<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NEXSTAR PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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[NEXSTAR LOGO]
NEXSTAR PHARMACEUTICALS, INC.
2860 WILDERNESS PLACE
BOULDER, COLORADO 80301
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 29, 1999
------------------------
TO THE STOCKHOLDERS OF NEXSTAR PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of NeXstar
Pharmaceuticals, Inc. ("NeXstar") will be held on July 29, 1999, at 10:00 a.m.,
local time, at The Boulder Broker Inn, 555 30th Street, Boulder, Colorado, to
consider and vote upon the following:
Proposal to approve and adopt the agreement and plan of merger among
Gilead Sciences, Inc. ("Gilead"), Gazelle Acquisition Sub, Inc., a
wholly owned subsidiary of Gilead, and NeXstar and to approve the merger
of Gazelle Acquisition Sub with and into NeXstar. As a result of the
merger, each outstanding share of NeXstar common stock would be
converted into the right to receive a fraction of a share of Gilead
common stock and NeXstar would become a wholly owned subsidiary of
Gilead. A copy of the merger agreement is attached as Appendix A to the
joint proxy statement/prospectus accompanying this notice.
Information regarding the merger agreement and the merger and related
matters is contained in the attached joint proxy statement/prospectus and its
appendices.
NeXstar stockholders of record at the close of business on June 22, 1999 are
entitled to notice of, and to vote at, the NeXstar special meeting and any
adjournments or postponements of the special meeting. A list of NeXstar
stockholders entitled to vote at the special meeting will be available for
examination during normal business hours, at NeXstar's principal office, for 10
days prior to the special meeting.
All stockholders are cordially invited to attend the NeXstar special meeting
in person. Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY OR TO VOTE AT THE NEXSTAR SPECIAL MEETING WILL
GENERALLY HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER.
THE BOARD OF DIRECTORS OF NEXSTAR UNANIMOUSLY RECOMMENDS THAT NEXSTAR
STOCKHOLDERS VOTE TO ADOPT AND APPROVE THE MERGER AGREEMENT AND APPROVE THE
MERGER.
By order of the NeXstar board of
directors,
/s/ MICHAEL E. HART
Michael E. Hart
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Boulder, Colorado
June 25, 1999
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, WE
REQUEST THAT YOU COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD USING
THE ENCLOSED PRE-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. YOUR PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
NEXSTAR.
<PAGE>
[LOGO]
[NEXSTAR LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Gilead Sciences, Inc. and NeXstar Pharmaceuticals, Inc. have entered into a
merger agreement. As a result of the merger, NeXstar will become a wholly owned
subsidiary of Gilead. In the merger, NeXstar stockholders will receive between
0.3786 and 0.5000 of a share of Gilead common stock, based on the average of the
closing prices of Gilead common stock over 20 days prior to the NeXstar special
meeting. If this average closing price is between $36.47 and $45.88, for each
share of NeXstar common stock NeXstar stockholders will receive 0.4250 of a
share of Gilead common stock.
The merger cannot be completed unless the holders of Gilead common stock and
series B preferred stock voting together as a single class and holders of
NeXstar common stock approve the matters related to the merger that are
described in this joint proxy statement/prospectus. The boards of directors of
both companies have approved the merger and unanimously recommend that
stockholders approve the matters related to the merger that are described in
this document at the annual and special meetings described below.
At the Gilead annual meeting, Gilead stockholders will be asked to approve
the issuance of shares of Gilead common stock in the merger and other items. At
the NeXstar special meeting, NeXstar stockholders will be asked to approve and
adopt the merger agreement and approve the merger of a subsidiary of Gilead with
and into NeXstar.
Whether or not you plan to attend your stockholder meeting, please take the
time to vote by completing and mailing the enclosed proxy card. If you sign,
date and mail your proxy card without indicating how you want to vote, your
proxy will count as a vote in favor of the proposal or proposals to be voted on.
You may vote at the Gilead stockholder meeting if you own shares of Gilead
as of the close of business on June 11, 1999 and you may vote at the NeXstar
stockholder meeting if you own shares of NeXstar as of the close of business on
June 22, 1999. The dates, times and places of the stockholders meetings are as
follows:
<TABLE>
<CAPTION>
ANNUAL MEETING SPECIAL MEETING
OF GILEAD STOCKHOLDERS: OF NEXSTAR STOCKHOLDERS:
<S> <C>
July 29, 1999 July 29, 1999
11:00 a.m. local time 10:00 a.m. local time
Hotel Sofitel The Boulder Broker Inn
223 Twin Dolphin Drive 555 30th Street
Redwood City, CA Boulder, CO
</TABLE>
This joint proxy statement/prospectus provides you with detailed information
about the merger agreement, the proposed merger and the other proposals that the
Gilead stockholders will vote on. Gilead provided the information concerning
Gilead. NeXstar provided the information concerning NeXstar. Please see "Where
You Can Find More Information" on page 105 for additional information on Gilead
and NeXstar.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING AT PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THE
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this joint proxy statement/prospectus dated June 25,
1999 and the forms of proxy on or about June 28, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................................................... 1
SUMMARY................................................................................................... 3
The Companies........................................................................................... 3
Our Reasons for the Merger.............................................................................. 3
Our Recommendations to Our Stockholders................................................................. 3
Share Option Agreement.................................................................................. 3
Opinions of Financial Advisors.......................................................................... 4
Vote Required at Gilead Annual Meeting.................................................................. 4
Vote Required at NeXstar Special Meeting................................................................ 4
Voting by Proxy......................................................................................... 4
Voting Agreements....................................................................................... 4
Record Dates; Voting Power.............................................................................. 5
Share Ownership of Directors, Executive Officers and Affiliates......................................... 5
Interests of Certain Persons in the Merger.............................................................. 5
Ownership of Gilead Following the Merger................................................................ 5
Quotation of Gilead Stock............................................................................... 5
The Merger Agreement.................................................................................... 5
When the Merger Will Occur.............................................................................. 6
Conditions to the Merger................................................................................ 6
Termination of the Merger Agreement by NeXstar and Gilead............................................... 6
Termination of the Merger Agreement by Gilead........................................................... 7
Expenses and Termination Fees........................................................................... 7
Anticipated Accounting Treatment........................................................................ 7
Regulatory Requirements................................................................................. 7
No Appraisal Rights..................................................................................... 7
Forward Looking Statements May Prove Inaccurate......................................................... 8
Markets and Market Prices............................................................................... 9
Summary of Selected Historical Financial Information of Gilead.......................................... 10
Summary of Selected Historical Financial Information of NeXstar......................................... 11
Gilead Sciences, Inc. and NeXstar Pharmaceuticals, Inc. Unaudited Selected Pro Forma Combined Financial
Information........................................................................................... 13
COMPARATIVE PER SHARE DATA................................................................................ 15
RISK FACTORS.............................................................................................. 16
Risks Related to the Merger............................................................................. 16
Risks Related to the Combined Company................................................................... 18
THE GILEAD ANNUAL MEETING................................................................................. 27
Purpose of the Gilead Annual Meeting.................................................................... 27
Gilead Board of Directors Recommendations............................................................... 27
Date, Time and Place of Meeting......................................................................... 27
Gilead Record Date and Outstanding Shares............................................................... 27
Voting of Proxies....................................................................................... 28
Solicitation............................................................................................ 28
Stockholder Proposals................................................................................... 29
Vote Required........................................................................................... 29
Revocability of Proxies................................................................................. 29
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE NEXSTAR SPECIAL MEETING............................................................................... 30
Purpose of the NeXstar Special Meeting.................................................................. 30
Board of Directors Recommendations...................................................................... 30
Date, Time and Place of Meeting......................................................................... 30
NeXstar Record Date and Outstanding Shares.............................................................. 30
Voting of Proxies....................................................................................... 30
Solicitation............................................................................................ 30
Vote Required........................................................................................... 31
Revocability of Proxies................................................................................. 31
Note Regarding NeXstar Annual Meeting................................................................... 31
PROPOSAL 1: APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................................... 32
Background of the Merger................................................................................ 32
Gilead's Reasons for the Merger......................................................................... 37
NeXstar's Reasons for the Merger........................................................................ 39
Opinion of Financial Advisor to Gilead.................................................................. 41
Opinion of Financial Advisor to NeXstar................................................................. 47
Interests of NeXstar's Employees and Directors in the Merger............................................ 51
Material Federal Income Tax Consequences................................................................ 52
Accounting Treatment.................................................................................... 54
Regulatory Requirements................................................................................. 54
No Appraisal Rights..................................................................................... 55
Resale of Gilead Common Stock........................................................................... 55
Voting Agreements....................................................................................... 55
Affiliate Agreements.................................................................................... 56
Share Option Agreement.................................................................................. 56
THE MERGER AGREEMENT...................................................................................... 58
General................................................................................................. 58
Merger Consideration.................................................................................... 58
Stock Options, Warrants, Employee Stock Purchase Plan and Convertible Debentures........................ 60
Ownership of Gilead Following the Merger................................................................ 61
Conversion of Shares; Procedures for Exchange of Certificates........................................... 61
Effect on Certificates.................................................................................. 62
Corporate Matters....................................................................................... 62
Conditions to the Merger................................................................................ 62
Covenants............................................................................................... 65
Non-Solicitation........................................................................................ 67
Recommendation of NeXstar Board of Directors............................................................ 68
Meeting of NeXstar Stockholders......................................................................... 69
Meeting of Gilead Stockholders.......................................................................... 69
Tax-Free Reorganization................................................................................. 69
Indemnification and Insurance........................................................................... 69
Other Obligations....................................................................................... 70
Termination............................................................................................. 70
Expenses and Termination Fees........................................................................... 72
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DESCRIPTION OF GILEAD CAPITAL STOCK....................................................................... 73
Gilead Common Stock..................................................................................... 73
Gilead Preferred Stock.................................................................................. 73
COMPARISON OF STOCKHOLDERS' RIGHTS........................................................................ 75
Percentage of Voting Stock; Influence over Affairs...................................................... 75
Existence of Senior Preferred Stock..................................................................... 75
Anti-takeover Protections............................................................................... 75
PROPOSAL 2: ELECTION OF GILEAD DIRECTORS.................................................................. 76
Nominees................................................................................................ 77
Board Committees and Meetings........................................................................... 78
Executive Officers...................................................................................... 79
PROPOSAL 3: APPROVAL OF THE GILEAD AMENDED 1991 STOCK OPTION PLAN......................................... 79
General................................................................................................. 80
Purpose................................................................................................. 80
Administration.......................................................................................... 81
Shares Subject to the 1991 Stock Option Plan............................................................ 81
Eligibility............................................................................................. 82
Term and Termination.................................................................................... 82
Exercise Price.......................................................................................... 82
Exercise Price and Payment.............................................................................. 82
Transferability......................................................................................... 83
Vesting................................................................................................. 83
Adjustments upon Changes in Stock....................................................................... 83
Amendment of the 1991 Stock Option Plan................................................................. 84
Termination or Suspension of the 1991 Stock Option Plan................................................. 84
Federal Income Tax Information.......................................................................... 84
PROPOSAL 4: APPROVAL OF THE GILEAD AMENDED EMPLOYEE STOCK PURCHASE PLAN................................... 86
Purpose................................................................................................. 86
Administration.......................................................................................... 87
Offerings............................................................................................... 87
Shares Subject to the Employee Stock Purchase Plan...................................................... 87
Eligibility............................................................................................. 87
Participation in the Plan............................................................................... 88
Purchase Price.......................................................................................... 88
Payment of Purchase Price; Payroll Deductions........................................................... 88
Purchase of Stock....................................................................................... 88
Withdrawal.............................................................................................. 88
Termination of Employment............................................................................... 89
Restrictions on Transfer................................................................................ 89
Duration, Amendment and Termination..................................................................... 89
Adjustments upon Changes in Stock....................................................................... 89
Federal Income Tax Information.......................................................................... 89
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROPOSAL 5: APPROVAL OF THE GILEAD AMENDED 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN................. 90
General................................................................................................. 91
Purpose................................................................................................. 91
Administration.......................................................................................... 91
Shares Subject to the Directors' Option Plan............................................................ 91
Eligibility............................................................................................. 91
Terms of Options........................................................................................ 92
Exercise Price and Consideration........................................................................ 92
Adjustments upon Changes in Stock....................................................................... 92
Duration, Amendment and Termination..................................................................... 93
Federal Income Tax Information.......................................................................... 93
PROPOSAL 6: APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF GILEAD............... 94
PROPOSAL 7: RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS OF GILEAD............................... 95
OTHER INFORMATION REGARDING GILEAD........................................................................ 95
Security Ownership of Certain Beneficial Owners and Management.......................................... 95
Executive Compensation.................................................................................. 98
Summary of Compensation................................................................................. 99
Summary Compensation Table.............................................................................. 99
Option Grants in Last Fiscal Year....................................................................... 100
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values....................... 101
Compensation Committee Report........................................................................... 101
Performance Measurement Comparison...................................................................... 103
Certain Transactions.................................................................................... 104
Other Matters........................................................................................... 104
EXPERTS................................................................................................... 104
LEGAL MATTERS............................................................................................. 105
WHERE YOU CAN FIND MORE INFORMATION....................................................................... 105
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 105
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................................................... 106
TRADEMARKS................................................................................................ 107
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................................... 108
Appendix A--Agreement and Plan of Merger by and among Gilead Sciences, Inc., Gazelle Acquisition Sub, Inc.
and NeXstar Pharmaceuticals, Inc. dated as of February 28, 1999
Appendix B--Share Option Agreement between NeXstar Pharmaceuticals, Inc. and Gilead Sciences, Inc. dated
as of February 28, 1999
Appendix C-1--Opinion of J.P. Morgan Securities Inc.
Appendix C-2--Opinion of Morgan Stanley & Co. Incorporated
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: AS A NEXSTAR STOCKHOLDER, WHAT WILL I RECEIVE IN THE MERGER (PAGE 58)?
A: As a NeXstar stockholder, you will receive a fraction of a share of
Gilead common stock in exchange for each share of NeXstar common stock that
you own. This fraction will be determined based upon the average of the
closing prices of Gilead common stock for 20 trading days ending on the day
that is three trading days prior to the day that you vote on the merger.
If this average closing price is between $36.47 and $45.88, for each
share of NeXstar common stock you will receive 0.4250 of a share of Gilead
common stock. If this average closing price is below $36.47 but greater than
$31.00, for each share of NeXstar common stock you will receive a fraction
of a share of Gilead common stock equal to $15.50 divided by that average
closing price. If this average closing price is above $45.88 but less than
$51.50, for each share of NeXstar common stock you will receive a fraction
of a share of Gilead common stock equal to $19.50 divided by that average
closing price. If this average closing price is less than $31.00, for each
share of NeXstar common stock you will receive 0.5000 of a share of Gilead
common stock. If this average closing price is greater than $51.50, for each
share of NeXstar common stock you will receive 0.3786 of a share of Gilead
common stock.
Gilead has established a toll free telephone number that you may call at
any time commencing on or soon after the close of trading on July 26, 1999
and prior to the day you vote on the merger that will tell you the fraction
of a share of Gilead common stock you will receive for each share of NeXstar
common stock in the merger. This number is 1-800-207-3158. See page 59 for a
table showing the fraction of a share of Gilead common stock that you would
receive for each share of NeXstar common stock you own based upon a range of
average 20 trading day closing prices of Gilead common stock.
Gilead will not issue fractional shares but will instead pay you cash
for those shares. Each share of Gilead common stock issued in the merger
will include a preferred share purchase right in accordance with Gilead's
rights agreement. See "Comparison of Stockholders' Rights--Anti-takeover
Protections."
Q: IF I HAVE OPTIONS OR WARRANTS TO PURCHASE NEXSTAR COMMON STOCK, WHAT WILL I
RECEIVE IN THE MERGER?
A: Each option and warrant to purchase NeXstar common stock will become an
option or warrant to purchase Gilead common stock. For each share of NeXstar
common stock subject to an option or a warrant, you will be entitled to
purchase the same fraction of a share of Gilead common stock that the holder
of a share of NeXstar common stock receives in the merger (as described
above) at an adjusted exercise price. The adjusted exercise price is
calculated by dividing the original exercise price by the same fraction used
to determine the number of shares of Gilead common stock that the holder of
a share of NeXstar common stock receives in the merger. For example, if you
have an option or warrant to purchase 1,000 shares of NeXstar common stock
at an exercise price of $12.00 and each share of NeXstar common stock
becomes exchangeable for 0.4250 of a share of Gilead common stock, after the
merger you will have an option or a warrant to purchase 425 shares of Gilead
common stock at an exercise price of $28.23 per share.
Q: IF I HAVE A NEXSTAR CONVERTIBLE DEBENTURE, WHAT WILL I RECEIVE IN THE MERGER?
A: After the merger, your 6 1/4% convertible subordinated debentures will
remain an obligation of NeXstar which will be a wholly owned subsidiary of
Gilead, but will be convertible into shares of Gilead common stock. The
number of shares of Gilead common stock that your debenture will convert
1
<PAGE>
into after the merger will be equal to the number of shares of NeXstar
common stock that you could have converted your debenture into immediately
before the merger multiplied by the same fraction used to determine the
number of shares of Gilead common stock that the holder of a share of
NeXstar common stock receives in the merger. The conversion price of your
debenture after the merger for each share of Gilead common stock will be
$16.875 divided by that fraction.
Within 15 days of the closing of the merger, NeXstar, which will be a
wholly owned subsidiary of Gilead, will notify you of the closing of the
merger. You will then have the right, exercisable for 30 days after NeXstar
gives that notice, to elect to have NeXstar repurchase your debenture for a
price equal to 100% of the principal amount of the debentures you hold plus
accrued and unpaid interest on the day that the debentures are repurchased.
As of June 22, 1999, the aggregate principal amount on all outstanding
debentures was approximately $80 million and the aggregate amount of unpaid
interest accrued on all of the outstanding debentures was $1,972,000.
Q: AS A GILEAD STOCKHOLDER, WILL I RECEIVE ADDITIONAL SHARES OF GILEAD COMMON
STOCK IN THE MERGER?
A: No. You will continue to hold the same number of shares of Gilead stock
after the merger. Shares of Gilead common stock will be issued in the merger
only to the NeXstar stockholders.
Q: WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS OF THE MERGER?
A: We intend the merger to be treated as a tax-free reorganization for
federal income tax purposes. Generally, NeXstar stockholders will not
recognize gain or loss on the exchange of their stock, except on cash
received instead of a fractional share. Gilead stockholders will not
recognize any gain or loss in connection with the merger. Tax matters,
however, are very complicated, and the tax consequences of the merger to you
will depend on the facts of your particular situation. We encourage you to
contact your tax advisors to determine the tax consequences of the merger to
you. See "Material Federal Income Tax Consequences" (page 52).
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES
FOR ME?
A: Your broker will vote your shares on matters related to the merger only
if you provide instructions on how to vote. You should instruct your broker
to vote your shares according to your directions. Without instructions, your
broker will not vote your shares.
Q: IF I AM NOT GOING TO ATTEND MY STOCKHOLDER MEETING, SHOULD I RETURN MY PROXY
CARD INSTEAD?
A: Yes. Please fill out and sign your proxy card and mail it to us in the
enclosed return envelope as soon as possible. Returning your proxy card
ensures that your shares will be represented at your meeting. Signed proxies
will be voted in favor of each proposal, unless otherwise indicated.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later dated, signed proxy card to your company's corporate
secretary before your meeting or attend your meeting in person and vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send NeXstar stockholders
written instructions for exchanging their stock certificates. Gilead
stockholders do not need to exchange their certificates.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred to you. See "Where You Can Find More Information" (page 105). We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES
GILEAD SCIENCES, INC.
333 Lakeside Drive
Foster City, CA 94404
Telephone: (650) 574-3000
Gilead is a biopharmaceutical company. Gilead discovers, develops and
markets proprietary drugs to treat life-threatening and other serious viral
diseases.
NEXSTAR PHARMACEUTICALS, INC.
2860 Wilderness Place
Boulder, Colorado 80301
Telephone: (303) 444-5893
NeXstar is a biopharmaceutical company. NeXstar discovers, develops,
manufactures and markets proprietary drugs to treat life-threatening and other
serious cancers, and immunological, blood-related and infectious diseases.
OUR REASONS FOR THE MERGER (PAGES 37 AND 39)
The Gilead board of directors believes that the merger may provide a number
of benefits to Gilead and its stockholders by resulting in a combined company
with:
- worldwide commercial capabilities;
- a significant infectious disease and oncology franchise; and
- extensive strategic and financial benefits.
The NeXstar board of directors believes that the merger may provide a number
of benefits to NeXstar and its stockholders by resulting in a combined company
with:
- substantially greater resources than NeXstar as a stand-alone company;
- an enhanced product development pipeline; and
- greater market capitalization and liquidity for NeXstar's stockholders.
