purchase or other acquisition of Securities (including pursuant
to Articles XI and XIII).
In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section 12.03, and if such fact shall, at or
prior to the time of such payment, have been made actually known to a
Responsible Officer of the Trustee or, as the case may be, such Holder, then and
in such event such payment shall be paid over and delivered forthwith to the
Company upon Company Request.
The provisions of this Section 12.03 shall not apply to any
payment with respect to which Section 12.02 would be applicable.
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SECTION 12.04. Payment Permitted If No Default. Nothing
contained in this Article XII or elsewhere in this Indenture or in any of the
Securities shall prevent (a) the Company, at any time except during the pendency
of any case, proceeding, dissolution, liquidation or other winding-up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 12.02 or under the conditions
described in Section 12.03, from making payments at any time of principal of
(and premium, if any) or interest on the Securities, or (b) the application by
the Trustee of any money deposited with it hereunder to the payment of or on
account of the principal of (and premium, if any) or interest on the Securities
or the retention of such payment by the Holders, if, at the time of such
application by the Trustee, a Responsible Officer of the Trustee did not have
actual knowledge that such payment would have been prohibited by the provisions
of this Article XII.
SECTION 12.05. Subrogation to Rights of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, and
until the Securities are paid in full, the Holders of the Securities shall be
subrogated (equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to indebtedness of the
Company to substantially the same extent as the Securities are subordinated and
is entitled to like rights of subrogation) to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness to the extent that payments and
distributions otherwise payable to Holders of Securities have been applied to
the payment of Senior Indebtedness as provided by this Article XII. For purposes
of such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article XII, and no payments over pursuant to the provisions of this Article XII
to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
SECTION 12.06. Provisions Solely To Define Relative Rights.
The provisions of this Article XII are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article XII or elsewhere in this Indenture or in the Securities is intended
to or shall
(a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the
obligation of the Company, which is absolute and unconditional (and which,
subject to the rights under this Article XII of the holders of Senior
Indebtedness, is intended to rank equally with all other general
obligations of the Company), to pay to the Holders of the Securities the
principal of (and premium, if any) and interest on the Securities as and
when the same shall become due and payable in accordance with their terms;
or
(b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the
holders of Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture,
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subject to the rights, if any, under this Article XII of the holders of
Senior Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 12.07. Trustee to Effectuate Subordination. Each
Holder of a Security by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article XII and appoints the
Trustee his attorney-in-fact for any and all such purposes.
SECTION 12.08. No Waiver of Subordination Provisions. No right
of any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any non-compliance
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
XII or the obligations hereunder of the Holders of the Securities to the holders
of Senior Indebtedness, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness, or otherwise
amend or supplement in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding;
(ii) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any Person liable in any manner for the
collection of Senior Indebtedness;
(iv) exercise or refrain from exercising any rights against
the Company and any other Person;
(v) apply any and all sums received from time to time to the
Senior Indebtedness.
SECTION 12.09. Notice to Trustee. The Company shall give
prompt written notice to the Trustee of any fact known to the Company which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities. Notwithstanding the provisions of this Article XII or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee in respect of the Securities, unless and until the Trustee shall
have received written notice thereof from the Company or a holder of Senior
Indebtedness or from any trustee therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Section 6.01, shall be
entitled in
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all respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 12.09 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of (and premium, if any) or interest on any Security),
then, anything herein contained to the contrary notwithstanding, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within two Business Days
prior to such date.
Subject to the provisions of Section 6.01, the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XII, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article XII, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 12.10. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article XII, the Trustee, subject to the provisions of
Section 6.01, and the Holders of the Securities shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
XII.
SECTION 12.11. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders of Securities
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
XII or otherwise.
SECTION 12.12. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual
capacity shall be entitled to all the rights set forth in this Article XII with
respect to any Senior Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
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Nothing in this Article XII shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 6.07.
SECTION 12.13. Article Applicable to Paying Agents. In case at
any time any Paying Agent other than the Trustee shall have been appointed by
the Company and be then acting hereunder, the term "Trustee" as used in this
Article XII shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article XII in addition to or in place of the Trustee; provided, however, that
Section 12.12 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.
SECTION 12.14. Certain Conversions Deemed Payment. For the
purposes of this Article XII only, (1) the issuance and delivery of junior
securities upon conversion of Securities in accordance with Article XIII shall
not be deemed to constitute a payment or distribution on account of the
principal of or premium or interest on Securities or on account of the purchase
or other acquisition of Securities, and (2) the payment, issuance or delivery of
cash, property or securities (other than junior securities) upon conversion of a
Security shall be deemed to constitute payment on account of the principal of
such Security. For the purposes of this Section 12.14, the term "junior
securities" means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness which may be outstanding at the
time of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Securities are so subordinated as provided
in this Article XII. Nothing contained in this Article XII or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, the right, which is absolute and unconditional, of the Holder
of any Security to convert such Security in accordance with Article XIII.
ARTICLE XIII
Conversion of Securities
SECTION 13.01. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article XIII, at the
option of the Holder thereof, any Security or any portion of the principal
amount thereof which is U.S.$1,000 or an integral multiple of U.S.$1,000 may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and nonassessable shares of Common Stock of the Company at any time
following the latest date of original issuance of Securities at the conversion
price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on the Business Day
immediately preceding October 1, 2006, subject, in the case of conversion of any
Global Security, to any Applicable Procedures. In case a Security or portion
thereof is called for redemption at the election of the Company or the Holder
thereof exercised his right to require the Company to purchase the Security,
such conversion right in respect of the Security or portion so called shall
expire at the close of business, New York or time, on the Business Day
immediately preceding the corresponding Redemption Date or Purchase Date, as the
case may be, unless the Company defaults in making the payment due upon
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redemption or purchase, as the case may be (in each case subject as aforesaid to
any Applicable Procedures with respect to any Global Security).
The price at which shares of Common Stock shall be delivered
upon conversion (herein called the "conversion price") shall be initially
U.S.$123.00 per share of Common Stock. The conversion price shall be adjusted in
certain instances as provided in Section 13.04.
In case the Company shall, by dividend or otherwise, declare
or make a distribution on its Common Stock referred to in paragraph (4) or (5)
of Section 13.04, the Holder of each Security, upon the conversion thereof
pursuant to this Article XIII subsequent to the close of business on the date
fixed for the determination of shareholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution pursuant to paragraph (4) or (5) of Section
13.04, shall also be entitled to receive for each share of Common Stock into
which such Security is converted, the portion of the evidences of indebtedness,
shares of capital stock, securities, cash and other property so distributed
applicable to one share of Common Stock; provided, however, that, at the
election of the Company (whose election shall be evidenced by a Board
Resolution) with respect to all Holders so converting, the Company may, in lieu
of distributing to such Holder any portion of such distribution not consisting
of cash or securities of the Company, pay such Holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution). If any conversion of a Security described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the Holder of the Security so converted is
entitled to receive in accordance with the immediately preceding sentence, the
Company may elect (such election to be evidenced by a Board Resolution) to
distribute to such Holder a due bill for the evidences of indebtedness, shares
of capital stock, securities, cash or assets to which such Holder is so
entitled; provided that such due bill (i) meets any applicable requirements of
the principal national securities exchange or other market on which the Common
Stock is then traded and (ii) requires payment or delivery of such evidences of
indebtedness, shares of capital stock, securities, cash or assets no later than
the date of payment or delivery thereof to holders of Common Stock receiving
such distribution.