OUR RECOMMENDATIONS TO OUR STOCKHOLDERS (PAGES 27 AND 30)
TO THE GILEAD STOCKHOLDERS:
The Gilead board of directors believes that the merger is fair to, and is in
the best interests of, both you and Gilead. The Gilead board of directors
unanimously recommends that you vote "for" the proposal to approve the issuance
of shares of Gilead common stock in the merger.
The Gilead board of directors also unanimously recommends a vote for the
election of the nominated directors, the increase in the aggregate number of
shares under the 1991 Stock Option Plan, the Employee Stock Purchase Plan and
the 1995 Non-Employee Directors' Stock Option Plan, the amendment to Gilead's
restated certificate of incorporation to increase the authorized common stock
and the ratification of the selection of the independent auditors.
TO THE NEXSTAR STOCKHOLDERS:
The NeXstar board of directors believes that the merger is fair to you and
is in your best interests. The NeXstar board of directors unanimously recommends
that you vote "for" the proposal to approve and adopt the merger agreement and
approve the merger.
SHARE OPTION AGREEMENT (PAGE 56)
NeXstar has granted to Gilead an option to purchase from NeXstar up to 19.9%
of NeXstar's outstanding shares of common stock for a price of $17.48 per share.
The option will become exercisable upon the occurrence of certain events.
3
<PAGE>
OPINIONS OF FINANCIAL ADVISORS (PAGES 41 AND 47)
In deciding to approve the merger, each board of directors considered the
opinion of its financial advisor. Gilead's board of directors received an
opinion from Gilead's financial advisor, J.P. Morgan Securities Inc., that the
consideration to be paid by Gilead in the merger was fair to Gilead from a
financial point of view. NeXstar's board of directors received an opinion from
NeXstar's financial advisor, Morgan Stanley & Co. Incorporated, that the
consideration to be received by the holders of NeXstar common stock in the
merger was fair from a financial point of view. These opinions are attached as
Appendices C-1 and C-2 to this document. We encourage you to read these opinions
carefully.
The financial advisors performed several analyses in connection with
delivering their opinions. These analyses included comparing historical stock
prices of Gilead and NeXstar, comparing the merger to other mergers of other
publicly traded companies and estimating the relative values and contributions
of Gilead and NeXstar to the combined company based on past and estimated future
performance.
VOTE REQUIRED AT GILEAD ANNUAL MEETING (PAGE 29)
The affirmative vote of the holders of a majority of shares of Gilead common
stock and series B preferred stock, voting together as a single class, present
in person or represented by proxy and entitled to vote at the Gilead annual
meeting is necessary:
- to approve the issuance of shares of Gilead common stock in the merger;
- to approve the increases in the aggregate numbers of shares of Gilead
common stock authorized for issuance under the 1991 Stock Option Plan, the
Employee Stock Purchase Plan and the 1995 Non-Employee Directors' Stock
Option Plan; and
- to ratify the selection of independent auditors.
The affirmative vote of the holders of a majority of the outstanding shares
of Gilead common stock and series B preferred stock, voting together as a single
class, is necessary to amend the restated certificate of incorporation to
increase the authorized shares of Gilead common stock.
Directors will be elected by a plurality of the votes cast by the holders of
Gilead common stock and series B preferred stock present in person or
represented by proxy and entitled to vote at the Gilead annual meeting.
VOTE REQUIRED AT NEXSTAR SPECIAL MEETING (PAGE 31)
The affirmative vote of the holders of a majority of the outstanding shares
of NeXstar common stock as of June 22, 1999, the "NeXstar record date," is
necessary to approve and adopt the merger agreement and approve the merger.
VOTING BY PROXY (PAGES 28 AND 30)
You may vote on each proposal by indicating on your proxy card how you want
to vote, and signing and mailing it in the enclosed return envelope. Please
return your proxy card as soon as possible so that your shares may be
represented at your stockholder meeting. If you sign and send in your proxy card
and do not indicate how you wish to vote, your proxy will be counted as a vote
in favor of each of the proposals. If you are a NeXstar stockholder and you do
not vote, or you abstain from voting, it will have the effect of a vote against
the merger.
VOTING AGREEMENTS (PAGE 55)
The directors of NeXstar in their capacities as stockholders and certain
other stockholders of NeXstar, who collectively hold approximately 30.6% of the
outstanding NeXstar common stock, have entered into voting agreements requiring
these stockholders to vote their shares of NeXstar common stock in favor of the
proposal to approve and adopt the merger agreement and approve the merger. If,
however, the average of the closing prices of Gilead common stock for 20 trading
days ending on the day that is three trading days prior to the day that the
NeXstar stockholders vote on the merger is less
4
<PAGE>
than $27.00, the voting agreements may be terminated.
RECORD DATES; VOTING POWER (PAGES 27 AND 30)
You are entitled to vote at the Gilead annual meeting if you own shares of
Gilead as of the close of business on June 11, 1999, and you are entitled to
vote at the NeXstar special meeting if you own shares of NeXstar as of the close
of business on June 22, 1999.
At the close of business on the Gilead record date, 31,057,084 shares of
Gilead common stock and 1,133,786 shares of Gilead series B preferred stock were
outstanding and entitled to vote at the Gilead annual meeting. You will have one
vote at the Gilead annual meeting for each share of Gilead common stock you own
as of the Gilead record date and one vote for each share of Gilead series B
preferred stock you own as of the Gilead record date. The common stock and the
series B preferred stock will vote together as a single class.
At the close of business on the NeXstar record date, 29,340,723 shares of
NeXstar common stock were outstanding and entitled to vote at the NeXstar
special meeting. You will have one vote at the NeXstar special meeting for each
share of NeXstar common stock you own as of the NeXstar record date.
SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES
As of the Gilead record date, the directors and executive officers of
Gilead, as a group, beneficially owned approximately 4.0% of Gilead voting
stock.
As of the NeXstar record date, the directors and executive officers of
NeXstar, as a group, beneficially owned approximately 32.1% of NeXstar common
stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 51)
You should note that a number of directors and executive officers of NeXstar
have interests in the merger as employees and/or directors that are different
from, or in addition to, the interests of a NeXstar stockholder. Certain
indemnification arrangements for directors and officers of NeXstar will be
continued. In addition, NeXstar has entered into severance agreements with
certain of its executive officers.
OWNERSHIP OF GILEAD FOLLOWING THE MERGER (PAGE 61)
Depending on the average of the closing prices of Gilead common stock for 20
trading days ending on the day that is three trading days prior to the day that
the NeXstar stockholders vote on the merger, we anticipate that NeXstar
stockholders collectively will receive between approximately 11,110,000 to
14,670,000 shares of Gilead common stock in the merger based on the number of
shares of NeXstar common stock outstanding on June 22, 1999.
Based on those numbers, and based on the number of shares of Gilead voting
stock outstanding as of June 22, 1999, existing NeXstar stockholders will own
between 26.3% and 32.1% of the Gilead voting stock outstanding immediately after
the merger. See page 61 for a table showing the approximate number of shares of
Gilead common stock that NeXstar stockholders would receive in the merger and
the percentage of Gilead voting stock they would own immediately after the
merger based upon a range of average closing prices of Gilead common stock over
20 trading days.
QUOTATION OF GILEAD STOCK
It is a condition to the merger that the Gilead common stock to be issued in
connection with the merger be approved for quotation on the Nasdaq National
Market, subject to official notice of issuance. If we complete the merger,
stockholders will then be able to trade the shares of Gilead common stock they
receive in the merger on the Nasdaq National Market. In addition, NeXstar stock
will no longer be quoted on the Nasdaq National Market or any other exchange.
THE MERGER AGREEMENT (PAGE 58)
The merger agreement is attached as Appendix A to this document. We
encourage
5
<PAGE>
you to read the merger agreement. It is the legal document governing the merger.
WHEN THE MERGER WILL OCCUR
The merger will take place on a date agreed to by Gilead and NeXstar. This
date will be no later than the fifth business day after all of the conditions to
closing contained in the merger agreement have been satisfied or waived.
Assuming that all of the conditions in the merger agreement are satisfied or
waived, we anticipate that the merger will occur on or shortly after July 29,
1999. After the completion of the merger, the combined company will operate on
an integrated basis.
CONDITIONS TO THE MERGER (PAGE 62)
We will complete the merger only if we satisfy or waive several conditions,
including the following:
- holders of a majority of the outstanding shares of NeXstar common stock
approve and adopt the merger agreement and approve the merger;
- holders of a majority of shares of Gilead stock present in person or
represented by proxy and entitled to vote at the Gilead annual meeting
approve the issuance of Gilead common stock in the merger;
- all material consents required to be obtained from any government entity
or other person or entity are obtained;
- no court or government entity issues a permanent or preliminary order or
injunction which restrains or prohibits the consummation of the merger;
- no litigation or similar action is pending or threatened by a government
entity:
-- seeking to restrain or prohibit the consummation of the merger,
-- relating to the merger and seeking damages from Gilead or NeXstar
that would be material to Gilead, or
-- seeking to prohibit or limit Gilead's ability to exercise its
ownership of NeXstar after the merger;
- each party's representations and warranties contained in the merger
agreement continue to be accurate except where the inaccuracies would not
have a material adverse effect on the value of that party;
- each party has complied with its respective covenants contained in the
merger agreement in all material respects;
- no material adverse change has occurred with respect to NeXstar or Gilead;
- NeXstar's counsel and Gilead's counsel deliver opinions regarding certain
federal income tax consequences of the merger; and
- Gilead's independent auditors deliver a letter stating their concurrence
with Gilead management's conclusion as to the appropriateness of
pooling-of-interests accounting treatment for the merger.
TERMINATION OF THE MERGER AGREEMENT BY NEXSTAR AND GILEAD (PAGE 70)
Both companies can mutually agree to terminate the merger agreement at any
time without completing the merger.
Subject to certain exceptions, either company can terminate the merger
agreement if:
- the merger is not completed by September 30, 1999;
- a government entity or legal action permanently prohibits the merger;
- the Gilead stockholders do not approve the issuance of Gilead common stock
to NeXstar stockholders in the merger; or
- the other party breaches any of its representations, warranties or
obligations under the merger agreement, resulting in the inability to
satisfy a condition to the completion of the merger.
6
<PAGE>
TERMINATION OF THE MERGER AGREEMENT BY GILEAD (PAGE 71)
Gilead can also terminate the merger agreement if:
- the NeXstar stockholders do not approve the merger or do not adopt and
approve the merger agreement;
- the special meeting of NeXstar stockholders is canceled or otherwise not
held, or if a final vote is not taken by the NeXstar stockholders prior to
September 15, 1999;
- the board of directors of NeXstar withdraws or modifies, in a manner
adverse to Gilead, its approval and recommendation to the NeXstar
stockholders of the merger agreement or the merger;
- the board of directors of NeXstar approves or fails to recommend rejection
of an alternative transaction to the merger;
- a person or group of persons acquires or becomes, after February 28, 1999,
the beneficial owner of 20% or more of the common stock of NeXstar; or
- a person or group of persons that was, as of February 28, 1999, the
beneficial owners of 20% or more of the common stock of NeXstar, acquires
an additional 5% of the common stock of NeXstar.
EXPENSES AND TERMINATION FEES (PAGE 72)
Each party will pay its own fees and expenses in connection with the merger,
whether or not the merger is completed, except that:
- the parties will share equally all fees and expenses, other than
attorneys' fees, in connection with the printing and filing of this joint
proxy statement/prospectus and the registration statement of which this
joint proxy statement/prospectus is a part and fees associated with
certain antitrust filings; and
- under certain circumstances, the terminating party will be reimbursed by
the other party for its out-of-pocket expenses incurred in connection with
the merger.
If Gilead terminates the merger agreement for any of the reasons set forth
above under the caption "Termination Of The Merger Agreement by Gilead," NeXstar
must pay to Gilead the sum of $18.0 million. However, in the case of the failure
of NeXstar's stockholders to approve the merger or adopt and approve the merger
agreement, this fee would not be payable unless an alternative transaction had
been announced or submitted.
If NeXstar terminates the merger agreement as a result of the failure of the
Gilead stockholders to approve the issuance of Gilead common stock to NeXstar
stockholders in the merger, Gilead must pay to NeXstar the sum of $5.0 million,
so long as a material adverse change to NeXstar has not occurred and no
circumstances that are likely to result in such a material adverse change have
been publicly announced.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 54)
We expect the merger will be accounted for as a pooling of interests. This
means that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes.
REGULATORY REQUIREMENTS (PAGE 54)
We are prohibited by U.S. antitrust laws from completing the merger until we
have furnished certain information and materials to the Antitrust Division of
the Department of Justice and the Federal Trade Commission and a required
waiting period has ended. Gilead and NeXstar each filed the required
notification and report forms with the Antitrust Division and the Federal Trade
Commission, and Gilead received notice of early termination of the waiting
period. Even though the waiting period has terminated, the Antitrust Division
and the Federal Trade Commission continue to have the authority to challenge the
merger on antitrust grounds before or after the merger is completed.
NO APPRAISAL RIGHTS (PAGE 55)
Gilead and NeXstar are organized under Delaware law. Under Delaware law, the
stockholders of Gilead and NeXstar are not entitled
7
<PAGE>
to appraisal rights in connection with the merger.
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE
Both companies have made forward-looking statements in this document and 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
Gilead, NeXstar 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 the merger and an investment in securities of Gilead
involve risks and uncertainties that could affect the future financial results
of Gilead. Some of these risks include:
- risks associated with the exchange ratio;
- risks relating to the respective businesses of Gilead and NeXstar;
- risks related to the integration of Gilead and NeXstar; and
- other risks and uncertainties discussed under "Risk Factors" and elsewhere
in this document and in the documents Gilead and NeXstar incorporate by
reference.
8
<PAGE>
MARKETS AND MARKET PRICES
Gilead common stock is quoted on the Nasdaq National Market under the symbol
"GILD." NeXstar common stock is quoted on the Nasdaq National Market under the
symbol "NXTR." Following the completion of the merger, NeXstar common stock will
no longer be quoted on Nasdaq or any exchange.
As of June 11, 1999, there were approximately 460 holders of record of
Gilead common stock and 31,057,084 shares of common stock outstanding. NeXstar
had approximately 376 holders of record as of June 22, 1999 and 29,340,723
shares of common stock outstanding.
The following table sets forth the closing sale price per share of Gilead
and NeXstar common stock as reported on Nasdaq and the equivalent per share
price, as explained below, of NeXstar common stock on February 26, 1999, the
last trading day before the announcement of the merger, and on June 22, 1999.
<TABLE>
<CAPTION>
GILEAD COMMON NEXSTAR COMMON EQUIVALENT NEXSTAR
STOCK PRICE STOCK PRICE PER SHARE PRICE
------------------- -------------------- -----------------------
<S> <C> <C> <C>
February 26, 1999............................ $ 41.25000 $ 13.813 $ 17.53(1)(3)
June 22, 1999................................ $ 50.03125 $ 18.625 $ 19.50(2)(3)
</TABLE>
- ------------------------
(1) The equivalent NeXstar per share price represents 0.4250 of the price of one
share of Gilead common stock.
(2) The equivalent NeXstar per share price represents 0.3898 of the price of one
share of Gilead common stock.
(3) The actual exchange ratio may be different as described under the caption
"Merger Consideration" on page 58. The actual prices of Gilead common stock
and NeXstar common stock, and the equivalent NeXstar per share price prior
to or at the time the merger is completed, cannot be guaranteed or
predicted.
The table below sets forth the high and low closing sale prices per share of
Gilead and NeXstar common stock for the periods indicated, which indicates how
each company's stock price has fluctuated over the quarterly and annual periods
covered. For current price information with respect to Gilead and NeXstar common
stock, stockholders are urged to consult publicly available sources. No
assurance can be given as to future prices of, or markets for, Gilead and
NeXstar common stock. Gilead and NeXstar have never declared or paid any cash
dividends on their common stock and do not anticipate declaring or paying any
dividends in the foreseeable future. Certain of NeXstar's bank and building
improvement and equipment lease facilities require NeXstar to maintain financial
ratios and levels of cash and/or stockholders' equity which may have the effect
of limiting NeXstar's ability to pay dividends.
<TABLE>
<CAPTION>
GILEAD NEXSTAR
COMMON STOCK COMMON STOCK
------------------- ---------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
-------- ------- -------- ---------
Year Ended December 31, 1996
First Quarter.................................... $41 7/8 $26 3/4 $26 3/4 $15 1/2
Second Quarter................................... 39 21 3/4 25 1/2 16 3/4
Third Quarter.................................... 29 3/4 17 1/4 22 3/4 16 3/8
Fourth Quarter................................... 28 3/4 21 1/2 21 13 1/16
Year Ended December 31, 1997
First Quarter.................................... 34 1/4 22 7/8 17 3/4 10
Second Quarter................................... 32 1/8 21 5/8 15 1/4 9 3/8
Third Quarter.................................... 46 1/8 24 1/4 18 1/2 12 1/2
Fourth Quarter................................... 44 7/8 32 3/4 18 1/2 10 5/16
Year Ended December 31, 1998
First Quarter.................................... 42 35 5/8 12 3/8 10
Second Quarter................................... 43 1/4 31 5/8 12 3/8 9 1/2
Third Quarter.................................... 30 3/8 18 1/4 11 3/16 6 1/2
Fourth Quarter................................... 41 1/16 18 3/4 11 3/8 7 11/16
Year Ending December 31, 1999
First Quarter.................................... 56 3/4 35 3/4 20 3/4 8 13/16
Second Quarter (through 6/22/99)................. 51 36 1/16 19 1/4 14 3/8
</TABLE>
9
<PAGE>
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION OF GILEAD
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial information of Gilead is provided to aid
you in your analysis of the financial aspects of the merger. We derived this
information from audited financial statements for the year ended March 31, 1995
through the year ended December 31, 1998 and unaudited financial statements for
the three months ended March 31, 1998 and 1999. This information is only a
summary, and you should read it in conjunction with Gilead's historical
financial statements and related notes and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the annual
reports, quarterly reports and other information on file with the Securities and
Exchange Commission. See "Where You Can Find More Information" on page 105.
<TABLE>
<CAPTION>
NINE MONTHS
THREE MONTHS ENDED ENDED
MARCH 31, YEAR ENDED DECEMBER 31, DECEMBER YEAR ENDED
CONSOLIDATED STATEMENT -------------------- ------------------------------- 31, MARCH 31,
OF OPERATIONS DATA: 1999 1998 1998 1997 1996 1995 (1) 1995
- -------------------------- --------- --------- --------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales, net...... $ 1,445 $ 1,795 $ 6,074 $ 11,735 $ 8,477 $ -- $ --
Contract revenue........ 2,941 11,407 24,198 27,413 24,910 2,685 4,922
Royalty revenue, net.... 551 358 2,298 889 33 14 --
--------- --------- --------- --------- --------- ----------- -----------
Total revenues............ 4,937 13,560 32,570 40,037 33,420 2,699 4,922
--------- --------- --------- --------- --------- ----------- -----------
Costs and expenses:
Cost of sales........... 134 230 594 1,167 910 -- --
Research and
development........... 15,786 18,930 75,298 59,162 41,881 25,670 30,360
Selling, general and
administrative........ 8,367 6,742 31,003 25,472 26,692 9,036 9,669
--------- --------- --------- --------- --------- ----------- -----------
Total costs and
expenses................ 24,287 25,902 106,895 85,801 69,483 34,706 40,029
--------- --------- --------- --------- --------- ----------- -----------
Loss from operations...... (19,350) (12,342) (74,325) (45,764) (36,063) (32,007) (35,107)
Interest income, net...... 3,563 4,958 18,250 17,771 14,331 4,592 3,833
--------- --------- --------- --------- --------- ----------- -----------
Net loss.................. $ (15,787) $ (7,384) $ (56,075) $ (27,993) $ (21,732) $ (27,415) $ (31,274)
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Basic and diluted loss per
common share............ $ (0.51) $ (0.25) $ (1.85) $ (0.95) $ (0.78) $ (1.29) $ (1.65)
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Common shares used to
calculate basic and
diluted loss per common
share................... 30,864 30,103 30,363 29,326 27,786 21,274 18,971
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------------------- MARCH 31,
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995 (1) 1995
- --------------------------------- ----------- ----------- --------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-
term investments............... $ 263,930 $ 279,939 $ 322,298 $ 295,963 $ 155,659 $ 89,146
Working capital.................. 242,735 256,560 306,867 284,154 145,539 80,190
Total assets..................... 288,619 302,860 352,069 310,673 166,659 102,395
Non-current portion of long-term
debt........................... 375 563 1,331 2,914 3,482 5,454
Accumulated deficit.............. (234,341) (218,554) (162,479) (134,486) (112,754) (85,339)
Total stockholders' equity (2)... 258,936 270,547 317,347 291,660 151,499 86,056
</TABLE>
- --------------------------
(1) In October 1995, Gilead changed its fiscal year end from March 31 to
December 31, effective with the nine months ended December 31, 1995.
(2) No dividends have been declared or paid on Gilead's common stock.