SECTION 13.02. Exercise of Conversion Privilege. In order to
exercise the conversion privilege, the Holder of any Security to be converted
shall surrender such Security, duly endorsed or assigned to the Company or in
blank, at any office or agency maintained by the Company pursuant to Section
10.02, accompanied by (a) written notice (as set forth in Section 2.05 herein)
to the Company at such office or agency that the Holder elects to convert such
Security or, if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted and (b) if shares or any portion
of such Security not to be converted are to be issued in the name of a Person
other than the Holder thereof, and the restrictions on transfer of such
Security, set forth in the first paragraph of Section 2.02 remain in effect, a
certification of the Holder as to compliance with such restrictions (as set
forth in Section 2.07).
If the restrictions on transfer of a Security set forth in the
first paragraph of Section 2.02 remain in effect, all shares of Common Stock
delivered upon conversion thereof shall bear a restrictive legend substantially
in the form of such paragraph.
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Except as described in the last paragraph of Section 3.07, no
Holder of Securities will be entitled upon conversion thereof to any payment or
adjustment on account of accrued and unpaid interest thereon or on account of
dividends on the shares of Common Stock issued in connection therewith.
Securities surrendered for conversion during the period from the close of
business on any Regular Record Date to the opening of business on the
corresponding Interest Payment Date (except Securities called for redemption on
a Redemption Date within such period between and including such Regular Record
Date and such Interest Payment Date) must be accompanied by payment to the
Company in New York Clearing House Funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount converted.
Securities shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Securities for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Securities as Holders shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
at such time. As promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share as provided
in Section 13.03.
In the case of any Security which is converted in part only,
upon such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the Company, a
new Security or Securities of authorized denominations in aggregate principal
amount equal to the unconverted portion of the principal amount of such
Security. Any requirements for notice, surrender or delivery of Securities
pursuant to this Article XIII shall, with respect to any Global Security, be
subject to any Applicable Procedures.
SECTION 13.03. Fractions of Shares. No fractional shares of
Common Stock shall be issued upon conversion of Securities. If more than one
Security shall be surrendered for conversion at one time by the same Holder, the
number of full shares which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Securities (or
specified portions thereof) so surrendered. Instead of any fractional share of
Common Stock which would otherwise be issuable upon conversion of any Security
or Securities (or specified portions thereof), the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price per share of the Common Stock at the close of business on
the day of conversion (or, if such day is not a Trading Day, on the Trading Day
immediately preceding such day) or, alternatively, the Company shall round up to
the next higher whole share.
SECTION 13.04. Adjustment of Conversion Price. (1) In case the
Company shall pay or make a dividend or other distribution on its Common Stock
exclusively in Common Stock, the conversion price in effect at the opening of
business on the day next following the date fixed for the determination of
shareholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such
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determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such reduction to become effective immediately after the opening of business on
the day next following the date fixed for such determination. For the purposes
of this paragraph (1), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company shall not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(2) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights, warrants or options entitling
the holders thereof to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share (determined as
provided in paragraph (7) of this Section 13.04) of the Common Stock on the date
fixed for the determination of shareholders entitled to receive such rights,
warrants or options, the conversion price in effect at the opening of business
on the day following the date fixed for such determination shall be reduced by
multiplying such conversion price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (2), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
shall not issue any rights, warrants or options in respect of shares of Common
Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the conversion price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) Subject to the last sentence of this paragraph (4), in
case the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock evidences of its indebtedness, shares of any class of capital
stock, securities, cash or property (excluding any rights, warrants or options
referred to in paragraph (2) of this Section 13.04, any dividend or distribution
paid exclusively in cash and any dividend or distribution referred to in
paragraph (1) of this Section 13.04), the conversion price shall be reduced so
that the same shall equal the price determined by multiplying the
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conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this paragraph (4) by a fraction of
which the numerator shall be the current market price per share (determined as
provided in paragraph (7) of this Section 13.04) of the Common Stock on the date
of such effectiveness less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution and shall, in the case of securities being distributed for
which prior thereto there is an actual or when issued trading market, be no less
than the value determined by reference to the average of the closing prices in
such market over the period specified in the succeeding sentence), on the date
of such effectiveness, of the portion of the evidences of indebtedness, shares
of capital stock, securities, cash and property so distributed applicable to one
share of Common Stock and the denominator shall be such current market price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the day next following the later of (a) the date
fixed for the payment of such distribution and (b) the date 20 days after the
notice relating to such distribution is given pursuant to Section 13.06(a) (such
later date of (a) and (b) being referred to as the "Reference Date"). If the
Board of Directors determines the fair market value of any distribution for
purposes of this paragraph (4) by reference to the actual or when issued trading
market for any securities comprising such distribution, it must in doing so
consider the prices in such market over the same period used in computing the
current market price per share pursuant to paragraph (7) of this Section. For
purposes of this paragraph (4), any dividend or distribution that includes
shares of Common Stock or rights, warrants or options to subscribe for or
purchase shares of Common Stock shall be deemed instead to be (a) a dividend or
distribution of the evidences of indebtedness, cash, property, shares of capital
stock or securities other than such shares of Common Stock or such rights,
warrants or options (making any conversion price reduction required by this
paragraph (4)) immediately followed by (b) a dividend or distribution of such
shares of Common Stock or such rights (making any further conversion price
reduction required by paragraph (1) or (2) of this Section 13.04, except (i) the
Reference Date of such dividend or distribution as defined in this paragraph (4)
shall be substituted as "the date fixed for the determination of shareholders
entitled to receive such dividend or other distributions", "the date fixed for
the determination of shareholders entitled to receive such rights, warrants or
options" and "the date fixed for such determination" within the meaning of
paragraphs (1) and (2) of this Section 13.04 and (ii) any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding at
the close of business on the date fixed for such determination" within the
meaning of paragraph (1) of this Section 13.04).
(5) In case the Company shall, by dividend or otherwise, make
a distribution to all holders of its Common Stock exclusively in cash in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no conversion price adjustment pursuant to this paragraph (5) has been
made and (ii) the aggregate of any cash plus the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of the
tender or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no conversion price
adjustment pursuant to paragraph (6) of this Section 13.04 has been made,
exceeds 12.5% of the
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product of the current market price per share (determined as provided in
paragraph (7) of this Section 13.04) of the Common Stock on the date fixed for
shareholders entitled to receive such distribution times the number of shares of
Common Stock outstanding on such date, the conversion price shall be reduced so
that the same shall equal the price determined by multiplying the conversion
price in effect immediately prior to the effectiveness of the conversion price
reduction contemplated by this paragraph (5) by a fraction of which the
numerator shall be the current market price per share (determined as provided in
paragraph (7) of this Section 13.04) of the Common Stock on the date of such
effectiveness less the amount of cash so distributed applicable to one share of
Common Stock and the denominator shall be such current market price per share of
the Common Stock, such reduction to become effective immediately prior to the
opening of business on the later of (a) the day following the date fixed for the
payment of such distribution and (b) the date 20 days after the notice relating
to such distribution is given pursuant to Section 13.06(a).