10
<PAGE>
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION OF NEXSTAR
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial information of NeXstar is provided to aid your
analysis of the financial aspects of the merger. We derived this information
from audited financial statements for 1994 through 1998 and unaudited financial
statements for the three months ended March 31, 1998 and 1999. The following
information gives retroactive effect to the merger of NeXagen, Inc. and Vestar,
Inc. on February 21, 1995, which had been accounted for as a pooling of
interests, and includes the acquisition of Supragen, Inc., a research-oriented
biotechnology company, on September 8, 1995, which had been accounted for using
the purchase method of accounting. This information is only a summary, and you
should read it in conjunction with NeXstar's historical financial statements and
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the annual reports, quarterly reports and
other information on file with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 105.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
CONSOLIDATED STATEMENT -------------------- -----------------------------------------------------
OF OPERATIONS DATA: 1999 1998 1998 1997 1996 1995 1994
- --------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Product revenues..................... $ 30,603 $ 23,517 $ 108,102 $ 89,152 $ 80,153 $ 57,770 $ 43,967
License fees......................... -- 3,000 3,000 10 7,000 -- --
Royalties............................ 1,537 686 5,007 671 -- -- --
Collaborative agreements and
contracts.......................... 1,199 750 2,440 2,388 1,548 2,920 4,054
--------- --------- --------- --------- --------- --------- ---------
Total revenues......................... 33,339 27,953 118,549 92,221 88,701 60,690 48,021
Costs and expenses:
Cost of goods sold................... 6,528 4,840 21,331 19,787 18,320 13,246 8,091
Research and development............. 9,812 13,310 52,475 53,015 47,760 37,356 31,595
Selling, general and
administrative..................... 13,831 10,760 49,460 45,033 42,933 35,300 22,108
Litigation settlement and related
expenses........................... 479 396 1,267 16,031 2,006 -- --
Purchased research and development... -- -- -- -- -- 11,824 --
Retirement agreement expense......... -- -- -- -- -- -- 4,097
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses............... 30,650 29,306 124,533 133,866 111,019 97,726 65,891
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................ 2,689 (1,353) (5,984) (41,645) (22,318) (37,036) (17,870)
Gain on sale of a majority interest in
a subsidiary......................... -- -- 22,132 -- -- -- --
Interest income........................ 851 730 3,323 2,446 1,821 1,736 2,409
Interest expense....................... (1,543) (1,695) (6,591) (4,389) (1,558) (1,148) (587)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes and equity in loss of
unconsolidated affiliate............. 1,997 (2,318) 12,880 (43,588) (22,055) (36,448) (16,048)
Provision for income taxes............. 73 263 859 322 926 183 159
Equity in loss of unconsolidated
affiliate............................ (1,613) -- (1,101) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ 311 $ (2,581) $ 10,920 $ (43,910) $ (22,981) $ (36,631) $ (16,207)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share:
Basic.................................. $ 0.01 $ (0.09) $ 0.39 $ (1.65) $ (0.88) $ (1.57) $ (0.71)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted................................ $ 0.01 $ (0.09) $ 0.38 $ (1.65) $ (0.88) $ (1.57) $ (0.71)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing net income
(loss) per share:
Basic.................................. 28,768 27,467 28,135 26,692 26,029 23,374 22,825
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted................................ 29,243 27,467 28,403 26,692 26,029 23,374 22,825
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
11
<PAGE>
SUMMARY OF SELECTED HISTORICAL FINANCIAL INFORMATION OF NEXSTAR (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995 1994
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash and cash equivalents and
marketable securities............ $ 76,965 $ 68,749 $ 64,289 $ 41,965 $ 26,734 $ 40,284
Working capital.................... 112,893 102,995 89,943 48,199 35,029 44,099
Total assets....................... 193,934 190,130 170,543 144,500 112,449 126,927
Accrued litigation settlement
expenses due after one year...... 7,607 7,848 8,767 -- -- --
Long-term obligations.............. 7,414 8,320 8,327 15,206 9,848 10,500
Convertible subordinated
debentures....................... 80,000 80,000 80,000 -- -- --
Accumulated deficit................ (158,655) (158,966) (169,886) (125,976) (102,995) (66,364)
Total stockholders' equity......... 74,047 68,378 46,002 87,622 81,164 97,374
</TABLE>
12
<PAGE>
GILEAD SCIENCES, INC. AND NEXSTAR PHARMACEUTICALS, INC.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
We expect that the merger will be acccounted for as a pooling of interests,
which means that for accounting and financial reporting purposes, we will treat
our companies as if they had always been combined.
We have presented below unaudited pro forma combined financial information
that reflects the pooling-of-interests method of accounting. We have included
this information to give you a better picture of what the results of operations
and financial position of the combined businesses of Gilead and NeXstar might
have been had the merger occurred on an earlier date. The unaudited pro forma
combined statement of operations data combine information from the historical
consolidated statements of operations of Gilead and the historical consolidated
statements of operations of NeXstar and presents that information as if we had
completed the merger on January 1, 1996. The unaudited pro forma combined
balance sheet data combine information from the historical consolidated balance
sheet of Gilead and the historical consolidated balance sheet of NeXstar and
presents that information as if we had completed the merger on March 31, 1999.
We are providing this information for illustrative purposes only. It does
not necessarily reflect what the results of operations or financial position of
the combined company would have been if the merger had actually occurred at the
beginning of the earliest period presented. This information also does not
necessarily indicate what the combined company's future operating results or
consolidated financial position will be. This information does not reflect the
effect of any potential changes in revenues or any operating efficiencies which
may result from combining the resources of our companies.
As a result of the merger, Gilead anticipates that a pre-tax charge of
approximately $13 million for direct merger-related transaction costs,
consisting primarily of professional and registration fees, will be incurred.
Gilead and NeXstar will each record its share of such costs as an expense when
incurred. The pro forma combined balance sheet data give effect to these
expenses as if they had been incurred at March 31, 1999. These charges are not
reflected in the pro forma combined statement of operations data or the
comparative per share data.
In addition, the merged companies are expected to incur certain costs in
connection with integrating the operations of Gilead and NeXstar. Integration
plans will not be completed until after the merger is consummated. However,
Gilead expects to recognize, in accordance with EITF 94-3, a pre-tax charge
currently estimated to be in the range of $5 million to $10 million in the
quarter in which the merger is consummated. The estimate takes into effect: 1)
contractually obligated retention bonuses and severance packages which are
required to be paid upon change of control, 2) potential redundancy in staffing
that may exist between the two organizations and 3) the net book value of
duplicate major business systems. No provisions were included in these costs for
the writing down of any of the combined company's other assets. This charge is
not reflected in the pro forma financial information.
Net loss and loss per share-diluted for the year ended December 31, 1998
includes a $22.1 million gain (or pro forma $0.52 per basic and diluted share
based upon an exchange ratio of 0.4250) NeXstar realized on the sale of its 51%
interest in its newly established subsidiary, Proligo L.L.C., to SKW Americas,
Inc., in August 1998. The pro forma net loss excluding the gain would have been
$67.3 million (or pro forma $1.59 per basic and diluted share based upon an
exchange ratio of 0.4250).
Please see "Unaudited Pro Forma Condensed Combined Financial Statements" on
pages 108 through 116 for a more detailed explanation of this analysis.
13
<PAGE>
GILEAD SCIENCES, INC. AND NEXSTAR PHARMACEUTICALS, INC.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
PRO FORMA COMBINED STATEMENT OF OPERATIONS -------------------- -------------------------------
DATA: 1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues............................. $ 38,276 $ 41,513 $ 151,119 $ 132,258 $ 122,121
Net loss................................... $ (15,476) $ (9,965) $ (45,155) $ (71,903) $ (44,713)
Net loss per share--basic and diluted at
0.4250 exchange ratio.................... $ (0.36) $ (0.24) $ (1.07) $ (1.77) $ (1.15)
Weighted average shares and assumed
conversions--basic and diluted at 0.4250
exchange ratio........................... 43,090 41,776 42,434 40,670 38,848
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
PRO FORMA COMBINED BALANCE SHEET DATA: 1999
-----------
<S> <C>
Cash, cash equivalents and short-term investments............................. $ 340,895
Working capital............................................................... 342,628
Total assets.................................................................. 482,553
Non current portion of long-term obligations.................................. 95,396
Accumulated deficit........................................................... (405,996)
Total stockholders' equity.................................................... 319,983
Book value per share at 0.4250 exchange ratio................................. 7.18
</TABLE>
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COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth information on the earnings and book value
per common share for our respective companies on a historical and pro forma
combined basis and indicates the relative earnings and book value of the
companies for the periods covered.
Note that historical and pro forma book value per share is calculated by
dividing stockholders' equity at the end of the period by the number of
preferred and common shares outstanding at the end of the period. Pro forma
combined loss per NeXstar share-diluted and pro forma combined book value per
NeXstar share were calculated by multiplying the respective unaudited pro forma
combined loss and book value per Gilead share amounts by the stated exchange
ratio.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31 YEAR ENDED DECEMBER 31
-------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gilead historical
Net loss per share-diluted............................................. $ (0.51) $ (0.25) $ (1.85) $ (0.95) $ (0.78)
Book value per share................................................... $ 8.05 $ 8.50
NeXstar historical
Net income (loss) per share-diluted.................................... $ 0.01 $ (0.09) $ 0.38 $ (1.65) $ (0.88)
Book value per share................................................... $ 2.54 $ 2.39
Pro forma combined per Gilead share at 0.3786 exchange ratio
Net loss per share-diluted............................................. $ (0.37) $ (0.25) $ (1.10) $ (1.82) $ (1.19)
Book value per share................................................... $ 7.41 $ 7.63
Pro forma combined per Gilead share at 0.4250 exchange ratio
Net loss per share-diluted............................................. $ (0.36) $ (0.24) $ (1.07) $ (1.77) $ (1.15)
Book value per share................................................... $ 7.18 $ 7.40
Pro forma combined per Gilead share at 0.5000 exchange ratio
Net loss per share-diluted............................................. $ (0.34) $ (0.23) $ (1.02) $ (1.69) $ (1.10)
Book value per share................................................... $ 6.85 $ 7.06
Pro forma combined per NeXstar share at 0.3786 exchange ratio
Net loss per share-diluted............................................. $ (0.14) $ (0.09) $ (0.42) $ (0.69) $ (0.45)
Book value per share................................................... $ 2.80 $ 2.89
Pro forma combined per NeXstar share at 0.4250 exchange ratio
Net loss per share-diluted............................................. $ (0.15) $ (0.10) $ (0.45) $ (0.75) $ (0.49)
Book value per share................................................... $ 3.05 $ 3.15
Pro forma combined per NeXstar share at 0.5000 exchange ratio
Net loss per share-diluted............................................. $ (0.17) $ (0.11) $ (0.51) $ (0.85) $ (0.55)
Book value per share................................................... $ 3.42 $ 3.53
</TABLE>
The information set forth above is only a summary and you should read it in
conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements
on pages 109 through 117 and the respective financial statements of Gilead and
NeXstar. We incorporate the consolidated financial statements of Gilead and the
consolidated financial statements of NeXstar into this joint proxy statement/
prospectus by reference. See "Where You Can Find More Information" on page 106.
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<PAGE>
RISK FACTORS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS OF
THE COMBINED COMPANY MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. WHEN VOTING ON THE MERGER, YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW, ELSEWHERE IN THIS DOCUMENT, AND IN THE
DOCUMENTS WE INCORPORATE BY REFERENCE INTO THIS DOCUMENT.
RISKS RELATED TO THE MERGER
IF GILEAD AND NEXSTAR ARE NOT SUCCESSFULLY INTEGRATED, THE COMBINED COMPANY'S
BUSINESS WILL BE ADVERSELY AFFECTED.
Integrating Gilead and NeXstar will be a complex, time-consuming and
expensive process. Before the merger, Gilead and NeXstar operated independently,
each with its own business, corporate culture, locations, employees and systems.
After the merger, Gilead and NeXstar must operate as a combined organization
utilizing common information and communication systems; operating procedures;
financial controls; and human resource practices, including benefit, training
and professional development programs.
There may be substantial difficulties, costs and delays involved in
integrating Gilead and NeXstar. These may include:
- distracting management from the business of the combined company;
- potential incompatibility of corporate cultures;
- potential inability to coordinate research and development efforts
successfully;
- costs and delays in implementing common systems and procedures; and
- operating the combined company at three sites in the United States and at
10 international sites.
Any one or all of these factors may increase operating costs or lower
anticipated financial performance. In addition, the combined company may lose
corporate partners, distributors, suppliers, manufacturers and employees. Many
of these factors are also outside the control of either company. Achieving
anticipated synergies and the potential benefits underlying the two companies'
reasons for the merger will depend on successful integration of the two
companies. The failure to integrate Gilead and NeXstar would have a material
adverse effect on the business, financial condition and results of operations of
the combined company.
DEPENDING ON THE AVERAGE TRADING PRICE OF GILEAD COMMON STOCK OVER 20 TRADING
DAYS PRIOR TO THE MERGER, NEXSTAR STOCKHOLDERS WILL RECEIVE BETWEEN 0.3786 AND
0.5000 SHARES OF GILEAD COMMON STOCK FOR EACH SHARE OF NEXSTAR COMMON STOCK.
THE VALUE OF THIS CONSIDERATION WILL ALSO DEPEND ON THE TRADING PRICE OF
GILEAD COMMON STOCK.
The fraction of a share of Gilead common stock that NeXstar stockholders
receive in exchange for each share of NeXstar common stock in the merger, is
known as the exchange ratio. The exchange ratio will depend on the average of
the closing prices of Gilead common stock for 20 trading days ending on the day
that is three trading days prior to the day the NeXstar stockholders vote on the
merger. To the extent that more shares of Gilead common stock are issued in the
merger, Gilead stockholders will experience a greater dilution of ownership. Had
the NeXstar stockholder meeting been held on June 23, 1999, NeXstar stockholders
would have received 0.4250 of a share of Gilead common stock (which would have
had a value, based upon the average closing prices of Gilead common stock for 20
trading days ending on the day that would have been three trading days prior to
the NeXstar stockholder meeting, or what we call an "implied value," of $18.94)
for each share of NeXstar
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<PAGE>
common stock that they own. However, because the exchange ratio will fluctuate
based on the market price of Gilead common stock, NeXstar stockholders may
receive less than 0.4250 of a share of Gilead common stock (and an implied value
of less than $18.94) in the merger for each share of NeXstar common stock that
they own. Regardless of this 20-day average, in no event will NeXstar
stockholders receive more than 0.5000 or less than 0.3786 of a share of Gilead
common stock for each share of NeXstar common stock that they own.
A FIXED PRICE EXCHANGE RATIO IS RISKY BECAUSE THE VALUE OF THE CONSIDERATION
ISSUED PER SHARE OF NEXSTAR COMMON STOCK WILL DEPEND ON THE TRADING PRICE OF
GILEAD COMMON STOCK. Within certain ranges of average closing prices over 20
trading days, the exchange ratio is pre-determined or a "fixed exchange
ratio." A fixed exchange ratio means that a NeXstar stockholder will receive a
pre-determined fraction of a share of Gilead common stock regardless of the
actual 20-day average. A fixed exchange ratio is risky because, where it
applies, the fixed fraction of a Gilead share that a NeXstar stockholder would
receive in the merger would have a lower implied value if the price of Gilead
common stock declines. No additional shares are issued within the range of the
fixed exchange ratios, even if the implied value of a share of Gilead common
stock decreases. The following examples illustrate this effect:
- If the 20-day average is $42.00 per share, NeXstar stockholders would
receive 0.4250 of a share of Gilead common stock for each share of NeXstar
common stock that they own. That fractional share would have an implied
value of $42.00 per share multiplied by 0.4250, or $17.85 per share. If,
however, the 20-day average is $38.00 per share, NeXstar stockholders
would still receive 0.4250 of a share of Gilead common stock for each
share of NeXstar common stock that they own, but that fractional share
would have an implied value of only $16.15 per share.
- If the 20-day average is $30.00 per share, the exchange ratio would be
0.5000 of a share of Gilead common stock, and NeXstar stockholders would
receive an implied value of $15.00 per share. A 20-day average of $28.00
per share would still result in an exchange ratio of 0.5000, but an
implied value of only $14.00 per share.
A FIXED PRICE EXCHANGE RATIO IS RISKY BECAUSE AN INCREASE IN THE TRADING
PRICE OF GILEAD COMMON STOCK WOULD RESULT IN FEWER SHARES BEING ISSUED TO
NEXSTAR STOCKHOLDERS. Within certain ranges of average closing prices over 20
trading days, the exchange ratio provides for a predetermined implied value or
a "fixed price." A fixed price means that NeXstar stockholders will receive a
fixed dollar value of Gilead common stock, regardless of the actual 20-day
average. The number of Gilead shares that a NeXstar stockholder will receive
in the merger will adjust up or down so that the stockholder will receive a
predetermined implied value in the merger. A fixed price is risky because,
where it applies, an increase in the 20-day average will result in NeXstar
stockholders receiving fewer Gilead shares in the merger. NeXstar stockholders
would not receive consideration in the merger having a higher implied value
even if the price of Gilead common stock increases. The following examples
illustrate this effect:
- If the 20-day average is $46.00, NeXstar stockholders would receive 0.4239
of a share of Gilead common stock for each share of NeXstar stock that
they own. The implied value of this fractional share would be $19.50.
- If the 20-day average is $50.00, NeXstar stockholders would receive only
0.3900 of a share of Gilead common stock for each share of NeXstar stock
that they own. The implied value of this fractional share would still be
$19.50.
See page 59 for a table showing the fraction of a share of Gilead common
stock that would be exchangeable for each share of NeXstar common stock based
upon a range of average closing prices over 20 trading days of Gilead common
stock.
17
<PAGE>
GILEAD COMMON STOCK HAS EXPERIENCED EXTREME FLUCTUATIONS IN PRICE AND VOLUME
WHICH WILL AFFECT THE NUMBER AND VALUE OF SHARES ISSUED TO NEXSTAR STOCKHOLDERS.
In recent years, and particularly in recent months, the stock market and the
trading price for Gilead common stock have experienced extreme price and volume
fluctuations. The broad market fluctuations have in the past, and may in the
future, adversely affect the market price of Gilead common stock. The value of
Gilead common stock at the time of the special meeting of NeXstar's
stockholders, completion of the merger, the date that NeXstar stockholders
receive shares of Gilead common stock or the date the stockholders eventually
sell their Gilead shares, may be significantly different than the price of
Gilead common stock today. In addition, the exchange ratio is based upon the
average 20 trading day closing price of Gilead common stock. The average closing
price over 20 trading days, or implied value, may be significantly greater than
or less than the actual trading price of Gilead common stock at the time of the
special meeting of NeXstar's stockholders, completion of the merger, the date
that NeXstar stockholders receive shares of Gilead common stock or the date the
stockholders eventually sell their Gilead shares. NeXstar stockholders are
advised to obtain recent market quotations for Gilead common stock. Neither
company may terminate the merger agreement or elect not to complete the merger
solely because of changes in their stock prices.
THE PRE-TAX COSTS OF COMPLETING THE MERGER ARE ESTIMATED AT BETWEEN $18 MILLION
AND $23 MILLION AND MAY AFFECT OUR RESULTS OF OPERATIONS, WHICH COULD
ADVERSELY AFFECT OUR STOCK PRICE.
Completion of the merger will result in total pre-tax costs estimated at
between $18 million and $23 million, primarily relating to costs associated with
combining the businesses of the two companies and the fees of financial
advisors, attorneys, consultants and accountants. These costs may cause our
results of operations to be lower than that anticipated by financial analysts,
which could adversely affect our stock price.
RISKS RELATED TO THE COMBINED COMPANY
THE COMBINED COMPANY WILL DEVELOP DRUGS TO TREAT AIDS AND AIDS-RELATED
CONDITIONS, AND THEREFORE THE COMBINED COMPANY CAN BE ADVERSELY AFFECTED BY
CHANGES IN THE REGULATORY AND COMMERCIAL ENVIRONMENT FOR AIDS THERAPIES.
Several of Gilead's and NeXstar's products and products in development
address AIDS or AIDS-related conditions. These products include VISTIDE
(cidofovir injection) for CMV retinitis, PREVEON (adefovir dipivoxil) for HIV
and AIDS, PMPA for HIV and AIDS and DaunoXome for HIV-associated Kaposi's
sarcoma. The medical, regulatory and commercial environment for AIDS therapies
changes quickly and often in ways that Gilead and NeXstar are unable to
accurately predict. Gilead and NeXstar develop their AIDS products based upon
current policy and the current marketplace for AIDS therapies, as well as their
prediction of future policy and the future marketplace for these therapies. The
combined company's business will be subject to substantial risk because these
policies and markets change quickly and unpredictably and in ways that could
have a material adverse impact on its ability to obtain regulatory approval and
commercial acceptance of its AIDS-related products.
ANY SIGNIFICANT REDUCTION IN AMBISOME SALES WOULD SIGNIFICANTLY REDUCE THE
OPERATING INCOME OF THE COMBINED COMPANY, AND COULD REQUIRE THE COMBINED
COMPANY TO SCALE BACK ITS MANUFACTURING OPERATIONS AND REDUCE ITS SALES FORCE.
AmBisome sales for the year-ended December 31, 1998 exceeded $100 million.
During this same period, sales of the combined company's other two marketed
products, VISTIDE and DaunoXome, were approximately $6.0 million and $2.0
million, respectively. Accordingly, in the near term, the combined company will
rely on sales of AmBisome to support its existing manufacturing and sales
infrastructure and to provide operating income to offset a significant portion
of its administrative and
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<PAGE>
research and development expenditures. Any significant reduction in sales of
AmBisome, whether as a result of the introduction of competitive products or
otherwise, would therefore have a material adverse effect on the combined
company, including the possibility that the combined company would have to scale
back its manufacturing operations and reduce its sales force. There are several
products on the market that compete with AmBisome and are generally priced lower
than AmBisome. In addition, there are other potentially competitive products in
clinical development by major pharmaceutical companies.
WE MAY NOT RECEIVE APPROVAL FOR EXPANDED INDICATIONS FOR EXISTING PRODUCTS OR
APPROVAL OF ADDITIONAL PRODUCTS.
Additional regulatory approvals will be needed to expand the indications for
which AmBisome may be marketed in the countries where it is already approved,
and those approvals may or may not be obtained. Similarly, to the extent that
the combined company seeks to expand the indications for VISTIDE beyond CMV
retinitis and the indications for DaunoXome beyond Kaposi's sarcoma, the drugs
may not be effective for the treatment of other diseases and the combined
company may never obtain additional regulatory approvals.
OUR OPERATIONS DEPEND ON COMPLIANCE WITH COMPLEX FDA AND COMPARABLE
INTERNATIONAL REGULATIONS. FAILURE TO OBTAIN BROAD APPROVALS ON A TIMELY BASIS
OR TO ACHIEVE CONTINUED COMPLIANCE COULD DELAY COMMERCIALIZATION OF OUR
PRODUCTS AND ADVERSELY AFFECT THE COMBINED COMPANY.
The products that the combined company will develop and sell must be
approved and will be subject to extensive regulation by the FDA and comparable
agencies in other countries. Gilead has plans to file an application with the
FDA for marketing approval of PREVEON in the second quarter of 1999. In
addition, Hoffmann-La Roche, Gilead's corporate partner for the development and
commercialization of GS 4104, filed applications for marketing approval of GS
4104 to treat influenza in the second quarter of 1999. NeXstar is continuing
clinical trials for both AmBisome and DaunoXome for currently approved and
additional indications. NeXstar is also conducting clinical trials for three
other products, MiKasome, NX211 and NX1838. We anticipate that the combined
company will conduct a variety of clinical trials and file for marketing
approval of additional products over the next several years. These products may
fail to receive marketing approval on a timely basis, if at all. In addition,
these products may receive marketing approvals that place limitations on their
uses. These failures, delays or limitations, as well as other regulatory
changes, actions and recalls, could delay commercialization of any products and
adversely affect the combined company's results of operations.
In addition, even after our products are marketed, the products and their
manufacturers are subject to continual review. Later discovery of previously
unknown problems with our products, our own manufacturing or the production by
third-party manufacturers may result in restrictions on our products or the
manufacture of our products, including withdrawal of the product from the
market.
RESULTS OF CLINICAL TRIALS AND APPROVAL OF PRODUCTS ARE UNCERTAIN, AND WE MAY BE
DELAYED IN OR PROHIBITED FROM SELLING OUR PRODUCTS.
The combined company will have a number of potential products that have
reached the development stage. These potential products include Gilead's
PREVEON, GS 4104, adefovir dipivoxil for HBV and PMPA, and NeXstar's MiKasome,
NX211 and NX1838. The combined company will be required to demonstrate the
safety and effectiveness of these and any other products it develops in each
intended use through extensive preclinical studies and clinical trials in order
to obtain regulatory approval of these products. The results from preclinical
and early clinical studies do not always accurately predict results in later,
large-scale clinical trials for several reasons, including:
- preliminary results may not be indicative of effectiveness;
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<PAGE>
- further clinical trials may not achieve the desired result; and
- further clinical trials may reveal unduly harmful side effects or may show
the drugs to be less effective than other drugs or delivery systems for
the desired indications.
Even successfully completed large-scale clinical trials may not result in
marketable products for several reasons, including:
- the potential products are not shown to be safe and effective;
- regulatory authorities disagree with the results of our studies and
trials;
- required regulatory approvals are not obtained;
- the potential products are too difficult to develop into commercially
viable products; or
- the potential products do not obtain market acceptance.
A number of companies in our industry have suffered significant setbacks in
advanced clinical trials despite promising results in earlier trials. In the
end, the combined company may be unable to develop marketable products.
DELAYS IN PATIENT ENROLLMENT FOR CLINICAL TRIALS COULD INCREASE COSTS AND DELAY
REGULATORY APPROVALS.
The rate of completion of the combined company's clinical trials will depend
on the rate of patient enrollment. There will be substantial competition to
enroll patients in clinical trials both for Gilead's and NeXstar's drugs in
development. This competition has delayed Gilead's and NeXstar's clinical trials
in the past. In addition, recent improvements in existing drug therapy,
particularly for AIDS, HBV and certain cancers, may make it more difficult for
us to enroll patients in our clinical trials as the patient population may
choose to enroll in clinical trials sponsored by other companies or choose
alternative therapies. Delays in planned patient enrollment can result in
increased development costs and delays in regulatory approvals.
THE COMBINED COMPANY'S PRODUCT DEVELOPMENT EFFORTS MAY NOT YIELD MARKETABLE
PRODUCTS DUE TO RESULTS OF STUDIES OR TRIALS, FAILURE TO ACHIEVE REGULATORY
APPROVALS OR MARKET ACCEPTANCE, PROPRIETARY RIGHTS OF OTHERS OR MANUFACTURING
ISSUES.
The success of the combined company will depend on its ability to
successfully develop and obtain regulatory approval to market new pharmaceutical
products. A significant portion of the research that will be conducted by the
combined company will involve new and unproven technologies. Development of a
product requires substantial technical, financial and human resources even if
the product is not successfully completed. Our potential products may appear to
be promising at various stages of development yet fail to reach the market for a
number of reasons, including:
- lack of efficacy or unacceptable toxicity during preclinical studies or
clinical trials;
- failure to receive necessary regulatory approvals;
- failure to achieve market acceptance;
- existence of proprietary rights of third parties; and
- inability to develop manufacturing methods that are efficient,
cost-effective and capable of meeting stringent regulatory standards.
WE MAY UNDERESTIMATE DEVELOPMENT COSTS, ADVERSELY AFFECTING OUR BUSINESS.
Due to uncertainties that are part of the development process, we may
underestimate the costs associated with the development of a potential product.
Delays or unanticipated increases in costs of
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<PAGE>
development or failure to obtain regulatory approval or market acceptance for
our products could adversely affect our operating results. In addition, the
combination of Gilead's and NeXstar's research and development organizations may
result in greater competition for resources and elimination of development
programs that might otherwise be successfully completed.
WE DEPEND ON RELATIONSHIPS WITH OTHER COMPANIES FOR RESEARCH FUNDING, CLINICAL
DEVELOPMENT, SALES AND MARKETING PERFORMANCE AND REVENUES. FAILURE TO MAINTAIN
THESE RELATIONSHIPS WOULD NEGATIVELY IMPACT OUR BUSINESS.
The combined company will rely on a number of significant collaborative
relationships with major pharmaceutical companies for its research funding,
clinical development and/or sales and marketing performance. These
collaborations include Gilead's collaborations with Pharmacia & Upjohn,
Hoffmann-La Roche and Bausch & Lomb, and NeXstar's collaborations with Fujisawa
USA, Inc., Sumitomo Pharmaceuticals Co. Inc., Glaxo Wellcome and Schering AG.
Reliance on collaborative relationships poses a number of risks, including:
- the combined company will not be able to control whether its corporate
partners will devote sufficient resources to its programs or products;
- disputes may arise in the future with respect to the ownership of rights
to technology developed with corporate partners;
- disagreements with corporate partners could lead to delays in or
termination of the research, development or commercialization of product
candidates, or result in litigation or arbitration;
- contracts with our corporate partners may fail to provide significant
protection or may fail to be effectively enforced if one of these partners
fails to perform;
- corporate partners have considerable discretion in electing whether to
pursue the development of any additional products and may pursue
alternative technologies or products either on their own or in
collaboration with our competitors; and
- corporate partners with marketing rights may choose to devote fewer
resources to the marketing of our products than they do to products of
their own development.
Given these risks, there is a great deal of uncertainty regarding the
success of our current and future collaborative efforts. If these efforts fail,
our product development or commercialization of new products could be delayed or
revenue from existing products could decline.
INABILITY TO ESTABLISH FUTURE SUCCESSFUL COLLABORATIVE RELATIONSHIPS MAY IMPAIR
THE COMBINED COMPANY'S FINANCIAL RESULTS.
The combined company may seek future collaborative relationships with
corporate partners to fund some of its research and development expenses and to
develop and commercialize some of its potential products. For example, Gilead is
in discussions with several potential corporate partners about collaborative
development and commercialization of adefovir dipivoxil for HBV, particularly in
Asian territories. Further, we anticipate that the combined company's revenues
from collaborative agreements will continue to be affected by existing
agreements, as well as by the timing of drug development programs of its
corporate partners. The combined company may not be able to negotiate acceptable
collaborative arrangements in the future, and any arrangements it does negotiate
may not be successful. If the combined company fails to establish additional
collaborative relationships, it will be required to undertake research,
development, marketing and manufacturing of its proposed products at its own
expense.
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WE HAVE A HISTORY OF LOSSES, EXPECT TO OPERATE AT A LOSS FOR THE FORESEEABLE
FUTURE AND MAY NEVER BE PROFITABLE.
Gilead has never been profitable on a full-year basis, and NeXstar has only
been profitable on a full-year basis in 1998 due to a one-time gain related to
the sale of its 51% interest in its newly established subsidiary, Proligo
L.L.C., to SKW Americas. The combined company may never become profitable. At
December 31, 1998, Gilead's accumulated deficit was $218.5 million and NeXstar's
accumulated deficit was $159.0 million. Each company's losses have resulted
principally from expenses associated with our research and development programs
and, to a lesser extent, from sales, general and administrative expenses.
Gilead's and NeXstar's product revenues are derived solely from sales of
AmBisome, VISTIDE and DaunoXome and royalty arrangements related to AmBisome and
VISTIDE.
OUR EXISTING PRODUCT AND PRODUCTS UNDER DEVELOPMENT MAY NOT BE ACCEPTED BY
PHYSICIANS, INSURERS AND PATIENTS.
Many of the combined company's products in development, if approved for
marketing, would have no established market. The ability of these products to
achieve and sustain market acceptance will depend on the receipt and scope of
regulatory approvals and whether or not government authorities and managed care
organizations will adequately reimburse patients who use these products.
In addition, we need to convince the medical and patient advocacy community
of:
- the effectiveness of these products in treating disease;
- the safety of these products when administered to patients; and
- the advantages of these products over competitive products.
Physicians, patients, patient advocates, payors and the medical community in
general may not accept and use any products that we may develop. If the combined
company's products are not accepted, our results of operations will suffer.
THE COMBINED COMPANY'S RIGHTS TO MARKET AMBISOME ARE LIMITED BY AGREEMENT WITH
FUJISAWA. FAILURE OF FUJISAWA TO EFFECTIVELY MARKET AMBISOME IN THE UNITED
STATES MAY REDUCE REVENUES.
NeXstar's rights to market AmBisome are subject to an agreement with
Fujisawa Healthcare, Inc. Under the terms of this agreement, NeXstar has the
marketing rights to AmBisome in all countries except the United States and
Canada, but must pay royalties in connection with sales in most significant
Asian markets, including Japan. NeXstar co-promotes AmBisome with Fujisawa in
the United States. NeXstar manufactures AmBisome for sale in the United States
and sells AmBisome to Fujisawa at cost. Fujisawa collects all revenues from
AmBisome sales in the United States and pays NeXstar 20% of the gross profits
from such sales. The success of AmBisome in the United States will be dependent
primarily on the efforts of Fujisawa. If Fujisawa fails in its efforts,
potential revenues from the sale of AmBisome in the United States may be
substantially reduced.
MANY OTHER COMPANIES ARE TARGETING THE SAME DISEASES AND CONDITIONS AS THE
COMBINED COMPANY. COMPETITIVE PRODUCTS FROM OTHER COMPANIES COULD
SIGNIFICANTLY REDUCE THE MARKET ACCEPTANCE OF OUR PRODUCTS.
The combined company's products and development programs will target a
number of diseases and conditions, including viral infections, fungal
infections, bacterial infections and cancer. There are many commercially
available products for these diseases. Certain of these products are well
established therapies and have generated substantial sales. In addition, a large
number of companies and institutions are conducting well-funded research and
development activities directed at developing treatments for these diseases.
Products currently on the market and those under development by our competitors
could make our technology and products obsolete or noncompetitive. We expect
that competition for the
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treatment of these diseases will increase in the future as new products enter
the market and advanced technologies become available. We will also be competing
to license or acquire technology from other companies.
Most of the competitors and potential competitors of the combined company
have substantially greater resources than we do. Those resources include
superior product development capabilities and financial, scientific,
manufacturing, marketing, managerial and human resources. These competitors may
achieve superior patent protection, obtain key technology, receive regulatory
approval or achieve product commercialization earlier than us.
THE SIGNIFICANTLY GREATER RESOURCES OF THE MARKETING ORGANIZATIONS OF LARGE
PHARMACEUTICAL COMPANIES COULD HINDER OUR ABILITY TO COMPETE SUCCESSFULLY.
The combined company's products compete, and the products it may develop are
likely to compete, with products of other companies that currently have
extensive and well-funded marketing and sales operations. Because these
companies are capable of devoting significantly greater resources to their
marketing efforts, our marketing or sales efforts may not compete successfully
against the efforts of these other companies.
OUR EXISTING PRODUCTS ARE SUBJECT TO REIMBURSEMENT FROM GOVERNMENT AGENCIES AND
OTHER THIRD PARTIES. PHARMACEUTICAL PRICING AND REIMBURSEMENT PRESSURES MAY
REDUCE PROFITABILITY.
Successful commercialization of our products depends, in part, on the
availability of governmental and third-party payor reimbursement for the cost of
such products and related treatments. Reimbursement is generally provided by
government health administration authorities, private health insurers and other
organizations. Government authorities and third-party payors increasingly are
challenging the price of medical products and services, particularly for
innovative new products and therapies. This has resulted in lower average sales
prices. For example, a majority of Gilead's sales of VISTIDE and NeXstar's sales
of DaunoXome and AmBisome are subject to reimbursement by government agencies,
resulting in significant discounts from list price and rebate obligations. We
expect that several of the combined company's products in development,
particularly for AIDS indications, if they receive regulatory approval, will
have a similar reimbursement profile. Even if reimbursement is available,
reimbursement policies may adversely affect the combined company's ability to
sell its products on a profitable basis.
In addition, in many international markets, governments control the prices
of prescription pharmaceuticals. In these markets, once marketing approval is
received, pricing negotiation can take another six to 12 months or longer.
Product sales, attempts to gain market share or introductory pricing programs of
our competitors could require us to lower our prices in these countries, which
could adversely affect our results of operations.
MOST OF NEXSTAR'S PRODUCT SALES ARE MADE IN EUROPE, AND CURRENCY FLUCTUATIONS
MAY IMPAIR THE COMBINED COMPANY'S FINANCIAL RESULTS.
A substantial majority of NeXstar's product sales are made in Europe, with
56% of product sales for the year ending December 31, 1998 occurring in the
United Kingdom, Germany, Italy and Spain. In most significant European markets,
NeXstar sells AmBisome and DaunoXome in the currency of the country in which
they are sold. Accordingly, the prices of these products in U.S. dollars will
vary as the value of the U.S. dollar fluctuates against these foreign currencies
or the Euro. Increases in the value of the U.S. dollar against foreign
currencies may reduce our U.S. dollar return on the sale of our products. In
addition, although we implement hedging techniques with respect to our foreign
currency accounts receivable and accounts payable, these techniques do not
eliminate the effects of foreign
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currency fluctuations with respect to anticipated revenues. Therefore our future
results will continue to be affected by foreign currency fluctuations.
WE MAY NOT BE ABLE TO OBTAIN EFFECTIVE PATENTS TO PROTECT OUR TECHNOLOGIES FROM
USE BY COMPETITORS, AND PATENTS OF OTHER COMPANIES COULD REQUIRE US TO STOP
USING OR PAY FOR THE USE OF REQUIRED TECHNOLOGY.
The combined company's success will depend to a significant degree on its
ability to:
- obtain patents and licenses to patent rights;
- preserve trade secrets; and
- operate without infringing on the proprietary rights of others.
Both Gilead and NeXstar have rights to United States and foreign issued
patents and have filed and will continue to file patent applications in the
United States and abroad relating to our technologies. There is a risk, however,
that patents may not issue from any of these applications or that the patents
will not be sufficient to protect the combined company's technology. Patent
applications in the United States are confidential until a patent is granted. As
a result, we would not know if our competitors filed patent applications for
technology covered by our pending applications. We also can not be certain that
we were the first to invent the technology that is the subject of our patent
applications. Competitors may have filed patent applications or received patents
and may obtain additional patents and proprietary rights that block or compete
with our patents.
Gilead does not have patent filings covering adefovir dipivoxil in China or
in certain other Asian countries, although Gilead does have an application
pending in Japan. Asia is a major market for hepatitis B therapies, one of the
potential indications for adefovir dipivoxil. We may obtain patents for certain
products many years before marketing approval is obtained for those products.
Because patents have a limited life, which may begin to run prior to commercial
sale, the commercial value of the product may be limited.
The combined company's competitors may file patent applications covering its
technology. If so, it may have to participate in interference proceedings or
litigation to determine the right to a patent. Litigation and interference
proceedings are expensive even if successful. In August 1998, Gilead was served
with a patent infringement lawsuit filed by Chiron Corporation alleging that
Gilead's research infringes Chiron's patents covering the hepatitis C protein
and gene sequences and their use in screening for potential hepatitis C
therapeutics.
The combined company's success depends in large part on its ability to
operate without infringing upon the patents or other proprietary rights of third
parties. If the combined company infringes patents of others, it may be
prevented from commercializing products or may be required to obtain licenses
from these third parties. We cannot be certain that the combined company would
be able to obtain alternative technologies or any required license. Even if the
combined company were to obtain such technologies or licenses, we cannot be
certain that the terms would be reasonable. If the combined company fails to
obtain such licenses or alternative technologies, it may be unable to develop
some or all of its products.
In addition, we use significant unpatented proprietary technology and rely
on unpatented trade secrets and proprietary know-how to protect certain aspects
of our production and other technologies. Our trade secrets may become known or
independently discovered by our competitors.
MANUFACTURING PROBLEMS COULD DELAY PRODUCT SHIPMENTS AND REGULATORY APPROVALS.
Gilead has generally relied on third parties for the manufacture of bulk
drug substance and final drug product for clinical and commercial purposes,
including for VISTIDE, adefovir dipivoxil, PMPA and GS 4104. We depend on these
third parties to perform their obligations effectively and on a timely
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basis. If these third parties fail to perform as required, our clinical trials
or submission of products for regulatory approval may be delayed. These delays
could impair our ability to deliver commercial products on a timely basis and
could impair our competitive position.
NeXstar manufactures AmBisome and DaunoXome at two adjacent facilities in
San Dimas, California. NeXstar's only formulation and manufacturing facilities
are in San Dimas, California; although NeXstar owns a manufacturing facility in
Ireland that performs certain quality control testing, labeling and packaging,
and NeXstar uses third parties to fill and lyophilize (freeze dry) certain
batches of product as alternate contract suppliers. In the event of a natural
disaster, including an earthquake, equipment failure, strike or other
difficulty, the combined company may be unable replace this manufacturing
capacity in a timely manner and would be unable to manufacture AmBisome and
DaunoXome in a manner necessary to fulfill demand.
WE MAY NOT BE ABLE TO OBTAIN MATERIALS NECESSARY TO MANUFACTURE OUR PRODUCTS.