(6) In case a successful tender or exchange offer made by the
Company or any Subsidiary for all or any portion of the Common Stock shall
involve an aggregate consideration having a fair market value (as determined in
good faith by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange offer (as
it may be amended) that, together with (i) the aggregate of the cash plus the
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution), as of
the expiration of the other tender or exchange offer referred to below, of
consideration payable in respect of any other tender or exchange offer by the
Company or a Subsidiary for all or any portion of the Common Stock concluded
within the preceding 12 months and in respect of which no conversion price
adjustment pursuant to this paragraph (6) has been made and (ii) the aggregate
amount of any distributions to all holders of the Common Stock made exclusively
in cash within the preceding 12 months and in respect of which no conversion
price adjustment pursuant to paragraph (5) of this Section 13.04 has been made,
exceeds 12.5% of the product of the current market price per share (determined
as provided in paragraph (7) of this Section 13.04) of the Common Stock on the
Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, the conversion price
shall be reduced (but not increased) so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be (i) the
product of the current market price per share (determined as provided in
paragraph (7) of this Section 13.04) of the Common Stock at the Expiration Time
times the number of shares of Common Stock outstanding (including any tendered
or exchanged shares) at the Expiration Time minus (ii) the fair market value
(determined as aforesaid) of the aggregate consideration payable to shareholders
based on the acceptance (up to any maximum specified in the terms of the tender
or exchange offer) of all shares validly tendered or exchanged and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and the denominator shall
be the product of (i) such current market price per share at the Expiration Time
times (ii) such number of outstanding shares at the Expiration Time less the
number of Purchased Shares, such reduction to become effective immediately prior
to the opening of business on the day following the Expiration Time.
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(7) For the purpose of any computation under this paragraph
and paragraphs (2), (4) and (5) of this Section 13.04, the current market price
per share of Common Stock on any date in question shall be deemed to be the
average of the daily Closing Prices for the 5 consecutive Trading Days selected
by the Company commencing not more than 20 Trading Days before, and ending not
later than, the date in question; provided, however, that (i) if the "ex" date
(as hereinafter defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the conversion price
pursuant to paragraph (1), (2), (3), (4), (5) or (6) above ("Other Event")
occurs on or after the 20th Trading Day prior to the date in question and prior
to the "ex" date for the issuance or distribution requiring such computation
(the "Current Event"), the Closing Price for each Trading Day prior to the "ex"
date for such Other Event shall be adjusted by multiplying such Closing Price by
the same fraction by which the conversion price is so required to be adjusted as
a result of such Other Event, (ii) if the "ex" date for any Other Event occurs
after the "ex" date for the Current Event and on or prior to the date in
question, the Closing Price for each Trading Day on and after the "ex" date for
such Other Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the conversion price is so required to be
adjusted as a result of such Other Event, (iii) if the "ex" date for any Other
Event occurs on the "ex" date for the Current Event, one of those events shall
be deemed for purposes of clauses (i) and (ii) of this proviso to have an "ex"
date occurring prior to the "ex" date for the other event, and (iv) if the "ex"
date for the Current Event is on or prior to the date in question, after taking
into account any adjustment required pursuant to clause (ii) of this proviso,
the Closing Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair market value on
the date in question (as determined in good faith by the Board of Directors in a
manner consistent with any determination of such value for purposes of paragraph
(4) or (5) of this Section 13.04, whose determination shall be conclusive and
described in a Board Resolution) of the portion of the rights, warrants,
options, evidences of indebtedness, shares of capital stock, securities, cash or
property being distributed applicable to one share of Common Stock. For the
purpose of any computation under paragraph (6) of this Section 13.04, the
current market price per share of Common Stock on any date in question shall be
deemed to be the average of the daily Closing Prices for the 5 consecutive
Trading Days selected by the Company commencing on or after the latest (the
"Commencement Date") of (i) the date 20 Trading Days before the date in
question, (ii) the date of commencement of the tender or exchange offer
requiring such computation and (iii) the date of the last amendment, if any, of
such tender or exchange offer involving a change in the maximum number of shares
for which tenders are sought or a change in the consideration offered, and
ending not later than the date of the Expiration Time of such tender or exchange
offer (or, if such Expiration Time occurs before the close of trading on a
Trading Day, not later than the Trading Day immediately preceding the date of
such Expiration Time); provided, however, that if the "ex" date for any Other
Event (other than the tender or exchange offer requiring such computation)
occurs on or after the Commencement Date and on or prior to the date of the
Expiration Time for the tender or exchange offer requiring such computation, the
Closing Price for each Trading Day prior to the "ex" date for such Other Event
shall be adjusted by multiplying such Closing Price by the same fraction by
which the conversion price is so required to be adjusted as a result of such
other event. For purposes of this paragraph, the term "ex" date, (i) when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the right to receive
such issuance or distribution, (ii) when used with respect to any subdivision or
combination of shares of Common Stock, means the first
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date on which the Common Stock trades regular way on such exchange or in such
market after the time at which such subdivision or combination becomes
effective, and (iii) when used with respect to any tender or exchange offer
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the Expiration Time of such tender or exchange
offer.
(8) The Company may make such reductions in the conversion
price, in addition to those required by paragraphs (1), (2), (3), (4), (5) and
(6) of this Section, as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock rights
shall not be taxable to the recipients, or to diminish the amount of such tax
payable.
(9) To the extent permitted by applicable law, the Company may
from time to time decrease the conversion price by any amount for any period of
time so long as (i) such period of time is at least 20 days, (ii) such decrease
is irrevocable during such period and (iii) the Board of Directors has
determined that such a decrease is in the best interests of the Company, which
determination shall be conclusive. No such decrease may be taken into account
when determining whether the Closing Price of the Common Stock exceeds the
conversion price for purposes of clause (i) of the third paragraph of Section
14.07. Whenever the conversion price is decreased pursuant to the first sentence
of this paragraph (9), the Company shall give notice of the decrease to the
Holders of Securities in the manner provided in Section 1.06 at least 15 days
prior to the date the decreased conversion price takes effect, and such notice
shall state the decreased conversion price and the period during which it will
be in effect.
(10) No adjustment in the conversion price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the conversion price; provided, however, that any adjustments which by reason of
this paragraph (10) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(11) In the event that the Company distributes rights or
warrants (other than those referred to in paragraph (2) above) pro rata to
holders of Common Stock, so long as any such rights or warrants have not expired
or been redeemed by the Company, the Company shall make proper provision so that
the Holder of any Security surrendered for conversion will be entitled to
receive upon such conversion, in addition to the Conversion Shares, a number of
rights and warrants to be determined as follows: (i) if such conversion occurs
on or prior to the date for the distribution to the holders of rights or
warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder of
a number of shares of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of Common Stock into which
the principal amount of such Security so converted was convertible immediately
prior to such Distribution Date would have been entitled on such Distribution
Date in accordance with the terms and provisions of and applicable to the rights
or warrants.