Many of the materials that Gilead and NeXstar utilize in their operations
are made at only one facility. For example, NeXstar depends on single suppliers
for high quality amphotericin B, daunorubicin HCl and high quality cholesterol,
each of which is used in the manufacture of its liposome products. Gilead has
qualified only one supplier with the FDA for the bulk drug substance used in
VISTIDE and one different supplier for the final drug product. A shutdown in any
of these facilities due to technical, regulatory or other problems, resulting in
an interruption in supply of these materials, could have an adverse impact on
our financial results. Gilead has also established a second source of bulk drug
substance supply for VISTIDE, but has not yet qualified this source with the FDA
and cannot be certain that the FDA will approve this second source. Because the
suppliers of key components and materials must be named in the New Drug
Application filed with the FDA for a product, significant delays can occur if
the qualification of a new supplier is required. If supplies from its suppliers
were interrupted for any reason, the combined company could be unable to ship
VISTIDE, AmBisome or DaunoXome, or any of the combined company's products in
development.
WE HAVE LIMITED EXPERIENCE MANUFACTURING PRODUCTS AND COULD BE ADVERSELY
AFFECTED IF WE FAIL TO DEVELOP MANUFACTURING CAPACITY.
For some of the combined company's potential products, we will need to
develop further our production technologies for use on a larger scale in order
to conduct clinical trials and produce such products for commercial sale at an
acceptable cost. We cannot be certain that we will be able to implement any of
these developments successfully.
The manufacturing process for pharmaceutical products is highly regulated,
and regulators may shut down manufacturing facilities that they believe do not
comply with regulations. The FDA's current Good Manufacturing Practices are
extensive regulations governing manufacturing processes, stability testing,
record-keeping and quality standards. Similar, but not identical, regulations
are in effect in other countries.
OUR BUSINESSES MAY GIVE RISE TO PRODUCT LIABILITY CLAIMS NOT COVERED BY
INSURANCE OR INDEMNITY AGREEMENTS.
The testing, manufacturing, marketing and use of VISTIDE, AmBisome and
DaunoXome, as well as products in development, involve substantial risk of
product liability claims. These claims may be made directly by consumers,
healthcare providers, pharmaceutical companies or others. Although both Gilead
and NeXstar maintain product liability insurance, a single product liability
claim could exceed the coverage limits, and multiple claims are possible. If
that happens, the insurance coverage we have may not be adequate. A successful
product liability claim in excess of our coverage could require us to pay
substantial amounts. This could adversely affect our results of operations.
Moreover, the amount and scope of any coverage may be inadequate to protect us
in the event of a successful product liability
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claim. In the future such insurance may not be renewed at an acceptable cost or
at all. If liability insurance becomes unobtainable, the ability of the combined
company to clinically test and to market our products could be significantly
impaired.
Additionally, we are required by governmental regulations to test our
products even after they have been sold and used by patients. As a result of
such tests, the combined company may be required to, or may determine that, it
should recall products already in the market. Subsequent testing and product
recalls may increase our potential exposure to product liability claims.
OUR USE OF HAZARDOUS MATERIALS, CHEMICALS, VIRUSES AND RADIOACTIVE COMPOUNDS
EXPOSES US TO POTENTIAL LIABILITIES.
Our research and development involves the controlled use of hazardous
materials, chemicals, viruses and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, we cannot
completely eliminate the risk of accidental contamination or injury from these
materials. In the event of such an accident, we could be held liable for
significant damages or fines.
IF WE OR THIRD-PARTY SUPPLIERS AND BUSINESS PARTNERS FAIL TO ADEQUATELY ADDRESS
YEAR 2000 ISSUES, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Gilead and NeXstar each have been implementing projects designed to address
the issue of computer software and hardware correctly processing dates through
and beyond the Year 2000. Due to the uncertainty inherent in the Year 2000
problem, as well as complications that may arise from integrating the two
companies' separate systems, there can be no assurance that Year 2000 failures
will not have a material impact on the combined company's operations, financial
results or financial condition. In addition, we cannot predict with any
certainty whether our critical third-party suppliers and business partners will
achieve Year 2000 compliance, or whether the failure of any third party to do so
would have a material effect on our business.
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THE GILEAD ANNUAL MEETING
PURPOSE OF THE GILEAD ANNUAL MEETING
The purpose of the Gilead meeting is to:
- consider and vote upon a proposal to approve the issuance of Gilead common
stock in connection with the merger;
- elect directors to serve for the ensuing year and until their successors
are elected;
- approve an amendment to Gilead's 1991 Stock Option Plan to increase the
aggregate number of shares of common stock authorized for issuance
thereunder by 3,500,000 shares;
- approve an amendment to Gilead's Employee Stock Purchase Plan to increase
the aggregate number of shares of common stock authorized for issuance
thereunder by 330,000 shares;
- approve an amendment to Gilead's 1995 Non-Employee Directors' Stock Option
Plan to increase the aggregate number of shares of common stock authorized
for issuance thereunder by 200,000 shares;
- approve an amendment to Gilead's restated certificate of incorporation
increasing the authorized shares of common stock from 60,000,000 to
100,000,000 shares; and
- ratify the selection of Ernst & Young LLP as independent auditors of
Gilead for its fiscal year ending December 31, 1999.
Holders of Gilead common stock and series B preferred stock may also
consider and vote upon such other matters as may be properly brought before the
Gilead annual meeting. The merger will occur only if the merger proposal is
approved.
GILEAD BOARD OF DIRECTORS RECOMMENDATIONS
THE GILEAD BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND UNANIMOUSLY RECOMMENDS A VOTE BY THE STOCKHOLDERS OF GILEAD FOR APPROVAL OF
THE ISSUANCE OF SHARES OF GILEAD COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
THE GILEAD BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ELECTION OF THE NOMINATED DIRECTORS IDENTIFIED HEREIN, THE INCREASES IN THE
NUMBERS OF SHARES UNDER THE 1991 STOCK OPTION PLAN, THE EMPLOYEE STOCK PURCHASE
PLAN AND THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, THE AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED COMMON
STOCK AND THE RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITORS.
DATE, TIME AND PLACE OF MEETING
The Gilead annual meeting will be held on July 29, 1999 at 11:00 a.m. local
time at Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, California.
GILEAD RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Gilead common stock and series B preferred stock
at the close of business on the Gilead record date, June 11, 1999, will be
entitled to notice of and to vote at the Gilead annual meeting. At the close of
business on the Gilead record date there were 31,057,084 shares of Gilead common
stock and 1,133,786 shares of Gilead series B preferred stock outstanding and
entitled to vote.
Each holder of record of Gilead common stock on the Gilead record date will
be entitled to one vote for each share held on all matters to be voted upon at
the Gilead annual meeting and, each holder of record of Gilead series B
preferred stock on the Gilead record date will be entitled to one
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vote for each share held on all matters to be voted upon at the Gilead annual
meeting. The common stock and the series B preferred stock will vote together as
a single class.
VOTING OF PROXIES
The form of proxy accompanying this joint proxy statement/prospectus is
being solicited on behalf of the Gilead board of directors for use at the Gilead
annual meeting. We ask you to please complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Gilead. Each of the persons named in the Gilead proxy as a proxy holder is an
officer of Gilead. All shares of Gilead common stock and series B preferred
stock that are entitled to vote and that are represented at the Gilead annual
meeting by properly executed proxies received prior to or at the Gilead annual
meeting and not duly and timely revoked will be voted at the Gilead annual
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, proxies will be voted:
- for the approval of the issuance of shares of Gilead common stock pursuant
to the merger agreement;
- for the approval of the increase of the number of shares authorized for
issuance under Gilead's 1991 Stock Option Plan by 3,500,000 shares;
- for the approval of the increase of the number of shares authorized for
issuance under Gilead's Employee Stock Purchase Plan by 330,000 shares;
- for the approval of the increase of the number of shares authorized for
issuance under Gilead's 1995 Non-Employee Directors' Stock Option Plan, as
amended, by 200,000 shares;
- for the approval of the amendment to Gilead's restated certificate of
incorporation to increase the authorized shares of common stock from
60,000,000 to 100,000,000 shares; and
- to ratify the selection of Ernst & Young LLP as independent auditors.
If any other matters are properly presented for consideration at the Gilead
meeting, unless otherwise indicated on a proxy, the person named as proxy and
acting thereunder will have the discretion to vote on such matters in accordance
with his best judgment.
SOLICITATION
Gilead and NeXstar intend to mail this joint proxy statement/prospectus on
or about June 28, 1999 to all stockholders entitled to vote at the stockholder
meetings. This joint proxy statement/prospectus constitutes notice of the
NeXstar special meeting and notice of the Gilead annual meeting in accordance
with Delaware law.
Gilead and NeXstar will share equally the entire cost of preparation,
assembly, printing and mailing of this proxy statement, and any additional
information furnished to stockholders. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of common stock beneficially owned by others to forward to
such beneficial owners. Gilead and NeXstar may reimburse persons representing
beneficial owners of common stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other employees of Gilead. No additional compensation
will be paid to directors, officers or other employees for such services. In
addition, Gilead has retained D.F. King to assist it in the distribution and
solicitation of proxies and has agreed to pay D.F. King a fee of $3,500 plus
expenses for its services.
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STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in Gilead's
proxy statement and form of proxy for Gilead's 2000 annual meeting of
stockholders pursuant to Rule 14a-8 of the Securities and Exchange Commission is
December 13, 1999. The deadline for submitting a stockholder proposal or a
nomination for director that is not to be included in such proxy statement and
proxy is not later than the 90th day nor earlier than the 120th day prior to
Gilead's 2000 annual meeting. Gilead stockholders are advised to review Gilead's
by-laws, which contain additional requirements with respect to advance notice of
stockholder proposal and director nominations.
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Gilead common stock and series B preferred
stock entitled to vote at the Gilead annual meeting is necessary to establish a
quorum.
The affirmative vote of the holders of a majority of shares of Gilead common
stock and series B preferred stock voting as a single class and present in
person or represented by proxy and entitled to vote at the Gilead annual meeting
is necessary:
- to approve the issuance of shares of Gilead common stock in the merger;
- to approve the increases in the aggregate numbers of shares of Gilead
common stock authorized for issuance under the 1991 Stock Option Plan, the
Employee Stock Purchase Plan and the 1995 Non-Employee Directors' Stock
Option Plan;
- to ratify the selection of independent auditors.
The affirmative vote of the holders of a majority of the outstanding shares
of Gilead common stock and series B preferred stock voting together as a single
class is necessary to amend the restated certificate of incorporation to
increase the authorized shares of common stock.
Directors will be elected by a plurality of the votes cast by the holders of
Gilead common stock and series B preferred stock present in person or
represented by proxy and entitled to vote at the Gilead annual meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes on each proposal. Broker non-votes are
counted towards a quorum, but are not counted for any purpose in determining
whether a particular matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy to vote at the Gilead annual meeting has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the corporate secretary of Gilead at Gilead's principal executive office, 333
Lakeside Drive, Foster City, California 94404, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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THE NEXSTAR SPECIAL MEETING
PURPOSE OF THE NEXSTAR SPECIAL MEETING
The purpose of the NeXstar special meeting is to consider and vote upon the
approval and adoption of the merger agreement and approval of the merger.
Holders of NeXstar common stock may also consider and vote upon such other
matters as may properly come before the NeXstar special meeting. The merger will
occur only if the proposal is approved.
BOARD OF DIRECTORS RECOMMENDATIONS
THE NEXSTAR BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND UNANIMOUSLY RECOMMENDS A VOTE BY THE STOCKHOLDERS OF NEXSTAR FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE MERGER.
DATE, TIME AND PLACE OF MEETING
The NeXstar special meeting will be held at The Boulder Broker Inn, 555 30th
Street, Boulder, Colorado on July 29, 1999, at 10:00 a.m., local time.
NEXSTAR RECORD DATE AND OUTSTANDING SHARES
Only holders of record of NeXstar common stock at the close of business on
the NeXstar record date, June 22, 1999, will be entitled to notice of and to
vote at the NeXstar special meeting. At the close of business on the NeXstar
record date there were 29,340,723 shares of NeXstar common stock outstanding and
entitled to vote.
Each holder of record of NeXstar common stock on the NeXstar record date
will be entitled to one vote for each share held on all matters to be voted upon
at the NeXstar special meeting.
VOTING OF PROXIES
The form of proxy accompanying this joint proxy statement/prospectus is
being solicited on behalf of the NeXstar board of directors for use at the
NeXstar special meeting. We ask you to please complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to NeXstar. Each of the persons named in the NeXstar proxy as
a proxy holder is an officer of NeXstar. All shares of NeXstar common stock that
are entitled to vote and that are represented at the NeXstar special meeting by
properly executed proxies received prior to or at the NeXstar special meeting
and not duly and timely revoked will be voted at the NeXstar special meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, proxies will be voted for the approval and adoption of the merger
agreement and approval of the merger. If any other matters are properly
presented for consideration at the NeXstar special meeting, unless otherwise
indicated on a proxy, the person named as proxy and acting thereunder will have
the discretion to vote on such matters in accordance with his best judgment.
SOLICITATION
Gilead and NeXstar intend to mail this joint proxy statement/prospectus on
or about June 28, 1999 to all stockholders entitled to vote at the stockholder
meetings. This joint proxy statement/prospectus constitutes notice of the
NeXstar special meeting and notice of the Gilead annual meeting in accordance
with Delaware law.
Gilead and NeXstar will share equally the entire cost of preparation,
assembly, printing and mailing of this proxy statement, and any additional
information furnished to stockholders. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their
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names shares of common stock beneficially owned by others to forward to such
beneficial owners. Gilead and NeXstar may reimburse persons representing
beneficial owners of common stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other employees of NeXstar. No additional compensation
will be paid to directors, officers or other employees for such services. In
addition, NeXstar has retained Georgeson & Company Inc. to assist it in the
distribution and solicitation of proxies and has agreed to pay Georgeson &
Company Inc. a fee of $7,500 plus out of pocket expenses for its services.
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of NeXstar common stock entitled to vote at
the NeXstar special meeting is necessary to establish a quorum. The directors of
NeXstar in their capacities as stockholders and certain other stockholders of
NeXstar, who collectively hold approximately 30.6% of the outstanding NeXstar
common stock, have entered into voting agreements requiring these stockholders
to vote their shares of NeXstar common stock in favor of the proposal to approve
and adopt the merger agreement and approve the merger. If, however, the average
of the closing prices of Gilead common stock for 20 trading days ending on the
day that is three trading days prior to the day that the NeXstar stockholders
vote on the merger is less than $27.00, the voting agreements may be terminated.
Approval of the proposal requires approval of a majority of the outstanding
shares of NeXstar common stock as of the NeXstar record date. All votes will be
tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes. Abstentions and broker non-votes will be counted towards the
tabulation of votes cast on the proposal presented to the stockholders, but will
have the same effect as a vote against approval of the matters being voted upon.
REVOCABILITY OF PROXIES
Any person giving a proxy to vote at the NeXstar special meeting has the
power to revoke it at any time before it is voted. It may be revoked by filing
with the corporate secretary of NeXstar at the NeXstar principal offices, at
2860 Wilderness Place, Boulder, Colorado 80301, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
NOTE REGARDING NEXSTAR ANNUAL MEETING
In light of the proposed merger, the NeXstar board of directors postponed
indefinitely the NeXstar annual meeting of stockholders. If, however, the merger
does not occur, the NeXstar board of directors will call and hold an annual
meeting of stockholders, as required by Delaware law. No stockholder proposals
were received by the Secretary of NeXstar for inclusion in the NeXstar 1999
proxy materials.
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PROPOSAL 1
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
EARLY CONTACTS BETWEEN OUR COMPANIES.
In April 1997, John C. Martin, the President and Chief Executive Officer of
Gilead, and Jeffrey W. Bird, the Senior Vice President, Business Operations of
Gilead, met with Patrick J. Mahaffy, who was at that time the President and
Chief Executive Officer of NeXstar, at NeXstar's offices in Boulder, Colorado,
and later at a hotel in Redwood City, California, regarding a potential business
collaboration or combination.
On May 21, 1997, as a follow-up to the April meetings, Gilead and NeXstar
signed a mutual confidential disclosure agreement.
On May 22 and 23, 1997, Lawrence M. Gold, NeXstar's Chairman and Chief
Scientific Officer, and Mr. Mahaffy met with Dr. Martin, Dr. Bird, and Mark L.
Perry, the Senior Vice President, Chief Financial Officer and General Counsel of
Gilead, in Burlingame, California to explore, in general terms, a possible
business combination.
Following the May 23, 1997 meeting, Mr. Mahaffy discussed informally with
various members of the NeXstar board of directors the subject of a possible
business combination. Based upon a consensus view that a business combination
with Gilead was not in the best interests of NeXstar and its stockholders at
that time, NeXstar proceeded to concentrate on separately pursuing its business.
During May and June 1997, members of Gilead management and its financial
advisor J.P. Morgan conducted a detailed analysis of NeXstar as a potential
merger candidate.
On September 2, 1997, Dr. Martin, Dr. Bird and Mr. Perry met with Rodman W.
Moorhead, III, and James E. Thomas, both of whom are affiliated with Warburg,
Pincus Investors, L.P. and the Warburg, Pincus Capital Partners Liquidating
Trust, significant stockholders of NeXstar, in New York City to discuss Gilead's
business.
On October 15, 1997, during Gilead's regularly scheduled board of directors
meeting in Foster City, California, Dr. Bird presented initial results of the
merger analysis performed by J.P. Morgan and Gilead management.
On November 11, 1997, Dr. Martin and Dr. Bird met with Mr. Mahaffy in
Boulder, Colorado. Dr. Martin and Dr. Bird presented to Mr. Mahaffy Gilead's
views as to the possible benefits of a potential merger.
On November 21, 1997, Gilead executed an engagement letter to retain J.P.
Morgan as its financial advisor in connection with a potential transaction with
NeXstar and to deliver a fairness opinion to the Gilead board of directors if an
agreement regarding a transaction were executed.
Throughout the remainder of November 1997, Dr. Martin, Dr. Bird and Mr.
Perry worked with representatives of J.P. Morgan to discuss process, timing, and
logistics of submitting an offer after conducting a due diligence investigation
of NeXstar.
On November 24, 1997, representatives of J.P. Morgan met with
representatives of NeXstar to discuss the potential for Gilead to conduct a due
diligence investigation of NeXstar prior to submitting a formal proposal.
NeXstar indicated that it would require a formal proposal before it would allow
Gilead to conduct a due diligence investigation of NeXstar.
On December 2, 1997, representatives of J.P. Morgan met with representatives
of NeXstar to reiterate Gilead's interest in conducting due diligence prior to
submitting a formal proposal. NeXstar reaffirmed its position regarding a formal
proposal. At this point merger discussions were discontinued.
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In the second half of 1997, NeXstar experienced a number of positive
developments:
-- in July 1997, NeXstar raised $80 million cash, less expenses and
commissions, through the sale of convertible debentures.
-- in August 1997, the FDA approved AmBisome in the United States for a
broad range of antifungal indications.
-- in August 1997, NeXstar settled its long-standing litigation with The
Liposome Company.
-- NeXstar continued to report increasing sales and additional regulatory
approvals for AmBisome and progress on the clinical development of
MiKasome.
However, despite these and other events that NeXstar's management viewed as
encouraging news for NeXstar, the market price for NeXstar common stock declined
from approximately $18.50 per share in October 1997 to approximately $12.00 per
share in early March 1998.
NEXSTAR'S EXPLORATION OF STRATEGIC ALTERNATIVES.
In March 1998, to address its concern regarding NeXstar's poor share price
performance, as well as longer range considerations for NeXstar's development,
the board of directors of NeXstar began to explore a range of strategic
alternatives, including a sale of the entire company. NeXstar then engaged
Morgan Stanley & Co. Incorporated to act as financial advisor to the board of
directors of NeXstar in connection with a review of alternatives, including a
possible sale, and to render a fairness opinion to the NeXstar board of
directors if NeXstar was to enter into an agreement regarding such a sale.
On April 24, 1998, the board of directors of NeXstar met with
representatives of Morgan Stanley to review strategic alternatives, primarily
focused on either a sale of or merger involving NeXstar or a spin-off of the
drug discovery portion of NeXstar's business. At this meeting, the NeXstar board
of directors reviewed a list of companies that Morgan Stanley believed might be
interested in pursuing discussions with NeXstar. The NeXstar board of directors
authorized Morgan Stanley to contact a small number of potential buyers and
merger partners.
On May 27, 1998, Morgan Stanley presented to the board of directors of
NeXstar an analysis of a spin-off of NeXstar's drug discovery operations to
NeXstar's stockholders as a dividend. Morgan Stanley also reported on the
responses of the initial list of potential buyers and merger partners that had
been contacted. At that time, NeXstar management continued to be opposed to the
concept of a spin-off. The board of directors of NeXstar ultimately concluded
that further steps should be taken to explore a possible sale or business
combination and authorized Morgan Stanley to contact a broader list of
approximately 30 potential buyers and merger partners. Gilead was not invited to
participate in the process.
During June and July 1998, Mr. Mahaffy and Dr. Gold had meetings or
conference calls with a number of the potential buyers and merger partners
providing them with information about NeXstar and its operations. Gilead
management learned that NeXstar had engaged Morgan Stanley to act as financial
advisor in connection with a review of strategic alternatives. Gilead attempted
to enter discussions with NeXstar and Morgan Stanley through direct contact with
representatives of both organizations.