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SECTION 13.05. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.04 and shall prepare a certificate signed by
the Treasurer of the Company setting forth the adjusted conversion price
and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed (with a copy to the
Trustee) at each office or agency maintained for the purpose of conversion
of Securities pursuant to Section 10.02; and
(b) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall forthwith
be required, and as soon as practicable after it is required, such notice
shall be mailed by the Company to all Holders at their last addresses as
they shall appear in the Security Register.
SECTION 13.06. Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require a conversion price
adjustment pursuant to paragraph (5) of Section 13.04; or
(b) the Company shall authorize the granting to all holders of
its Common Stock of rights, warrants or options to subscribe for or
purchase any shares of capital stock of any class or of any other rights
(excluding rights distributed pursuant to any shareholder rights plan); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding, up of the Company; or
(e) the Company or any Subsidiary of the Company shall
commence a tender or exchange offer for all or a portion of the Company's
outstanding shares of Common Stock (or shall amend any such tender or
exchange offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 10.02, and shall
cause to be mailed to all Holders at their last addresses as they shall appear
in the Security Register, at least 20 days (or 10 days in any case specified in
clause (a) or (b) above) prior to the applicable record, effective or expiration
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution or granting of
rights, warrants or options, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, warrants or options are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that
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holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up, or (z) the date on which such tender offer commenced,
the date on which such tender offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto).
SECTION 13.07. Company to Reserve Common Stock. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Securities, the whole number of shares of Common Stock then
issuable upon the conversion in full of all outstanding Securities.
SECTION 13.08. Taxes on Conversions. The Company will pay any
and all taxes that may be payable in respect of the issue or delivery of shares
of Common Stock on conversion of Securities pursuant hereto. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder of the Security or Securities to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
SECTION 13.09. Covenant as to Common Stock. The Company
covenants that all shares of Common Stock which may be issued upon conversion of
Securities will upon issue be newly issued (and not treasury shares) and be duly
authorized, validly issued, fully paid and nonassessable and, except as provided
in Section 13.08, the Company will pay all taxes, liens and charges with respect
to the issue thereof.
SECTION 13.10. Cancellation of Converted Securities. All
Securities delivered for conversion shall be delivered to the Trustee to be
cancelled by or at the direction of the Trustee, which shall dispose of the same
as provided in Section 3.09.
SECTION 13.11. Provisions in Case of Reclassification,
Consolidation, Merger or Sale of Assets. In the event that the Company shall be
a party to any transaction (including without limitation any (i)
recapitalization or reclassification of the Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination of the Common Stock), (ii)
consolidation of the Company with, or merger of the Company into, any other
person. any merger of another person into the Company (other than a merger which
does not result in a reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), (iii) sale or transfer of
all or substantially all of the assets of the Company, or (iv) other
transaction) pursuant to which the Common Stock is converted into the right to
receive other securities, cash or other property, then lawful provision shall be
made as part of the terms of such transaction whereby the Holder of each
Security then outstanding shall have the right thereafter to convert such
Security only into (subject to funds being legally available for such purpose
under applicable law at the time of such conversion) the kind and amount of
securities, cash and other property receivable upon such transaction by a holder
of the number of shares of Common Stock into which such Security might have been
converted
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immediately prior to such transaction. The Company or the person formed by such
consolidation or resulting from such merger or which acquired such assets or
which acquired the Company's shares, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture establishing such rights. Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section 13.11 shall similarly apply to
successive transactions of the foregoing type.
SECTION 13.12. Trustee Adjustment Disclaimer. The Trustee has
no duty to determine when an adjustment under this Article XIII should be made,
how it should be made or what it should be. The Trustee has no duty to determine
whether a supplemental indenture need be entered into or whether any provisions
of any supplemental indenture are correct. The Trustee shall not be accountable
for and makes no representation as to the validity or value of any securities or
assets issued upon conversion of Securities. The Trustee shall not be
responsible for the Company's failure to comply with this Article XIII.
ARTICLE XIV
Right to Require Purchase
SECTION 14.01. Right to Require Purchase. In the event that
there shall occur a Change in Control, then each Holder shall have the right, at
such Holder's option, to require the Company, subject to the provisions of
Section 12.03, to purchase all or any designated part of such Holder's
Securities on the date (the "Purchase Date") fixed by the Company that is not
less than 30 days nor more than 45 days after the date the Company gives notice
of the Change in Control as contemplated in Section 14.03(a) at a price (the
"Purchase Price") equal to 100% of the principal amount thereof, together with
accrued and unpaid interest through the Purchase Date. Such right to require the
purchase of Securities shall not continue after a discharge of the Company from
its obligations with respect to the Securities in accordance with Article IV. At
the option of the Company, the Purchase Price may be paid in cash or, subject to
the fulfillment by the Company of the conditions set forth Section 14.02 hereof,
by delivery of shares of Common Stock in accordance with Section 14.02. Whenever
in this Indenture (including Sections 2.02, 3.01, 5.01(1) and 5.08) there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Purchase Price payable in
respect of such Security to the extent that such Purchase Price is, was or would
be so payable at such time, and express mention of the Purchase Price in any
provision of this Indenture shall not be construed as excluding the Purchase
Price in those provisions of this Indenture when such express mention is not
made. Any requirements for notice, surrender or delivery of Securities pursuant
to this Article XIV shall, with respect to any Global Security, be subject to
any Applicable Procedures.
SECTION 14.02. Conditions and Procedures Relating to the
Company's Election to Pay the Purchase Price in Common Stock. (a) The Company
may elect to pay the Purchase Price by delivery of shares of Common Stock
pursuant to Section 14.01 so long as the following conditions precedent are
satisfied:
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(i) The shares of Common Stock deliverable in payment of the
Purchase Price shall have a fair market value as of the Purchase Date of not
less than the Purchase Price. For purposes of Section 14.01 and this Section
14.02, the fair market value of shares of Common Stock shall be determined by
the Company and shall be equal to 95% of the average of the Closing Prices of
the Common Stock for the five consecutive Trading Days immediately preceding and
including the third Trading Day prior to the Purchase Date;
(ii) The shares of Common Stock to be issued upon purchase of
Notes pursuant to this Article XIV (A) shall not require registration under any
federal securities law before such shares may be freely transferable without
being subject to any transfer restrictions under the Securities Act upon
purchase pursuant to this Article XIV or, if such registration is required, such
registration shall be completed and shall become effective prior to the Purchase
Date, and (B) shall not require registration with or approval of any
governmental authority under any state law or any other federal law before such
shares may be validly issued or delivered upon purchase pursuant to this Article
XIV or if such registration is required or such approval must be obtained, such
registration shall be completed or such approval shall be obtained prior to the
Purchase Date;
(iii) The shares of Common Stock to be issued upon purchase of
Notes pursuant to this Article XIV are, or shall have been, approved for listing
on Nasdaq or the New York Stock Exchange or listed on another national
securities exchange, in any case, prior to the Purchase Date; and
(iv) All shares of Common Stock which may be issued upon
purchase of Notes pursuant to this Article XIV will be issued out of the
Company's authorized but unissued Common Stock and, will upon issue, be duly and
validly issued and fully paid and non-assessable and free of any preemptive or
similar rights.