On July 28, 1998, the board of directors of NeXstar met to, among other
things, discuss the level of response to Morgan Stanley's efforts. Based upon a
poor response, and in light of the NeXstar share price, which had by then
declined to approximately $10.00 per share, the board of directors of NeXstar
determined that valuations that it deemed acceptable would not be obtained in
the then current environment and, accordingly, it discontinued the sale process.
The board of directors of NeXstar met again in August 1998. On August 19,
1998, NeXstar issued a press release in which it announced that the board of
directors of NeXstar had determined actively to evaluate the spin-off to NeXstar
stockholders of NeXstar's drug discovery organization, to be named
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Iterex Technologies, Inc. At the same time as the public announcement of this
decision, Mr. Mahaffy resigned as Chief Executive Officer and a director of
NeXstar.
On September 23, 1998, the board of directors of NeXstar met to review
business models for the proposed spin-off. It received detailed presentations
from NeXstar's management committee. The NeXstar board of directors determined
to initiate the legal aspects of the process for the proposed spin-off and to
begin to operate NeXstar as two functioning divisions, a specialty
pharmaceutical business and a drug discovery business. Under the planned
spin-off, NeXstar stockholders would have held stock in both Iterex Technologies
and NeXstar. The planned distribution was intended to enable both businesses to
raise capital more efficiently. The spin-off was also designed to enable the
pharmaceutical management team better to focus its efforts on achieving
profitability and to leverage NeXstar's existing drug development, regulatory,
manufacturing and sales infrastructure to expand its product pipeline through
in-licensing opportunities. The NeXstar board of directors believed that the
spin-off would also permit the drug discovery management team to pursue research
funding opportunities more actively through a variety of partnering and equity
financing alternatives.
On October 14, 1998, a press release announcing the NeXstar board of
directors'
determination to proceed with the spin-off was issued. In an effort to reduce
ongoing operational costs, and as part of the planned restructuring, NeXstar
also announced that it would immediately reduce its workforce by approximately
75 employees.
RENEWED INTEREST IN BUSINESS COMBINATIONS WITH NEXSTAR.
In early November 1998, Dr. Martin called Mr. Thomas to inquire about the
status of discussions among NeXstar, Warburg Pincus and Morgan Stanley regarding
the potential sale of NeXstar. Dr. Martin indicated that Gilead would be
interested in participating in a formal process if the opportunity to do so
presented itself.
Following the public announcement of the spin-off, Morgan Stanley was
contacted by financial advisors for several of the companies involved in the
earlier sale process expressing a renewed interest in acquiring NeXstar. Based
upon these inquiries, Morgan Stanley provided seven companies, including Gilead,
with updated financial data for NeXstar reflecting the reduced operational costs
as well as other effects of the planned spin-off. In order to determine whether
further discussions might be warranted, Morgan Stanley asked that these parties
submit a preliminary indication of interest, including both a range of values
and a preliminary assessment of their desire for a transaction involving NeXstar
that would or would not include a spin-off of Iterex Technologies.
On November 24, 1998, Gilead submitted a letter to Morgan Stanley indicating
its interest in acquiring NeXstar, subject to completion of due diligence and
negotiation of a merger agreement.
On November 30, 1998, the board of directors of NeXstar met with
representatives of Morgan Stanley to review developments regarding the continued
inquiries by these companies. At the conclusion of the meeting, the board of
directors of NeXstar concluded that the indications of interest were at levels
that would merit further exploration of a possible sale or business combination
with a limited number of potential buyers and merger partners. On December 9,
1998, the board of directors of NeXstar met with Morgan Stanley and determined
to proceed down two parallel tracks--to continue the work toward the spin-off of
Iterex Technologies, while at the same time permitting a small subset of the
potential buyers and merger partners to proceed to undertake a due diligence
investigation of NeXstar, including discussions with senior management of
NeXstar. Also on December 9, 1998, representatives of Morgan Stanley indicated
to representatives of J.P. Morgan that the board of directors of NeXstar had
chosen to advance into negotiations and due diligence with several different
potential buyers and merger partners, including Gilead.
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Throughout January 1999, several potential buyers and merger partners
conducted due diligence investigations of NeXstar, which included meetings with
senior management of NeXstar. On January 15, Gilead management, along with
representatives of J.P. Morgan and Cooley Godward, conducted a due diligence
investigation of NeXstar at Willkie Farr & Gallagher's offices in New York. On
January 18, 1999, NeXstar management presented an overview of NeXstar's business
to Gilead management, J.P. Morgan and Cooley Godward in New York.
During the week of February 1, 1999, Morgan Stanley sent to four of the
potential buyers and merger partners, including Gilead, bid packages, which
included a form of merger agreement, and requested that formal bids be submitted
no later than February 16, 1999. A package was sent to a fifth party the
following week.
On February 10, 1999, Gilead conducted a telephonic special meeting of its
board of directors. After reviewing the status of discussions with members of
Gilead management and Cooley Godward, and receiving an updated financial
analysis from J.P. Morgan, the board of directors of Gilead authorized Gilead
management to submit a binding offer to acquire NeXstar, and authorized a range
of potential exchange ratios within which to negotiate a merger agreement.
On February 16, 1999, Gilead submitted an offer to acquire NeXstar. Attached
to the letter was a version of the merger agreement provided by Willkie Farr &
Gallagher, marked with the proposed terms of Gilead's offer. By February 18,
1999, NeXstar had received offer letters from Gilead and four other companies
that proposed merger transactions with NeXstar. The offers were structured in
various manners, including one which spun-off Iterex Technologies and some which
proposed consideration consisting of both stock of the acquiring company and
cash. Only one offer other than Gilead's included a mark-up of the form of
merger agreement, but that offer was accompanied by and made subject to an
extensive additional due diligence process. This offer contemplated an all stock
pooling transaction with a fixed exchange ratio that valued each NeXstar share
at approximately $14.96 per share based upon then current trading prices. The
absence of a mark-up from other parties submitting offers and the fact that
their offers were also subject to additional due diligence indicated that these
parties were not as far advanced in their own process as was Gilead, and their
offers were thus viewed by the NeXstar board of directors as being less certain
than Gilead's. These other proposals included: an offer for the entire company
with proposed consideration consisting of an unspecified mix of cash and stock
with a proposed value per NeXstar share of between $15.00 and $16.00; an offer
which contemplated a spin-off of Iterex Technologies prior to consummation, at a
price of $12.50 per post-spin-off NeXstar share, with consideration consisting
of cash and stock in a 50:50 ratio; and an offer at approximately $11.00 per
share in the form of shares of stock of the offering company, conditioned upon
the execution of a definitive agreement for the sale by NeXstar of Iterex
Technologies.
FINAL NEGOTIATIONS.
On February 18, 1999, the board of directors of NeXstar held a meeting with
its senior management and legal and financial advisors to consider all of the
acquisition proposals. Morgan Stanley presented a review and preliminary
assessment of each of the offers. Willkie Farr & Gallagher presented an analysis
of the terms and conditions of the two bids, including Gilead's, that were
accompanied by fully marked-up merger agreements. In addition, members of
NeXstar's management committee presented their assessment of the strategic and
operational aspects of a combination with each of the prospective bidders. The
management committee also presented the NeXstar board of directors with its
assessment of the risks and opportunities facing NeXstar's business in 1999 and
beyond. This presentation included the potential for increased competition to
AmBisome and potential revenues from products in clinical trials and the costs
and risks associated with those trials. Based on these presentations and
discussions, it was the consensus of the board of directors of NeXstar that the
Gilead proposal appeared to be the most attractive and that the other proposals
were inferior both in terms of proposed value per share of NeXstar common stock
and greater uncertainty as to the firmness of the
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offers, that a due diligence investigation should be undertaken regarding
Gilead's business, and that efforts should be made to improve the financial and
legal terms of the Gilead proposal. The board of directors of NeXstar also
authorized continued discussions with several of the other bidders, but no
indications of changes in position or improved bids emerged from these
discussions. Based upon the presentations at this board of directors meeting,
including those of NeXstar's management committee, the board of directors of
NeXstar determined that a merger with Gilead, if successfully negotiated, would
be preferable to the planned spin-off of Iterex Technologies because of the
relatively greater certainty of realizable value in the Gilead offer as compared
to the uncertainty of the value that would be ascribed to Iterex Technologies as
an independent company.
On February 23, 1999, Gilead and NeXstar amended the mutual confidential
disclosure agreement to prevent both parties from disclosing the existence and
terms of the pending negotiations. On February 23 and 24, 1999, NeXstar's
management and legal and financial advisors met with senior management of Gilead
in Foster City, California to conduct a due diligence investigation of Gilead.
The legal advisors of both companies also discussed open issues between the two
companies.
Commencing on the evening of February 26, 1999 and continuing throughout the
weekend, representatives of NeXstar and Gilead, in consultation with their
respective financial and legal advisors, engaged in negotiations regarding the
merger agreement and the terms of the proposed merger, including the fixed
exchange and fixed implied value ranges of the exchange ratio. These discussions
resulted in the resolution of all outstanding economic and legal issues.
On February 28, 1999, the board of directors of NeXstar met. At the meeting,
members of senior management and NeXstar's legal and financial advisors reviewed
with the board of directors of NeXstar the terms of the definitive merger
agreement and the finalized terms of the proposed merger and reported on the
results of the due diligence review of Gilead. In particular, Morgan Stanley
made a presentation regarding the analysis described under "Opinion of Financial
Advisor to NeXstar." In addition, the terms of the merger agreement and related
exhibits, including the share option agreement between Gilead and NeXstar
providing that under certain circumstances Gilead has the option to purchase
from NeXstar a number of shares of NeXstar common stock equal to up to 19.9% of
NeXstar common stock outstanding as of February 18, 1999 and the voting
agreements pursuant to which each of Warburg, Pincus Investors, L.P., Warburg,
Pincus Capital Partners Liquidating Trust and the directors of NeXstar, in their
capacities as a stockholder of NeXstar, separately agreed with Gilead to vote
their shares of NeXstar common stock in favor of the approval and adoption of
the merger agreement and approval of the merger, were discussed in detail with
the NeXstar board of directors. The potential benefits of the proposed merger
and the financial and other effects the proposed merger would have on NeXstar
and its stockholders were also discussed in detail with the board of directors
of NeXstar. After these discussions, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that, as of such date, the consideration to
be received by the NeXstar stockholders was fair from a financial point of view.
After such presentations and discussions, the board of directors of NeXstar
unanimously agreed that the merger agreement and the merger were fair to, and in
the best interests of, NeXstar and its stockholders and unanimously voted: (1)
to approve the merger and the merger agreement and related agreements; and (2)
to recommend that the NeXstar stockholders vote to approve the merger agreement
and the merger.
On February 28, 1999, Gilead conducted a telephonic special meeting of its
board of directors. J.P. Morgan made a presentation regarding the analysis
described under "Opinion of Financial Advisor to Gilead." In addition, Gilead
management, J.P. Morgan and Cooley Godward reviewed with the board of directors
of Gilead the terms of the merger agreement and related exhibits, including the
share option agreement and voting agreements, the potential benefits of the
proposed merger and the financial effects the proposed merger would have on
Gilead and its stockholders. After these discussions, J.P. Morgan rendered its
oral opinion, later confirmed in writing, that, as of such date, the
consideration to
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be paid by Gilead in the merger was fair to Gilead from a financial point of
view. After such presentation and discussions, the Gilead board of directors
unanimously voted: (1) to approve the merger with NeXstar and the merger
agreement and related agreements; and (2) to recommend that Gilead stockholders
vote to approve the issuance of shares of Gilead common stock pursuant to the
merger agreement.
Following the approval of the board of directors of NeXstar and the board of
directors of Gilead, the merger agreement in its definitive form was executed on
February 28, 1999, and jointly announced on the morning of March 1, 1999.
GILEAD'S REASONS FOR THE MERGER
At meetings convened on February 10, 1999 and February 28, 1999, the Gilead
board of directors:
- determined that the terms of the merger agreement were in the best
interests of Gilead and its stockholders;
- approved the merger agreement and the merger; and
- recommended that the Gilead stockholders approve the issuance of Gilead
common stock in the merger.
In reaching these conclusions and recommendations, the Gilead board of
directors considered a number of factors and potentially positive consequences
of the merger, including:
- the Gilead board of directors' view that the merger should create a
biopharmaceutical company with worldwide research, development and
commercial capabilities through:
-- aligning organizations with personnel located in complementary
geographic regions (United States, Europe and other international
locations),
-- combining organizations with personnel operating in complementary
functional areas (research, development, manufacturing, sales and
marketing and operations),
-- accessing NeXstar's experienced international sales and marketing team
to enhance the commercial readiness of the combined organization to
launch PREVEON, when and if approved for marketing,
-- using NeXstar's international medical and regulatory capabilities to
accelerate worldwide development of Gilead's product candidates,
including PREVEON, and
-- expanding the Gilead management team in important functional areas
including: research, development, manufacturing and commercial
operations;
- the Gilead board of directors' view that the merger should establish a
significant infectious disease and oncology franchise through:
-- three marketed products (VISTIDE, AmBisome and DaunoXome),
-- seven product candidates in development (PREVEON, GS 4104, adefovir
dipivoxil for HBV, PMPA, MiKasome, NX211 and NX1838), and
-- strengthened therapeutic expertise in research, development and
commercial operations;
- the Gilead board of directors' view that the combined company could
capitalize on strategic and financial benefits through:
-- leveraging a worldwide commercial infrastructure focused on specialty
medical markets (anti-infectives and oncology) that share multiple
characteristics,
-- managing a product portfolio with several complementary features,
including products with complementary launch dates,
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-- diversifying sources of income to include a broader mix of product
sales from internally commercialized products and royalty income from
out-licensed products,
-- avoiding costs by using NeXstar's existing international organization,
-- reducing costs by eliminating duplicative functions,
-- reducing costs by prioritizing the research, development and
commercial objectives of the combined company,
-- accelerating the potential for Gilead's profitability through the
cash-flow generated by NeXstar product sales, the successful
development and commercialization of the pipeline products and cost
avoidance and reduction,
-- capitalizing on broadened pharmaceutical research capabilities and
technologies, including potential future applications of NeXstar's
liposome technology to proprietary compounds, and
-- lowering costs of accessing capital to fund future research and
development programs through the increased attractiveness of the
combined company to institutional investors and the increased stock
trading liquidity and market capitalization;
- the presentation delivered by J.P. Morgan to the Gilead board of directors
and the opinion of J.P. Morgan addressed to the Gilead board of directors
to the effect that, as of the date of the opinion and based on and subject
to matters set forth in the opinion, the consideration to be paid by
Gilead in the merger was fair to Gilead from a financial point of view;
- the expected tax treatment and accounting treatment of the merger;
- the potential for Gilead to use certain tax benefits of NeXstar; and
- reports from management, financial advisors and legal advisors as to the
results of their investigation of NeXstar.
The Gilead board of directors also considered a number of potentially
negative consequences of the merger in its deliberations concerning the merger,
including:
- the possibility that the merger would not be completed;
- the potential disruption to the business of both companies following
announcement of the merger, including the effects of employee uncertainty,
the possibility that key employees may leave Gilead or NeXstar, and the
possibility that key corporate partners may not approve of the merger or
may decide to terminate their relationship with the combined company;
- the dilutive effects of the issuance of shares in the merger and the
higher level of expenses that will be borne by the combined company;
- potential near-term decline of Gilead's stock price which could result
following the announcement of the merger due to natural selling pressure;
- the possibility that the benefits outlined above would not be realized;
- the additional potential problems and costs associated with the
integration of both companies into a single enterprise;
- potential cash payments for bonuses under existing agreements with key
employees and management of NeXstar in connection with the merger and
dilution resulting from the need to grant additional stock options to
certain employees of NeXstar in order to provide them with appropriate
equity incentives; and
- the other risks described above under "Risk Factors."
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After due consideration, the Gilead board of directors concluded that the
benefits of the transaction to Gilead and its stockholders outweighed the risks
associated with these negative factors.
The foregoing discussion of the factors considered by the Gilead board of
directors is not intended to be exhaustive but is intended to summarize all of
the material factors considered by the Gilead board of directors. In view of the
complexity and variety of factors considered by the Gilead board of directors,
the Gilead board of directors did not consider it practical to quantify or
otherwise attempt to assign any relative or specific weights to the specific
factors considered.
NEXSTAR'S REASONS FOR THE MERGER
The NeXstar board of directors believes that the merger is fair to,
advisable and in the best interests of the stockholders of NeXstar and has
approved and declared advisable the merger agreement and the transactions
contemplated by the merger agreement, including the share option agreement, and
unanimously recommends that the stockholders of NeXstar vote in favor of the
approval and adoption of the merger agreement and approval of the merger.
In approving the merger and the related transactions, the NeXstar board of
directors took into account a number of factors and potentially positive
consequences of the merger, including:
- the presentation delivered by Morgan Stanley to the NeXstar board of
directors on February 28, 1999 and the written opinion of Morgan Stanley
dated February 28, 1999 addressed to the NeXstar board of directors to the
effect that as of the date of the opinion and based on and subject to the
matters set forth in the opinion, the consideration to be received by
NeXstar stockholders in the merger was fair from a financial point of
view;
- the NeXstar board of directors' view that the merger should result in a
combined biopharmaceutical company with:
-- substantially greater resources than NeXstar as a stand-alone company,
-- an enhanced product development pipeline, and
-- significant infectious disease experience, with an antifungal,
antibiotic and antiviral presence;
- the fact that Gilead's pipeline of products and prospects for product
introductions in the next several years should provide additional
marketing and sales opportunities for NeXstar's sales force and reduce the
combined company's substantial dependence on one product, AmBisome,
thereby leveraging the benefits of NeXstar's marketing and sales
infrastructure;
- the chronological fit of the clinical development paths of products of
both companies, such that the planned product introductions of Gilead
between 1999 and 2002 fill a gap in NeXstar's near term product
development pipeline, which may not otherwise yield new introductions
prior to 2003;
- the complementary scientific expertise of the two companies in the areas
of nucleotide and oligonucleotide chemistry and the resulting prospects
for enhanced drug discovery opportunities;
- the greater financial profile of the combined company, which should enable
the combined company to negotiate more favorable corporate partnerships
and to more aggressively pursue in-licensing and product development
opportunities due to Gilead's financial condition and cash reserves;
- the compatibility of management of the two companies and the enthusiasm
with which NeXstar's management recommended the merger over the
alternative of continuing with the proposed spin-off of Iterex
Technologies;
- the fact that the market value of the Gilead common stock to be issued in
exchange for each share of NeXstar common stock represented a significant
premium over the recent price range of the NeXstar common stock through
the date on which the merger agreement was signed (the merger
consideration, using a 0.4250 exchange ratio, represented a premium of
approximately 71%, 74% and 78% over the average price of the NeXstar
common stock for the 20-day, one-month and one-year period, respectively,
ending February 26, 1999);
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- the prices paid in comparable transactions involving other
biopharmaceutical companies, as well as the trading performance for
comparable companies in the industry;
- the market capitalization of Gilead and the liquidity in its shares, which
would enable NeXstar stockholders to elect to continue to participate in
the growth and development of the combined company or to dispose of their
shares;
- the expected tax treatment and accounting treatment of the merger;
- the terms and conditions of the merger agreement, including:
-- the protections and potential benefits afforded to NeXstar
stockholders by the fixed exchange and fixed implied value ranges of
the exchange ratio, and
-- the ability of the parties to the voting agreements (including Warburg
Pincus) to terminate those agreements and not vote their NeXstar
common stock in favor of the merger in the event the average closing
price of Gilead common stock prior to the NeXstar special meeting is
less than $27.00.
- the belief that the terms of the merger agreement, including the parties'
mutual representations, warranties and covenants, and closing conditions,
are reasonable and that the prospects for successful consummation of the
transaction are high; and
- an assessment of alternatives, including:
-- the likelihood of a transaction with other prospective bidders, whose
proposals were inferior to the Gilead proposal both in terms of
consideration and greater transaction contingencies to their offers,
-- the valuation parameters of the proposed spin-off of Iterex
Technologies,
-- the prospects for external financing of NeXstar and Iterex
Technologies,
-- the prospects for in-licensing pharmaceutical products from third
parties, and
-- other strategic alternatives.
The NeXstar board of directors also considered a number of potentially
negative consequences of the merger in its deliberations concerning the merger,
including:
- the loss of control over the future operations of NeXstar following the
merger;
- risks associated with Gilead's product development pipeline, including the
risks that regulatory approvals may be denied or delayed;
- the risk that the benefits sought to be achieved in the merger will not be
achieved;
- the fact that the share option agreement, voting agreements and
"non-solicitation" provisions and related provisions in the merger
agreement would discourage third parties from seeking to negotiate a
superior proposal for the acquisition of NeXstar;
- the historical volatility of the price of Gilead's common stock and the
associated risk of a fixed exchange ratio in the event Gilead's share
price falls below $31.00 per share;
- the fact that, absent the receipt of a superior proposal for the
acquisition of NeXstar, the merger agreement does not provide for the
NeXstar board of directors to reassess whether or not the merger with
Gilead is fair to and in the best interests of NeXstar stockholders; and
- the other risks described above under "Risk Factors."