If all of the conditions set forth in this Section 14.02(a)
are not satisfied in accordance with the terms hereof, the Purchase Price shall
be paid by the Company only in cash.
(b) Any issuance of shares of Common Stock in respect of the
Purchase Price shall be deemed to have been effected immediately prior to the
close of business on the Purchase Date and the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such purchase shall be deemed to have become on the Purchase Date
the holder or holders of record of the shares represented thereby; provided,
however, that any surrender for purchase on a date when the stock transfer books
of the Company shall be closed shall constitute the Person or Persons in whose
name or names the certificate or certificates for such shares are to be issued
as the record holder or holders thereof for all purposes at the opening of
business on the next succeeding day on which such stock transfer books are open.
No payment or adjustment shall be made for dividends or distributions on any
Common Stock issued upon purchase of any Note pursuant to this Article XIV
declared prior to the Purchase Date.
(c) No fractions of shares shall be issued upon purchase of
Notes pursuant to this Article XIV. If more than one Note shall be purchased
from the same Holder and the Purchase Price shall be payable in shares of Common
Stock, the number of full shares
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which shall be issuable upon such purchase shall be computed on the basis of the
aggregate principal amount of the Notes so purchased. Instead of any fractional
share of Common Stock which would otherwise be issuable on the purchase of any
Note or Notes pursuant to this Article XIV, the Company will deliver to the
applicable Holder its check for the current market value of such fractional
share. The current market value of a fraction of a share is determined by
multiplying the Closing Price of a full share on the Trading Day immediately
preceding the Purchase Date by the fraction, and rounding the result to the
nearest cent.
(d) Any issuance and delivery of certificates for shares of
Common Stock on purchase of Notes pursuant to this Article XIV shall be made
without charge to the Holder of Notes being purchased for such certificates or
for any tax or duty in respect of the issuance or delivery of such certificates
or the Notes represented thereby; provided, however, that the Company shall not
be required to pay any tax or duty which may be payable in respect of (i) income
of the Holder or (ii) any transfer involved in the issuance or delivery of
certificates for shares of Common Stock in a name other than that of the Holder
of the Notes being purchased, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.
SECTION 14.03. Notice, Method of Exercising Purchase Right.
(a) On or before the 15th day after the Company knows or reasonably should know
a Change in Control has occurred, the Company, or at the written request of the
Company, the Trustee (in the name and at the expense of the Company), shall give
notice of the occurrence of the Change in Control and of the purchase right set
forth herein arising as a result thereof by first-class mail, postage prepaid,
or by telefacsimile with written acknowledgment of transmittal to each Holder of
the Securities at such Holder's address appearing in the Security Register. The
Company shall also deliver a copy of such notice of a purchase right to the
Trustee.
Each notice of a purchase right shall state:
(1) the Purchase Date,
(2) the date by which the purchase right must be exercised,
(3) the Purchase Price,
(4) whether the Purchase Price will be paid in the form of
cash or Common Stock as provided in this Indenture and that such
determination is irrevocable, and
(5) the instructions a Holder must follow to exercise its
purchase right.
No failure of the Company to give the foregoing notice shall
limit any Holder's right to exercise a purchase right. The Trustee shall have no
affirmative obligation to determine if there shall have occurred a Change in
Control.
(b) To exercise a purchase right, a Holder shall deliver to
the Company (or an agent designated by the Company for such purpose in the
notice referred to in (a)
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above) and to the Trustee on or before the 30th day after the date of
transmittal of the notice referred to in (a) above (i) written notice of the
Holder's exercise of such right, which notice shall set forth the name of the
Holder, the principal amount of the Security or Securities (or portion of a
Security) to be purchased, and a statement that an election to exercise the
purchase right is being made thereby, and (ii) the Security or Securities with
respect to which the purchase right is being exercised, duly endorsed for
transfer to the Company. Such written notice shall be irrevocable. If the
Purchase Date falls between any Regular Record Date and the corresponding
succeeding Interest Payment Date, Securities to be purchased must be accompanied
by payment from the Holder of an amount equal to the interest thereon which the
registered Holder thereof is to receive on such Interest Payment Date.
(c) In the event a purchase right shall be exercised in
accordance with the terms hereof, the Company shall on the Purchase Date pay or
cause to be paid in cash or shares of Common Stock, as provided herein, to the
Holder thereof the Purchase Price of the Security or Securities as to which the
purchase right had been exercised.
SECTION 14.04. Deposit of Purchase Price. On or prior to the
Purchase Date, the Company shall deposit with the Trustee or with a Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 10.03) cash or shares of Common Stock, as provided
herein, sufficient to pay the Purchase Price of the Securities which are to be
repaid on the Purchase Date.
SECTION 14.05. Securities Not Purchased on Purchase Date. If
any Security surrendered for purchase shall not be so paid on the Purchase Date,
the principal of such Security shall, until paid, bear interest from the
Purchase Date at a rate borne by such Security.
SECTION 14.06. Securities Purchased in Part. Any Security
which is to be purchased only in part shall be surrendered at any office or
agency of the Company designated for that purpose pursuant to Section 10.02
(with, if the Company or the Trustee so requires, due endorsement by, or written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities of
any authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unpurchased portion of the principal of
the Security so surrendered.
SECTION 14.07. Certain Definitions. For purposes of this
Article: The term "Beneficial Owner" shall be determined in accordance with
Rules 13d-3 and 13d-5 promulgated by the Commission under the Exchange Act, or
any successor provision thereto, except that a Person shall be deemed to have
"beneficial ownership" of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time.
A "Change in Control" shall be deemed to have occurred at such
time as (a) any Person, or any Persons acting together in a manner which would
constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange
Act, or any successor provision thereto, together with any Affiliates thereof,
(i) become the Beneficial Owners, directly or indirectly, of capital stock of
the Company, entitling such Person or Persons
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and its or their Affiliates to exercise more than 50% of the total voting power
of all classes of the Company's capital stock entitled to vote generally in the
election of directors or (ii) shall succeed in having sufficient of its or their
nominees (who are not supported by a majority of the then current Board of
Directors of the Company) elected to the Board of Directors of the Company such
that such nominees, when added to any existing directors remaining on the Board
of Directors of the Company after such election who are Affiliates of or acting
in concert with any such Persons, shall constitute a majority of the Board of
Directors of the Company, (b) the Company shall be a party to any transaction
pursuant to which the Common Stock is converted into the right to receive other
securities (other than common stock), cash and/or property (or the Company, by
dividend, tender or exchange offer or otherwise, distributes other securities,
cash and/or property to holders of Common Stock) and the value of all such
securities, cash and/or property distributed in such transaction and any other
transaction effected within the 12 months preceding consummation of such
transaction (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) is more
than 50% of the average of the daily Closing Prices for the five consecutive
Trading Days ending on the Trading Day immediately preceding the date of such
transaction (or, if earlier, the Trading Day immediately preceding the ex date
(as defined in paragraph (7) of Section 13.04) for such transaction) or (c) the
Company shall consolidate with or merge into any other Person or sell, convey,
transfer or lease its properties and assets substantially as an entirety to any
Person other than a Subsidiary, or any other Person shall consolidate with or
merge into the Company (other than, in the case of this clause (c), pursuant to
any consolidation or merger where Persons who are shareholders of the Company
immediately prior thereto become the Beneficial Owners of shares of capital
stock of the surviving company entitling such Persons to exercise more than 50%
of the total voting power of all classes of such surviving company's capital
stock entitled to vote generally in the election of directors).