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This discussion of information and factors considered by the NeXstar board
of directors is not intended to be exhaustive but is intended to summarize all
material factors considered by the NeXstar board of directors. In view of the
wide variety of factors considered by the NeXstar board of directors, the
NeXstar board of directors did not find it practicable to quantify or otherwise
assign relative weights to the specific factors considered. However, after
taking into account all of the factors set forth above, the NeXstar board of
directors unanimously agreed that the merger agreement and the merger were fair
to, and in the best interests of, NeXstar and its stockholders and that NeXstar
should enter into the merger agreement.
OPINION OF FINANCIAL ADVISOR TO GILEAD
At the meeting of the Gilead board of directors on February 28, 1999, J.P.
Morgan rendered its oral opinion to the Gilead board of directors that, as of
such date, the consideration to be paid by Gilead in the proposed merger was
fair, from a financial point of view, to Gilead. J.P. Morgan confirmed its oral
opinion by delivering to the Gilead board of directors its written opinion,
dated February 28, 1999, to the same effect. No limitations were imposed by the
Gilead board of directors upon J.P. Morgan with respect to the investigations
made or procedures followed by it in rendering its opinion. Gilead determined
the exchange ratio following arm's-length negotiations with NeXstar and
determined that the merger was fair and in the best interest of its
stockholders. These determinations were based on many factors, including those
discussed under the heading "Gilead's Reasons for the Merger" and including the
opinion of J.P. Morgan that the consideration to be paid by Gilead in the
proposed merger was fair to Gilead from a financial point of view.
The full text of the written opinion of J.P. Morgan, dated February 28,
1999, which sets forth the assumptions made, matters considered, and limits on
the review undertaken, is attached as Appendix C-1 to this joint proxy
statement/prospectus and is incorporated herein by reference. Gilead's
stockholders are urged to read the opinion in its entirety. J.P. Morgan's
written opinion is addressed to the Gilead board of directors, is directed only
to the consideration to be paid in the merger, and does not constitute a
recommendation to any stockholder of Gilead as to how such stockholder should
vote at the annual meeting. The summary of the opinion of J.P. Morgan set forth
in this joint proxy statement/prospectus is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, J.P. Morgan reviewed, among other things:
- the merger agreement;
- the audited financial statements of Gilead and NeXstar as of and for the
fiscal year ended December 31, 1997, and the unaudited financial
statements of Gilead and NeXstar as of and for the year ended December 31,
1998;
- current and historical market prices of Gilead common stock and NeXstar
common stock;
- certain publicly available information concerning the businesses of Gilead
and NeXstar and of certain other companies engaged in businesses
comparable to those of Gilead and NeXstar, and the reported market prices
for certain other companies' securities deemed comparable;
- publicly available terms of certain transactions involving companies
comparable to NeXstar and the consideration paid for such companies;
- the terms of other business combinations considered relevant by J.P.
Morgan;
- certain internal financial analyses and forecasts prepared by Gilead and
NeXstar and their respective managements; and
- certain agreements with respect to outstanding indebtedness or obligations
of Gilead and NeXstar.
J.P. Morgan also held discussions with certain members of the management of
Gilead and NeXstar with respect to certain aspects of the merger, the past and
current business operations of Gilead and
41
<PAGE>
NeXstar, the financial condition and future prospects and operations of Gilead
and NeXstar, the effects of the merger on the financial condition and future
prospects of Gilead and NeXstar, and certain other matters that J.P. Morgan
believed necessary or appropriate to its inquiry. In addition, J.P. Morgan
reviewed other financial studies and analyses and considered other information
it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by Gilead and NeXstar or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to J.P. Morgan.
In relying on financial analyses and forecasts provided to J.P. Morgan, J.P.
Morgan has assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of Gilead
and NeXstar to which such analyses or forecasts relate. J.P. Morgan has also
assumed that the merger will have the tax consequences described in discussions
with, and materials furnished to J.P. Morgan by, representatives of Gilead, and
that the other transactions contemplated by the merger agreement will be
consummated as described in the merger agreement.
The projections furnished to J.P. Morgan for Gilead and NeXstar were
prepared by the managements of Gilead and NeXstar, respectively. Neither Gilead
nor NeXstar publicly discloses internal management projections of the type
provided to J.P. Morgan in connection with J.P. Morgan's analysis of the merger,
and such projections were not prepared with a view toward public disclosure.
These projections were based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of management, including,
without limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual results could vary
significantly from those set forth in such projections.
J.P. Morgan's opinion is based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date
of such opinion. Subsequent developments may affect the written opinion dated
February 28, 1999, and J.P. Morgan does not have any obligation to update,
revise or reaffirm such opinion. J.P. Morgan expressed no opinion as to the
price at which Gilead common stock will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
COMPARATIVE STOCK PRICE PERFORMANCE ANALYSIS
J.P. Morgan reviewed the ratios of NeXstar's to Gilead's per share average
daily closing stock prices for the 20-day period ending February 26, 1999 and
for the day ending February 26, 1999. J.P. Morgan also reviewed the ratios of
NeXstar's to Gilead's per share volume-weighted average, daily, closing stock
prices for the one-day one-month, three-month, six-month, nine-month and
12-month periods ending February 26, 1999. J.P. Morgan computed the premium of
the potential exchange ratios of 0.4250, 0.3786, and 0.5000 in relation to the
exchange ratios calculated as mentioned above. J.P. Morgan calculated these
premiums based on the above ratios because 0.4250 represents the fixed exchange
ratio as long as the average of the closing prices for 20 trading days ending on
the day that is three trading days prior to the day that NeXstar stockholders
vote on the merger is between $36.47 and $45.88, and the 0.3786 and 0.5000
represent the minimum and maximum possible exchange ratios. The following table
presents the exchange ratios for the various periods mentioned above and the
premium that the exchange ratios offered in the merger represented over those
historical ratios.
42
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE RATIO PREMIUM
HISTORICAL -------------------------------------
PERIOD ENDING FEBRUARY 26, 1999 RATIO 0.3786 0.4250 0.5000
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
One-day period........................................... 0.3348x 13% 27% 49%
20-trading day period.................................... 0.2490x 52% 71% 101%
Median of one-day, one-month, three-month, six-month,
nine-month and 12-month periods........................ 0.3343x 13% 27% 50%
</TABLE>
SELECTED TRANSACTION ANALYSIS
Using publicly available information, J.P. Morgan examined selected
transactions with respect to size, growth prospects, and industry fit.
Specifically, J.P. Morgan reviewed the following transactions:
- Elan Corporation, PLC's acquisition of Athena Neurosciences, Inc.;
- Centocor Inc.'s acquisition of the assets related to the pharmaceutical
product, Retavase;
- Elan's acquisition of Neurex Corporation;
- ALZA Corporation's then pending acquisition of SEQUUS Pharmaceuticals,
Inc.; and
- Warner-Lambert Company's pending acquisition of Agouron Pharmaceuticals,
Inc.
J.P. Morgan first analyzed the price premium paid in the comparable
transactions (excluding Centocor's acquisition of Retavase, because that
acquisition was an acquisition of a product line, not a company) to the
volume-weighted average price of the target company for the one-day, one-month,
six-month, and 12-month periods prior to the announcement of the acquisition.
The median one-day, one-month, six-month and 12-month premiums paid to the
volume-weighted average prices were 38%, 34%, 60% and 71%, respectively. The
table below shows the resulting range of equity values for NeXstar common stock
after applying the median premiums for the transactions to the volume-weighted
average stock prices for NeXstar for these periods.
<TABLE>
<CAPTION>
ONE DAY ONE MONTH SIX MONTH 12 MONTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Median stock price premiums for the comparable
transactions.................................. 38% 34% 60% 71%
Implied equity value per share for NeXstar...... $ 19.06 $ 16.20 $ 16.94 $ 17.82
</TABLE>
J.P. Morgan also analyzed the actual firm value to sales multiples for these
transactions for the latest twelve month's revenues prior to the announcement of
the acquisition and the multiples of firm value to projected revenues, based on
financial research analysts' projected revenues, for the projected one-year
forward, two-year forward and three-year forward periods. The table below shows
the resulting range of equity values for NeXstar common stock based on applying
the median multiples calculated for the comparable transactions for these time
periods to the NeXstar forecast for each respective period.
<TABLE>
<CAPTION>
BASED ON A RANGE OF
FIRM VALUE/REVENUES
MULTIPLES
----------------------
<S> <C>
Implied equity value per share for NeXstar............................ $ 14.53-$32.75
</TABLE>
No company in the selected transaction analysis is identical to Gilead or
NeXstar nor is any transaction identical to the contemplated transaction between
Gilead and NeXstar. An analysis of the results therefore requires complex
considerations and judgements regarding the financial and operating
characteristics of Gilead, NeXstar and the comparable companies, as well as
other factors that could affect their publicly traded and/or transaction value.
The numerical results are not in themselves meaningful in analyzing the
contemplated transaction as compared to the comparable transactions.
43
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
J.P. Morgan conducted a discounted cash flow analysis for the purpose of
determining the fully diluted equity value per share for NeXstar common stock.
J.P. Morgan calculated the unlevered free cash flows that NeXstar is expected to
generate during fiscal years 1999 through 2006 based upon a series of
probability-weighted financial projections prepared by the management of Gilead.
J.P. Morgan also calculated a range of terminal asset values of NeXstar at the
end of the nine-year period ending December 31, 2006 by applying a perpetual
growth rate ranging from 8.0% to 10.0% of the unlevered free cash flow of
NeXstar during the final year of the nine-year forecast. The unlevered free cash
flows and the range of terminal asset values were then discounted to present
values using a range of discount rates from 13.0% to 15.0%, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
NeXstar as well as J.P. Morgan's view of rates used by other companies in the
emerging pharmaceutical and biotechnology industries. The present value of the
unlevered free cash flows and the range of terminal asset values were then
adjusted for NeXstar's estimated 1998 fiscal year-end excess cash, option
exercise proceeds, and total debt. NeXstar's convertible subordinated debentures
were treated as equity because it is possible that the offer price would be
above the conversion price of $16.88. Based on the adjusted management
projections for NeXstar and a discount rate of 13.0% to 15.0%, the table below
shows the indicated range of equity values per share of NeXstar common stock on
a stand-alone basis (i.e., without synergies) using discounted cash flow
analysis.
<TABLE>
<CAPTION>
UTILIZING
DISCOUNTED
CASH FLOW ANALYSIS
(WITHOUT TAKING
INTO ACCOUNT
POTENTIAL
SYNERGIES)
------------------
<S> <C>
Range of equity values per share for NeXstar.............................. $ 13.05-$17.10
</TABLE>
J.P. Morgan separately valued the potential synergies resulting from the
merger. Potential synergies were projected by Gilead management for the years
1999 to 2003. The potential synergies come from two areas:
- avoidance of costs at Gilead; and
- reduction of costs at the combined company.
The largest portion of the projected synergies come from Gilead avoiding the
costs that it has projected to spend to develop a European infrastructure. A
smaller portion of the anticipated cost avoidance stems from research and
development cost avoidance at Gilead due to similar programs in place at NeXstar
and avoidance of some projected sales and marketing costs in the United States.
The projected synergies from cost reductions at the combined company represent a
small portion of the overall projected synergies; these are expected to result
from rationalization of costs and redundant functions at the combined company.
The unlevered free cash flow streams for the projected synergies were
discounted using a discount rate of 11%, which was chosen by J.P. Morgan based
upon an analysis of the weighted average cost of capital assuming that there is
lower risk in achieving these synergies as well as J.P. Morgan's view of rates
used by other companies to analyze the present value of synergies. J.P. Morgan
also calculated a range of terminal asset values of the synergies at the end of
the five-year period ending December 31, 2003 by applying a perpetual growth
rate of 0.0% of the unlevered free cash flows during the final year of the
five-year period. Based on management projections and a discount rate of 11.0%,
the discounted cash flow analysis indicated a range of equity values for the
synergies of between $3.05 and $3.80 per
44
<PAGE>
share of NeXstar common stock. The table below shows the indicated range of
equity values per share of NeXstar common stock, including synergies, using a
discounted cash flow analysis.
<TABLE>
<CAPTION>
UTILIZING
DISCOUNTED
CASH FLOW ANALYSIS
(TAKING INTO
ACCOUNT POTENTIAL
SYNERGIES)
------------------
<S> <C>
Range of equity values per share for NeXstar.............................. $ 16.10-$20.90
</TABLE>
MERGER CONSEQUENCES ANALYSIS
J.P. Morgan analyzed the merger consequences based on the following
assumptions:
- forecasted financials for Gilead based on Gilead management's expectations
for Gilead;
- forecasted pro forma financials for Gilead (reflecting the merger) based
on Gilead management's expectations for Gilead and NeXstar;
- pooling-of-interests accounting for the merger;
- full utilization of NeXstar's net operating losses (NOL) to the extent
that NeXstar generates earnings in future periods (limited by NOL
utilization limitation);
- transaction expenses of $13 million;
- NeXstar's $80 million of subordinated convertible debentures remain
outstanding until 2000 when they are converted into equity;
- consummation of the merger on May 31, 1999; and
- projected synergies being achieved.
J.P. Morgan analyzed the financials of the pro forma combined company for
the years 1999 through 2003; however, J.P. Morgan focused its analysis on the
years 1999 through 2001 because it deemed that the financial projections in the
later years were less meaningful given the wide range of assumptions and
potential outcomes in those years. J.P. Morgan determined that based on an
exchange ratio of 0.4250, the merger would be accretive to Gilead's stand-alone
earnings per share for the years 1999 through 2001.
J.P. Morgan also compared, using publicly available information, selected
financial data for Gilead and the combined company with similar data for
selected publicly traded companies judged by J.P. Morgan to be analogous to
Gilead for these purposes. J.P. Morgan selected two groups of publicly traded
companies:
- large cap biotechnology companies, including Amgen Inc., Genentech, Inc.,
Biogen, Inc., Immunex Corporation, Genzyme Corporation, Chiron Corp.,
MedImmune, Inc., Biochem Pharma, Inc. and Centocor, Inc.
- emerging biotechnology companies, including Sepracor, Inc., ICOS
Corporation, Millennium Pharmaceuticals Inc., IDEC Pharmaceuticals
Corporation, Alkermes, Inc., Human Genome Sciences, Inc., Vertex
Pharmaceuticals Incorporated, Transkaryotic Therapies, Inc. and Aviron.
The median firm value to sales multiples for these two groups were compared
to Gilead on a stand-alone basis and the combined company, based on a range of
management's probability-weighted forecasts for the businesses. The firm value
for Gilead on a stand-alone basis was computed based on fully diluted shares
outstanding for Gilead, using a stock price of $41.25, which represents the
closing
45
<PAGE>
stock price for Gilead on February 26, 1999, and assuming net debt (debt minus
cash) as of December 31, 1998. J.P. Morgan observed that the implied firm value
to sales multiples for the combined company (based on Gilead's 20-trading day
average closing price of $41.13) would be lower than the firm value to sales
multiples for either Gilead on a stand-alone basis, the large-cap biotechnology
companies, or the emerging biotechnology companies. The combined company firm
value was calculated assuming an average closing price over 20 trading days for
Gilead common stock of $41.13, stock issuance by Gilead to NeXstar pursuant to
the merger agreement, and net debt (debt minus cash) for NeXstar as of December
31, 1998. The table below shows Gilead on a stand-alone basis and the combined
company as compared to the median firm value and median firm value to sales
multiplies for the large cap biotechnology companies and the emerging
biotechnology companies for 1999 and 2000.
<TABLE>
<CAPTION>
FIRM VALUE/ SALES
FIRM VALUE -----------------
($MM) 1999 2000
---------- ------- -------
<C> <S> <C> <C> <C>
- Large cap biotechnology companies............ $ 4,162 9.8x 8.4x
- Emerging biotechnology companies............. $ 631 13.0x 10.3x
- Gilead on a stand-alone basis................ $ 1,099 16.4x 8.4x
- The combined company......................... $ 1,642 8.2x 6.2x
</TABLE>
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan considered the results of all of
its analyses as a whole and did not attribute any particular weight to any
single analysis or factor considered by it. J.P. Morgan believes that the
summary set forth above and its analyses must be considered as a whole and that
selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and opinions.
J.P. Morgan based its analyses on assumptions that it deemed reasonable,
including assumptions concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon which J.P.
Morgan based its analyses are set forth above under the description of each such
analysis. J.P. Morgan's analyses are not necessarily indicative of actual values
or actual future results that might be achieved, which values may be higher or
lower than those indicated. Moreover, J.P. Morgan's analyses are not and do not
purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other purposes. J.P. Morgan was selected to advise Gilead with respect to
the merger and to deliver an opinion to the Gilead board of directors on the
basis of such experience and its familiarity with Gilead.
For services rendered in connection with the merger and the delivery of its
opinion, Gilead has agreed to pay J.P. Morgan a fee of $4.5 million, and will
indemnify J.P. Morgan against certain liabilities in connection with its
engagement. In the past, J.P. Morgan has performed investment banking services
for Gilead, including acting as a manager for Gilead's 1996 equity offering, for
which it received customary fees.
In the ordinary course of their businesses, J.P. Morgan and its affiliates
may actively trade the debt and equity securities of Gilead or NeXstar for their
own accounts or for the accounts of customers and, accordingly, they may at any
time hold long or short positions in such securities.
46
<PAGE>
OPINION OF FINANCIAL ADVISOR TO NEXSTAR
In March 1998, NeXstar formally retained Morgan Stanley to act as its
financial advisor to review strategic alternatives, including a potential sale
of NeXstar. At the February 28, 1999 meeting of the NeXstar board of directors,
Morgan Stanley rendered to the NeXstar board of directors an oral opinion that,
as of such date and based upon and subject to the various considerations set
forth in its opinion, the consideration to be received by the holders of shares
of NeXstar common stock in the merger was fair from a financial point of view to
such holders. Morgan Stanley subsequently confirmed its oral opinion by
delivering to the NeXstar board of directors its written opinion dated February
28, 1999. NeXstar determined the exchange ratio following arm's-length
negotiations with Gilead and
determined that the exchange ratio was fair and in the best interest of its
stockholders. These determinations were based on many factors, including those
discussed under the heading "NeXstar's Reasons for the Merger" and including the
opinion of Morgan Stanley that the consideration to be received by the holders
of shares of NeXstar common stock in the merger was fair to the NeXstar
stockholders from a financial point of view.
The full text of the written opinion of Morgan Stanley, dated February 28,
1999, sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion. The opinion is attached to this joint
proxy statement/prospectus as Appendix C-2 and is incorporated herein by
reference. NeXstar stockholders are urged to, and should, read the opinion
carefully and in its entirety. Morgan Stanley's opinion is directed to the
NeXstar board of directors and addresses only the fairness of the consideration
to be received by the holders of shares of NeXstar common stock from a financial
point of view as of the date of the opinion. The opinion does not address any
other aspect of the merger and does not constitute a recommendation to any
holder of NeXstar common stock as to how to vote with respect to the merger. The
summary of the opinion of Morgan Stanley sets forth in this joint proxy
statement/ prospectus is qualified in its entirety by reference to the full text
of that opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed publicly available financial statements and other information of
NeXstar and Gilead;
- reviewed internal financial statements and other financial and operating
data concerning NeXstar and Gilead prepared by the managements of NeXstar
and Gilead;
- analyzed financial projections prepared by the management of NeXstar;
- discussed the past and current operations and financial condition and the
prospects of NeXstar and Gilead, including information relating to
strategic, financial and operational benefits anticipated from the merger,
with senior executives of NeXstar and Gilead;
- analyzed the pro forma impact of the merger on Gilead's earnings per
share;
- reviewed the reported prices and trading activity for the NeXstar common
stock and Gilead common stock;
- compared the financial performance of NeXstar and Gilead and the prices
and trading activity of the NeXstar common stock and the Gilead common
stock with that of other comparable publicly traded companies and their
securities;
- reviewed the financial terms, to the extent publicly available, of other
comparable acquisition transactions;
- participated in discussions and negotiations among representatives of
NeXstar and Gilead (and other parties) and their financial and legal
advisors;
47
<PAGE>
- reviewed the draft of the merger agreement dated February 27, 1999 and
related documents; and
- performed such other analyses and considered such other factors as Morgan
Stanley has deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the financial
projections, including information relating to strategic, financial and
operational benefits anticipated from the merger, Morgan Stanley assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of NeXstar
and Gilead. Morgan Stanley relied upon without independent verification the
assessment by the managements of Gilead and NeXstar that products will receive
all of the necessary regulatory approvals for their production and sale and that
they will attain product revenue levels. Morgan Stanley also relied on Gilead's
ability to retain key personnel. Morgan Stanley has not made any independent
valuation or appraisal of the assets or liabilities of NeXstar, nor has it been
furnished with any such appraisals. Morgan Stanley assumed that the merger will
be accounted for as a pooling-of-interests business combination in accordance
with United States generally accepted accounting principles and that the merger
will be treated as a tax free reorganization and/or exchange, each pursuant to
the Internal Revenue Code of 1986. Morgan Stanley also assumed that the merger
will be consummated in accordance with the terms set forth in the merger
agreement. Morgan Stanley's opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to it as of, February 28, 1999.