Notwithstanding the foregoing, a "Change in Control" will be
deemed not to have occurred (i) if the Closing Price of the Common Stock for any
five Trading Days during the ten Trading Days immediately preceding the Change
in Control is at least equal to 105% of the conversion price in effect
immediately preceding the Change in Control or (ii) if at least 90% of the
consideration (excluding cash payments for fractional shares or cash payments
for appraisal rights) received or to be received by the shareholders of the
Company in the transaction or transactions constituting the Change in Control
consists of (x) shares of common stock of an entity organized and validly
existing under the laws of the United States of America, any State thereof or
the District of Columbia the common stock of which is, or upon issuance will be,
traded on a national securities exchange in the United States of America or
through Nasdaq or (y) shares of common stock of an entity organized and validly
existing under the laws of a jurisdiction outside of the United States of
America, or American Depositary Shares representing such shares of common stock,
that are, or upon issuance will be, traded on a national securities exchange in
the United States of America or through Nasdaq, if such entity has a worldwide
total market capitalization of its equity securities of at least U.S. $5
billion.
ARTICLE XV
Defeasance and Covenant Defeasance
SECTION 15.01. Company's Option to Effect Defeasance or
Covenant Defeasance. The Company may at its option by Board Resolution, at any
time, elect to
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81
have either Section 15.02 or Section 15.03 applied to the Outstanding Securities
upon compliance with the conditions set forth below in this Article XV.
SECTION 15.02. Defeasance and Discharge. Upon the Company's
exercise of the option provided in Section 15.01 applicable to this Section, the
Company shall be deemed to have been discharged from its obligations with
respect to the Outstanding Securities (other than those specified below), the
Holders and any holders of Senior Indebtedness, and the provisions of Article
XII hereof shall cease to be effective, on the date the conditions set forth
below are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the Outstanding Securities, the Company
shall be deemed to have satisfied all their other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of such
Securities to receive, solely from the trust fund described in Section 15.04 and
as more fully set forth in such Section, payments in respect of the principal
of, premium, if any and interest on such Securities when such payments are due,
(B) the Company's obligations with respect to such Securities under Sections
3.04, 3.05, 3.06, 10.02, 10.03, 10.11, Article XIII and Article XIV, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article XV. Subject to compliance with this Article XV, the Company may
exercise its option under this Section 15.02 notwithstanding the prior exercise
of its option under Section 15.03.
SECTION 15.03. Covenant Defeasance. Upon the Company's
exercise of the option provided in Section 15.01 applicable to this Section, (i)
the Company shall be released from its obligations under Section 10.06 and
Section 10.07, (ii) the occurrence of an event specified in Section 5.01(4)
(with respect to either of Section 10.06 or Section 10.07) or 5.01(5) shall not
be deemed to be an Event of Default and (iii) the provisions of Article XII
hereof shall cease to be effective on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"). For this
purpose, such covenant defeasance means that the Company may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such Section or Article, whether directly or indirectly by reason
of any reference elsewhere herein to any such Section or Article or by reason of
any reference in any such Section or Article to any other provision herein or in
any other document, but the remainder of this Indenture and such Securities
shall be unaffected thereby.
SECTION 15.04. Conditions to Defeasance or Covenant
Defeasance. The following shall be the conditions to application of either
Section 15.02 or Section 15.03 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.09 who shall agree to comply with the provisions
of this Article XV applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such
Securities, (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one
day before the
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82
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the written opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
the principal of, premium, if any, and each installment of interest on the
Securities on the Stated Maturity of such principal or installment of
interest in accordance with the terms of this Indenture and of such
Securities. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of America
for the payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also include
a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such
U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by
law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or
the specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 15.02, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or (y) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Outstanding Securities will not
recognize gain or loss for Federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to Federal income
tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not
occurred.
(3) In the case of an election under Section 15.03, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Securities will not recognize
gain or loss for Federal income tax purposes as a result of such deposit
and covenant defeasance and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have been
the case if such deposit and covenant defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an
Officers' Certificate to the effect that the Securities, if then listed on
any securities exchange, will not be delisted as a result of such deposit.
(5) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 6.08 and for
purposes of the Trust Indenture Act with respect to any securities of the
Company.
<PAGE> 89
83
(6) At the time of such deposit: (A) no default in the payment
of all or a portion of principal of (or premium, if any) or interest on or
other obligations in respect of any Senior Indebtedness shall have
occurred and be continuing, and no event of default with respect to any
Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable and (B) no other event with respect to any Senior Indebtedness
shall have occurred and be continuing permitting (after notice or the
lapse of time, or both) the holders of such Senior Indebtedness (or a
trustee on behalf of the holders thereof) to declare such Senior
Indebtedness due and payable prior to the date on which it would otherwise
have become due and payable, or, in the case of either clause (A) or
clause (B) above, each such default or event of default shall have been
cured or waived or shall have ceased to exist.
(7) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as subsections 5.01(6)
and (7) are concerned, at any time during the period ending on the 121st
day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(8) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it is
bound.
(9) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 15.02 or the covenant defeasance under Section 15.03 and Section
15.04 (as the case may be) have been complied with.
(10) Such defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an investment company
as defined in the Investment Company Act of 1940, as amended, or such
trust shall be qualified under such act or exempt from regulation
thereunder.
SECTION 15.05. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions
of the last paragraph of Section 10.03, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee collectively, for purposes of this Section 15.05, the
"Trustee") pursuant to Section 15.04 in respect of the Securities shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities, of all sums due and to
become due thereon in respect of principal, premium, if any, and interest. Money
so held in trust shall not be subject to the provisions of Article XII.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 15.04 or the principal and interest
received in respect thereof other
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84
than any such tax, fee or other charge which by law is for the account of the
Holders of the Outstanding Securities.
Anything in this Article XV to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 15.04 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 15.06. Reinstatement. If the Trustee or the Paying
Agent is unable to apply any money in accordance with Section 15.02 or 15.03 by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to this Article XV
until such time as the Trustee or Paying Agent is permitted to apply all such
money in accordance with Section 15.02 or 15.03; provided, however, that if the
Company makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or the Paying Agent.
ARTICLE XVI
Immunity
SECTION 16.01. Personal Immunity of Incorporators,
Shareholders, Directors and Officers. No recourse for the payment of the
principal of or interest on the Securities, and no recourse under or upon any
obligation, covenant or agreement contained in this Indenture or in any
indenture supplemental hereto, or in the Securities, or because of any
indebtedness evidenced thereby, shall be had against any incorporator, or
against any past, present or future shareholder, officer or director, as such,
of the Company or any successor corporation, either directly or through the
Company or any successor corporation, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities by the Holders thereof and as
part of the consideration for the issue of the Securities. Each and every Holder
of the Securities, by receiving and holding the same, agrees to the provisions
of this Section 16.01 and waives and releases any and all such recourse, claim
and liability.
<PAGE> 91
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
AFFYMETRIX, INC.
by /s/ Vern Norviel
Name:
Title:
<PAGE> 92
THE BANK OF NEW YORK,
by /s/ Michele Russo
Name:
Title:
<PAGE> 1
EXHIBIT 5.1
AFFYMETRIX LETTERHEAD
October 14, 1999
Affymetrix, Inc.
3380 Central Expressway
Santa Clara, California 95051
Dear Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended, of 1,070,000 shares of Common Stock, par value $.01 per share (the
"Shares"), of Affymetrix, Inc., a Delaware corporation, and the related
preferred stock purchase rights (the "Rights") issued pursuant to the Rights
Agreement, dated as of October 15, 1998 (the "Rights Agreement"), between
Affymetrix and American Stock Transfer & Trust Company, as Rights Agent (the
"Rights Agent"), I, as your general counsel, have examined such corporate
records, certificates and other documents, and such questions of law, as I have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, I advise you that, in my opinion:
(1) The Shares have been duly authorized and, upon compliance
with the exchange procedures set forth in Article V of the Merger
Agreement, dated as of September 10, 1999 (the "Merger Agreement"),
among Affymetrix, Inc., Genetic MicroSystems, Inc., GMS Acquisition,
Inc., Jean Montagu and the stockholders of Genetic MicroSystems set
forth on the signature pages to the Merger Agreement (the "Exchange
Procedures"), the Shares will be validly issued, fully paid and
nonassessable.
(2) The issuance of the Rights has been duly authorized by
Affymetrix.
(3) Assuming that the board of directors of Affymetrix, after
fully informing itself as to matters relating to the Rights Agreement
and the Rights and after giving due consideration to all relevant
matters, determined that the execution and delivery of the Rights
Agreement and the issuance of Rights thereunder would be in the best
interests of Affymetrix and its stockholders, and assuming further that
the Rights Agreement has been duly authorized, executed and delivered
by the Rights Agent, then upon compliance with the Exchange Procedures,
the Rights will be validly issued.
In connection with my opinion set forth in paragraph (2)
above, I note that the question whether the board of directors of Affymetrix
might be required to redeem the Rights at some future time will depend upon
facts and circumstances existing at that time and, accordingly, is beyond the
scope of such opinion.
The foregoing opinion is limited to the federal laws of the
United States and the General Corporation Law of the State of Delaware, and I am
expressing no opinion as to the effect of the laws of any other jurisdiction. I
am not a member of the Bar of the State of Delaware, and I have relied on the
<PAGE> 2
advice of Sullivan & Cromwell with respect to interpretations of the General
Corporation Law of the State of Delaware.
I have relied as to certain matters on information obtained
from public officials, officers of Affymetrix and other sources believed by me
to be responsible.
I hereby consent to the filing of this opinion as an exhibit
to the Registration Statement relating to the Shares and the Rights and to the
reference to me under the heading "Validity of Shares" in the Proxy
Statement/Prospectus relating to the Shares and the Rights. In giving such
consent, I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ Vern Norviel, Esq.
Senior Vice President,
General Counsel and Corporate Secretary
Affymetrix, Inc.
<PAGE> 1
Exhibit 8.1
October 14, 1999
Affymetrix, Inc.,
3380 Central Expressway,
Santa Clara, California 95051.
Ladies and Gentlemen:
We have acted as counsel to Affymetrix, Inc. ("Affymetrix") in
connection with the merger (the "Merger") of Genetic MicroSystems, Inc. ("GMS")
with and into GMS Acquisition, Inc., a wholly-owned subsidiary of Affymetrix
("Merger Sub"), pursuant to the Agreement and Plan of Merger, dated as of
September 10, 1999 (the "Agreement"). Affymetrix is offering up to 1,070,000
shares of its common stock in connection with the Merger pursuant to its
Registration Statement on Form S-4 (the "Registration Statement") filed pursuant
to the Securities Act of 1933, as amended (the "Securities Act"). Capitalized
terms used but not defined herein shall have the meanings specified in the
Agreement.
We have assumed, with your consent, that (1) the Merger will be
effected in accordance with the Agreement, (2) the representations contained in
the letters of representation from Affymetrix, Merger Sub and GMS to us, each
dated October 14, 1999, are true, correct and accurate as of the date hereof and
will be true, correct and
<PAGE> 2
Affymetrix, Inc. -2-
accurate as of the Effective Time of the Merger and (3) the Merger will qualify
as a merger under Massachusetts law.
We hereby confirm to you that, in our opinion, the statements set
forth in the Registration Statement under the caption "Material Federal Income
Tax Consequences" insofar as they relate to matters of United States federal
income tax law, subject to the limitations set forth thereunder, are a fair and
accurate summary of the matters therein discussed.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ SULLIVAN AND CROMWELL
<PAGE> 1
EXHIBIT 8.2
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
October 14, 1999
Genetic MicroSystems, Inc.
34 Commerce Way
Woburn, Massachusetts 01801
Ladies and Gentlemen:
We have acted as counsel to Genetic MicroSystems, Inc. ("GMS"), a
Massachusetts corporation, in connection with the proposed merger (the "Merger")
of GMS with and into GMS Acquisition, Inc. ("Merger Sub"), a Massachusetts
corporation and a wholly owned subsidiary of Affymetrix, Inc. ("Affymetrix"), a
Delaware corporation, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 10, 1999, among Affymetrix, Merger Sub and
GMS. The Merger is described in the Registration Statement on Form S-4 (the
"Registration Statement") of which this exhibit is a part. This opinion is being
rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended. Capitalized terms not defined herein have
the meanings set forth in the Merger Agreement and the documents related
thereto. All section references, unless otherwise indicated, are to the United
States Internal Revenue Code of 1986, as amended (the "Code").
In preparing this opinion, we have examined and relied upon (i) the
Merger Agreement, (ii) the Proxy Statement/Prospectus (the "Proxy Statement")
included in the Registration Statement, (iii) the tax representation letters
delivered to us by Affymetrix and Merger Sub and GMS in connection with this
opinion (the "Representation Letters"), and (iv) such other documents as we have
deemed necessary or appropriate in order to enable us to render this opinion. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
In rendering this opinion, we have assumed without investigation or
verification that the facts relating to the Merger as described in the Proxy
Statement are true, correct and complete in all material respects; that all
representations and warranties contained in the Proxy Statement, the Merger
Agreement and the Representation Letters are, at the time they are made, and
will remain at all times through the Effective Time, true, correct and complete
and may be relied upon by us at the time they are made and at all times through
the Effective Time; that any representation in any of the documents referred to
herein that is made "to the best of the knowledge and belief" (or similar
qualification) of any person or party are true, correct and complete without
such qualification; and that, as to all matters for which a person or entity has
represented that such person or entity is not a party to, does not have, or is
not aware of, any plan, intention, understanding or agreement, there is no such
plan, intention, understanding or agreement. We have further assumed that all
parties to the Merger Agreement and to any other documents examined by us have
acted, and will act, in accordance with the terms of such Merger Agreement and
documents; that the Merger will be consummated at the Effective Time pursuant to
the terms and conditions set forth in the Merger Agreement (including all
covenants and conditions contained therein) without the waiver or modification
of any such terms and conditions; that the Merger will be effective as a merger
under the applicable laws of Massachusetts; and that Affymetrix, Merger Sub and
GMS each will comply with all reporting obligations required under the Code and
Treasury Regulations with respect to the Merger. Any inaccuracy in, or breach
of, any of the aforementioned statements, representations or assumptions could
adversely affect our opinion.
Our opinion is based on existing provisions of the Code, Treasury
Regulations, judicial decisions, and rulings and other pronouncements of the
Internal Revenue Service (the "IRS") as in effect on the date of this
<PAGE> 2
opinion, all of which are subject to change (possibly with retroactive effect)
or reinterpretation. No assurances can be given that a change in the law on
which our opinion is based or the interpretation thereof will not occur or that
such change will not affect the opinion expressed herein. We undertake no
responsibility to advise you of any such developments in the law after the
Effective Time.
No ruling has been or will be sought from the IRS by Affymetrix, GMS or
Merger Sub as to the federal income tax consequences of any aspect of the
Merger, and our opinion is not binding upon either the IRS or any court. Thus,
no assurances can be given that a position taken in reliance on our opinion will
not be challenged by the IRS or rejected by a court.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement under the heading "Material Federal Income Tax
Consequences," subject to the limitations and qualifications described therein,
fairly and accurately represents our opinion as to the material United States
federal income tax consequences of the Merger.
Our opinion addresses only the specific United States federal income
tax consequences of the Merger set forth herein, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
This opinion is being provided to you solely for use in connection with
the Registration Statement, and this opinion letter may not be used, circulated,
quoted, or otherwise referred to for any other purpose. We hereby consent to the
use of our name under the caption "Material Federal Income Tax Consequences" in
the Registration Statement and to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated January 12, 1999, included in the Proxy Statement
of Genetic MicroSystems, Inc., that is made a part of the Registration Statement
(Form S-4) and related Prospectus of Affymetrix, Inc. for the registration of
shares of its common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 14, 1999
<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 proxy
statement of Genetic MicroSystems, Inc. that is made part of the registration
statement on Form S-4 and prospectus of Affymetrix, Inc. and to the
incorporation by reference therein of our report dated January 29, 1999 except
for Note 11, as to which the date is March 25, 1999, with respect to the
financial statements and schedule of Affymetrix, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
October 13, 1999
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned directors and officers of Affymetrix, Inc. do hereby
constitute and appoint Stephen Fodor, Edward Hurwitz and Vern Norviel, and each
of them, our true and lawful attorneys-in-fact and agents to do any and all acts
and things in our name and behalf in our capacities as directors and offices,
and to execute any and all instruments for us and in our names in the capacities
indicated below which such person or persons may deem necessary or advisable to
enable Affymetrix to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for us, or any of us, in the capacities
indicated below and all amendments (including post-effective amendments) hereto
and we do hereby ratify and confirm all that such person or persons shall do or
cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- ----------------------------- ----------------------------- ----------------
/s/ Stephen P.A. Fodor, Ph.D. Chief Executive Officer and
- ----------------------------- Chairman of the Board October 11, 1999
Stephen P.A. Fodor, Ph.D.
/s/ Edward M. Hurwitz Vice President and Chief October 11, 1999
- ----------------------------- Financial Officer (Principal
Edward M. Hurwitz Financial and Accounting
Officer)
/s/ John D. Diekman, Ph.D. Vice Chairman of the Board October 11, 1999
- -----------------------------
John D. Diekman, Ph.D.
/s/ Paul Berg, Ph.D. Director October 11, 1999
- -----------------------------
Paul Berg, Ph.D.
/s/ Vernon R. Loucks, Jr. Director October 12, 1999
- -----------------------------
Vernon R. Loucks, Jr.
/s/ Barry C. Ross, Ph.D. Director October 12, 1999
- -----------------------------
Barry C. Ross, Ph.D.
/s/ David B. Singer Director October 11, 1999
- -----------------------------
David B. Singer
/s/ Lubert Stryer, M.D. Director October 14, 1999
- -----------------------------
Lubert Stryer, M.D.
/s/ John A. Young Director October 12, 1999
- -----------------------------
John A. Young
<PAGE> 1
EXHIBIT 99.1
GENETIC MICROSYSTEMS, INC.
34 COMMERCE WAY
WOBURN, MASSACHUSETTS 01801
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _______________ and _______________,
and each of them, with full power of substitution, as proxies to represent and
to vote, as specified below, all the shares of stock of Genetic MicroSystems,
Inc., held of record by the undersigned on __________ __, 1999, at the Special
Meeting of Stockholders to be held on __________ __, 1999 and at any
adjournments, postponements, continuations or reschedulings thereof. The
undersigned hereby revokes any previous proxies with respect to the matters
covered in this proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
SPECIFIED ON THE REVERSE SIDE. IF THIS CARD IS PROPERLY EXECUTED BUT NO VOTE IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT.
(continued on reverse side)
You can vote by completing, signing, dating and returning
the enclosed proxy card in the enclosed stamped envelope.
<PAGE> 2
Please mark your vote as indicated in this example: /X/
<TABLE>
<S> <C> <C> <C>
1. To adopt and approve the Agreement and Plan of
Merger, dated as of September 10, 1999, by and among
Affymetrix, Inc., a Delaware corporation, GMS
Acquisition, Inc., a Massachusetts corporation wholly
owned by Affymetrix, Genetic MicroSystems, Inc., a
Massachusetts corporation, Jean Montagu as
stockholder representative and the stockholders of
Genetic Microsystems, Inc. listed in the signature pages
thereto [ ] FOR [ ] AGAINST
2. Vote on the proposal that the merger does not constitute a liquidation,
dissolution or winding up of Genetic Microsystems, Inc. (only holders of
shares of Genetic Microsystems Series A Convertible Preferred
Stock are eligible to vote on this proposal) [ ] FOR [ ] AGAINST
3. To appoint Jean Montagu as stockholder representative to act on behalf of
the shareholders of Genetic MicroSystems in connection with the merger [ ] FOR [ ] AGAINST
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments,
postponements, continuations or reschedulings thereof.
</TABLE>
CHECK HERE IF YOU PLAN TO ATTEND THE SPECIAL MEETING: [ ]
Dated:
---------------, 1999
-------------------------------
Signature (including title, if any)
-------------------------------
Signature if held jointly
Please sign your name above exactly as it appears hereon. Joint owners
should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation,
please sign in full corporate name by president or authorized officer. If
a partnership, please sign in partnership name by authorized person.