The following is a brief summary of the analyses performed by Morgan Stanley
and reviewed with the NeXstar board of directors in connection with rendering
its opinion letter dated February 28, 1999.
COMPARATIVE HISTORICAL TRADING RANGE
Morgan Stanley reviewed the closing prices of NeXstar common stock and
Gilead common stock for the last 12 months and the last five years prior to
February 26, 1999. During the last 12 months prior to February 26, 1999, NeXstar
common stock achieved a high of $14.63 per share and a low of $6.50 per share,
while Gilead common stock achieved a high of $44.38 per share and a low of
$18.25 per share. During the last five years prior to February 26, 1999, NeXstar
common stock achieved a high of $26.75 per share and a low of $4.25 per share,
while Gilead common stock achieved a high of $46.125 per share and a low of
$7.00 per share.
HISTORICAL EXCHANGE RATIO ANALYSIS
Morgan Stanley reviewed and analyzed the average historical ratios of the
closing prices per share of NeXstar common stock divided by the corresponding
prices for the Gilead common stock during the last 20 days and 30 days prior to
February 26, 1999. The following table presents the implied exchange ratios over
the periods covered and as of February 26, 1999 and the premiums offered in the
merger over the relevant implied historical exchange ratios at the lower and
upper thresholds of the range of merger exchange ratio.
<TABLE>
<CAPTION>
PREMIUMS OFFERED
AT THE MERGER
IMPLIED EXCHANGE RATIO
HISTORICAL ------------------------
EXCHANGE RATIO AT 0.3786 AT 0.5000
----------------- ----------- -----------
<S> <C> <C> <C>
As of February 26, 1999........................ 0.33 14.8% 51.5%
20-day average................................. 0.24 57.9% 108.3%
30-day average................................. 0.22 72.3% 127.2%
</TABLE>
ANALYST PRICE TARGETS ANALYSIS
Morgan Stanley reviewed recent forecasts by analysts of the target market
prices for NeXstar common stock and Gilead common stock. The following table
presents the high, low and median implied exchange ratios based on the analysts'
target market prices for NeXstar common stock and Gilead common stock and the
premiums offered in the merger over the relevant implied exchange ratios at the
lower and upper thresholds of the range of merger exchange ratio.
48
<PAGE>
<TABLE>
<CAPTION>
PREMIUMS OFFERED
AT THE MERGER
EXCHANGE RATIO
------------------------
ANALYSTS' IMPLIED EXCHANGE RATIO AT 0.3786 AT 0.5000
- --------------------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Low....................................................... 0.359 5.6% 39.3%
High...................................................... 0.300 26.3% 66.7%
Median.................................................... 0.340 11.5% 47.1%
</TABLE>
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS
Morgan Stanley reviewed 23 mergers in the biotechnology industry, including
Warner-Lambert Company/Agouron Pharmaceuticals, Inc., Watson Pharmaceuticals,
Inc./TheraTech, Inc., Megabios Corp./GeneMedicine, Inc., ALZA Corporation/SEQUUS
Pharmaceutcals, Inc., Neurex Corporation/ Elan Corporation, PLC, Somatogen,
Inc./Baxter International, Inc., Sequana Therapeutics/Arris Pharmaceutical,
Somatix Therepy Corp./Cell Genesys, Inc., Athena Neurosciences, Inc./Elan,
Univax Biologics, Inc./North American Biologicals, Inc., Genetic Therapy,
Inc./Sandoz, Viagene, Inc./Chiron Corp., Glycomed, Inc./Ligand Pharmaceuticals,
Inc., Affymax Research Institute/Glaxo Wellcome, PLC, Chiron/Ciba Geigy,
Synergen, Inc./Amgen Inc., Vestar Inc./NeXagen, Inc., Sphinx Pharmaceuticals/Eli
Lilly & Company, AIS/Rhone-Poulenc Rorer, Inc., Nova Pharmaceutical
Corporation/Scios, Inc., SyStemix, Inc./Sandoz, Genetic Institute, Inc./American
Home Products Corporation, and Cetus Corporation/ Chiron, collectively, the
"comparable transactions." Morgan Stanley compared the premiums paid in these
transactions with the range of premium being paid to holders of NeXstar common
stock in the merger. The premium paid in each of the comparable transactions
represents offer price over unaffected market price, which is the closing market
price 30 calendar days prior to the announcement of the transaction. The premium
being paid in the merger is based on closing stock price of NeXstar common stock
30 calendar days prior to February 26, 1999. The following table illustrates the
results of the above-described analysis.
<TABLE>
<CAPTION>
PREMIUMS PAID IN PREMIUM BEING PAID
COMPARABLE TRANSACTIONS IN THE MERGER
- -------------------------- ------------------------
MEAN MEDIAN AT 0.3786 AT 0.5000
- ----------- ------------- ----------- -----------
<S> <C> <C> <C>
51% 52% 72.3% 127.2%
</TABLE>
No transaction used in the comparable transaction analysis is identical to
the merger. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning financial and operating
characteristics of NeXstar and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data.
DISCOUNTED CASH FLOW ANALYSIS
In preparing the discounted cash flow analysis, Morgan Stanley used:
- forecasts of cash flows of NeXstar for the years 1999 through 2001
prepared by the management of NeXstar; and
- forecasts of cash flows of Gilead for the years 1999 through 2003 prepared
in consultation with the managements of NeXstar and Gilead.
To determine the present value of the cash flows, Morgan Stanley discounted
such cash flows at discount rates ranging from 14% to 17% for Gilead. For
NeXstar, Morgan Stanley used discount rates ranging from 12% to 15% for the
product side of NeXstar and rates ranging from 20% to 40% for
49
<PAGE>
NeXstar's drug discovery business. The discount rates chosen reflect Morgan
Stanley's judgment regarding the appropriate expected returns by investors in
these businesses. The terminal values were computed based on projected net
income in the year 2001 for NeXstar and the year 2003 for Gilead and a range of
terminal multiples of 20.0x and 25.0x based on its review of the trading
characteristics of the common stock of certain comparable biotechnology
companies, including Amgen Inc., BioChem Pharma, Inc., Biogen, Inc., Centocor,
Inc., Chiron Corp., Genentech, Inc., Genzyme Corp., Immunex Corp. and Medimmune,
Inc. and certain comparable pharmaceutical companies, including Merck & Co.,
Inc., Pfizer, Inc., Bristol-Myers Squibb Company, Johnson & Johnson, Inc., Eli
Lilly & Company, Schering-Plough Corporation, American Home Products
Corporation, Abbott Laboratories, Warner-Lambert Company, Amgen Inc., Pharmacia
& Upjohn, Inc. and Monsanto Company. Morgan Stanley used cash flow projections
prepared in consultation with the managements of NeXstar and Gilead in the base
case and assumed lower than projected operating margins in the margin
sensitivity case. The following table presents the high, low and median implied
exchange ratios based on the implied per share values for NeXstar and Gilead
resulting from the discounted cash flow analysis described in this paragraph and
the premiums offered in the merger over the relevant implied exchange ratios at
the lower and upper thresholds of the range of merger exchange ratios.
<TABLE>
<CAPTION>
PREMIUMS OFFERED
AT THE MERGER
EXCHANGE RATIO
IMPLIED EXCHANGE RATIO BASED ON ------------------------
DISCOUNTED CASH FLOW ANALYSIS AT 0.3786 AT 0.5000
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C> <C>
BASE CASE
Low.................................................. 0.255 48.9% 96.4%
High................................................. 0.244 55.1% 104.6%
Median............................................... 0.250 51.9% 100.4%
MARGIN SENSITIVITY CASE
Low.................................................. 0.343 10.4% 45.6%
High................................................. 0.333 13.8% 50.1%
Median............................................... 0.338 12.1% 47.8%
</TABLE>
PRO FORMA EARNINGS IMPACT ANALYSIS
Morgan Stanley analyzed the pro forma effects of the merger and computed the
resulting accretion/dilution to the combined company's earnings per share
("EPS") estimate for the years 1999, 2000 and 2001. Such computations were done
for the IBES case using IBES median estimates of Gilead's EPS dated February 26,
1999 and using EPS estimates for NeXstar based on selected research analysts'
reports. For the Gilead base case, the computations were done using EPS
estimates prepared in consultation with the managements of NeXstar and Gilead.
The following table summarizes the results of the above-described computations
at different points within the range of the merger exchange ratio for the year
2001 (the results for the years 1999 and 2000 are not meaningful).
<TABLE>
<CAPTION>
ACCRETION/DILUTION TO YEAR 2001
GILEAD EPS
--------------------------------
MERGER EXCHANGE RATIO IBES CASE GILEAD BASE CASE
- --------------------- ------------- -----------------
<S> <C> <C>
0.3786 3.3% 141.7%
0.4250 (0.2)% 133.5%
0.5000 (5.4 )% 121.3%
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other
50
<PAGE>
assumptions, so that the ranges of valuation resulting from any particular
analysis described should not be taken to be Morgan Stanley's view of the actual
value of NeXstar or Gilead. In performing its analyses, Morgan Stanley made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
NeXstar and Gilead. Any estimates contained in Morgan Stanley's analyses are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates. The
analyses performed were prepared solely as part of Morgan Stanley's analyses of
the fairness of the consideration to be received by the holders of NeXstar
common stock from a financial point of view and were conducted in connection
with the delivery of Morgan Stanley's written opinion to the NeXstar board of
directors. The analyses do not purport to be appraisals or to reflect the prices
at which NeXstar common stock or Gilead common stock might actually trade. The
terms of the merger were determined through arm's-length negotiations between
NeXstar and Gilead and were approved by the NeXstar board of directors.
In addition, as described above, Morgan Stanley's opinion and presentation
to NeXstar's board of directors was one of the many factors taken into
consideration by NeXstar's board of directors in making its determination to
approve the merger. Consequently, the Morgan Stanley analyses summarized above
should not be viewed as determinative of the opinion of the NeXstar board of
directors with respect to the value of NeXstar or of whether the NeXstar board
of directors would have been willing to agree to different consideration.
The NeXstar board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In addition, Morgan Stanley is
a full-service securities firm engaged in securities trading, brokerage and
financing activities. In the ordinary course of Morgan Stanley's trading and
brokerage activities, Morgan Stanley or its affiliates may at anytime hold long
or short positions, and may trade or otherwise effect transactions, for its own
account or the accounts of customers, in debt or equity securities or senior
loans of NeXstar or Gilead.
Pursuant to Morgan Stanley's engagement letter with NeXstar, NeXstar agreed
to pay a fee of $3.6 million to Morgan Stanley. NeXstar has also agreed to
reimburse Morgan Stanley for reasonable expenses as incurred. In addition,
NeXstar has also agreed to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
arising out of Morgan Stanley's engagement.
INTERESTS OF NEXSTAR'S EMPLOYEES AND DIRECTORS IN THE MERGER
Members of NeXstar's management and the NeXstar board of directors may have
interests in the merger that are in addition to their interests as stockholders
of NeXstar generally. The NeXstar board of directors was aware of these
interests and considered them in approving the merger agreement and the
transactions contemplated thereby.
CHANGE OF CONTROL SEVERANCE AGREEMENTS
On February 8, 1999, NeXstar entered into change-of-control agreements with
certain members of senior management. Pursuant to the terms of these change of
control agreements, in the event there is a change in control of NeXstar,
including the merger, and either:
- the officer's employment is terminated without cause;
- the officer terminates his or her employment following a substantial
reduction in functions and responsibilities; or
- the officer terminates his or her employment following a required
relocation,
51
<PAGE>
then such officer shall receive severance pay equal to 12 months of his or her
base salary, continue to receive coverage under any health benefit plans for a
period of 12 months and receive outplacement services.
INDEMNIFICATION AND INSURANCE
Pursuant to the merger agreement, after the effective time of the merger
NeXstar, which will be a wholly owned subsidiary of Gilead, will indemnify the
current directors and officers of NeXstar for acts and omissions in connection
with the merger, to the fullest extent provided in NeXstar's certificate of
incorporation and by-laws as of February 28, 1999, or as permitted or required
by law for a period of not less than six years from the effective time of the
merger. Gilead has guaranteed the due and prompt performance of these
obligations. For a period of not less than three years from the effective date
of the merger, NeXstar, as a wholly owned subsidiary of Gilead, or Gilead will
maintain, for the benefit of the current officers and directors of NeXstar with
respect to acts or omissions occurring prior to the effective date of the
merger, the policies of directors' and officers' liability insurance maintained
by NeXstar as of February 28, 1999. However, Gilead and NeXstar, as a wholly
owned subsidiary of Gilead, will not be required to pay premiums in excess of
200% of the annual premiums rate paid by NeXstar as of February 28, 1999.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences generally applicable to NeXstar stockholders. The discussion is
based on current law. Changes in the law could affect the federal income tax
consequences of the merger to NeXstar stockholders. This discussion assumes that
NeXstar stockholders hold their NeXstar common stock as capital assets within
the meaning of Section 1221 of the Internal Revenue Code. We have not and will
not seek a ruling from the IRS in connection with the merger. This discussion
does not address the consequences of the merger under state, local or foreign
law, nor does the discussion address all aspects of federal income taxation that
may be important to a NeXstar stockholder in light of his or her particular
circumstances or tax issues that may be significant to NeXstar stockholders
subject to special rules, such as:
- financial institutions;
- insurance companies;
- foreign individuals and entities;
- tax-exempt entities;
- dealers in securities;
- persons who are subject to the alternative minimum tax provisions of the
Internal Revenue Code;
- persons who acquired NeXstar common stock pursuant to the exercise of an
employee option (or otherwise as compensation); or
- persons who acquired or hold NeXstar common stock as part of an integrated
investment, such as a "hedge" or "straddle," composed of NeXstar common
stock and one or more other positions.
Accordingly, NeXstar stockholders are urged to consult their own tax
advisors as to the specific tax consequences of the merger, including the
applicable federal, state, local and foreign tax consequences to them of the
merger.
Cooley Godward, counsel to Gilead, and Willkie Farr & Gallagher, counsel to
NeXstar, are of the opinion that the merger will constitute a "reorganization"
pursuant to Section 368(a) of the Internal
52
<PAGE>
Revenue Code. In addition, it is a condition to the obligation of each party to
consummate the merger that it receive an opinion of its counsel to the effect
that the merger will constitute a reorganization. These opinions do not bind the
IRS or the courts or preclude the IRS or a court from adopting a contrary
position.
In addition, the tax opinions assume and are conditioned upon the following:
- the truth and accuracy of the statements, covenants, representations and
warranties contained in the merger agreement and in this joint proxy
statement/prospectus, in the tax representations received from Gilead,
Gazelle Acquisition Sub and NeXstar and in all other instruments and
documents related to the formation and operation of Gilead, Gazelle
Acquisition Sub and NeXstar examined by and relied upon by Cooley Godward
and Willkie Farr & Gallagher in connection with their opinions;
- that original documents submitted to counsel are authentic, documents
submitted to counsel as copies conform to the original documents, and that
those documents have been or will be by the effective time of the merger
duly and validly executed and delivered;
- that all covenants contained in the merger agreement and the tax
representations received from Gilead, Gazelle Acquisition Sub and NeXstar
are performed without waiver or breach of any material provision;
- the merger will be reported by Gilead and NeXstar on their respective
federal income tax returns in a manner consistent with the tax opinions;
and
- that any representation or statement made "to the best of knowledge" or
similarly qualified is correct without being qualified.
Subject to the limitations and qualifications referred to above, the merger
will have the following federal income tax consequences:
- EXCHANGE OF NEXSTAR COMMON STOCK FOR GILEAD COMMON STOCK. Except as
discussed below, no gain or loss will be recognized for federal income tax
purposes by a NeXstar stockholder who exchanges his or her NeXstar common
stock solely for Gilead common stock pursuant to the merger. Each NeXstar
stockholder's aggregate tax basis in the Gilead common stock he or she
receives in the merger will be the same as his or her aggregate tax basis
in the NeXstar common stock surrendered in the merger (reduced by any tax
basis allocable to fractional shares exchanged for cash). In addition, the
holding period of the Gilead common stock received will include the
holding period of the NeXstar common stock surrendered; and
- CASH RECEIVED INSTEAD OF FRACTIONAL SHARES. The payment of cash to a
NeXstar stockholder instead of a fractional share of Gilead common stock
generally should result in the recognition of capital gain or loss
measured by the difference between the amount of cash received and the
portion of the tax basis of the NeXstar common stock allocable to that
fractional share interest. In the case of an individual, capital gain is
generally subject to United States federal income tax at a maximum rate of
20% if such individual has held his or her NeXstar common stock for more
than one year at the time of the merger, and at ordinary income rates (as
a short-term capital gain) if the individual has held his or her NeXstar
common stock for one year or less at the time of the consummation of the
merger. The deductibility of capital losses may be limited.
There are other tax-related issues that you should be aware of such as:
- REPORTING REQUIREMENTS. Each NeXstar stockholder that receives Gilead
common stock in the merger will be required to file a statement with his
or her federal income tax return setting forth his or her basis in the
NeXstar common stock surrendered and the fair market value of the
53
<PAGE>
Gilead common stock and cash received in the merger, and to retain
permanent records of these facts relating to the merger.
- BACKUP WITHHOLDING. Unless an exemption applies under applicable law and
regulations, the exchange agent is required to withhold, and will
withhold, 31% of any cash payments for fractional shares to a NeXstar
stockholder in the merger unless the stockholder provides the appropriate
form as described below. Each NeXstar stockholder should complete and sign
the Substitute Form W-9 included with the letter of transmittal to be sent
to each NeXstar stockholder, so as to provide the information, including
such stockholder's taxpayer identification number, and certification
necessary to avoid backup withholding, unless an applicable exemption
exists and is proved in a manner satisfactory to Gilead and the exchange
agent.
- CONSEQUENCES OF IRS CHALLENGE. A successful IRS challenge to the
reorganization status of the merger would result in significant tax
consequences. NeXstar stockholders would recognize gain or loss with
respect to each share of NeXstar common stock surrendered in the merger.
Such gain or loss would be equal to the difference between the
stockholder's basis in such share and the sum of the fair market value, as
of the Effective Time, of the Gilead common stock received in the merger
and any cash received instead of a fractional share of Gilead common
stock. In such event, a stockholder's aggregate basis in the Gilead common
stock so received would equal its fair market value as of the Effective
Time and the stockholder's holding period for such stock would begin the
day after the merger is consummated.
Even if the merger qualifies as a reorganization, a recipient of Gilead
common stock would recognize income to the extent that, for example, any such
shares were determined to have been received in exchange for services, to
satisfy obligations or in consideration for anything other than the NeXstar
capital stock surrendered. Generally, such income would be taxable as ordinary
income upon receipt. In addition, to the extent that NeXstar stockholders were
treated as receiving, directly or indirectly, consideration other than Gilead
common stock in exchange for their NeXstar capital stock, gain or loss would
have to be recognized.
The preceding discussion is not meant to be a complete analysis or
discussion of all potential tax effects relevant to the merger. Thus, NeXstar
stockholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the merger, including tax return reporting requirements,
federal, state, local and other applicable tax laws and the effect of any
proposed changes in the tax laws.
ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the merger is conditioned upon receipt by Gilead of a letter
from Ernst & Young LLP, Gilead's independent auditors, reaffirming the firm's
concurrence with Gilead's management's conclusions as to the appropriateness of
pooling-of-interests accounting for the merger under APB No. 16, if consummated
in accordance with the merger agreement.
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
promulgated thereunder by the Federal Trade Commission, the merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the United States Department
of Justice and specified waiting period requirements have been satisfied. Gilead
and NeXstar each filed notification and report forms under the Hart-Scott-Rodino
Act with the FTC and the Antitrust Division on March 19, 1999, and Gilead and
NeXstar received notice of the early termination of the waiting period April 2,
1999. At any time before or after the consummation of
54
<PAGE>
the merger, and regardless of whether the Hart-Scott-Rodino Act waiting period
has been terminated, the Antitrust Division 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 consummation of the merger or seeking
divestiture of substantial assets or business of Gilead or NeXstar. At any time
before or after the consummation of the merger, and regardless of whether the
Hart-Scott-Rodino Act waiting period has been terminated, any state could take
action under its antitrust laws as it deems necessary or desirable in the public
interest. That action could include seeking to enjoin the consummation of the
merger or seeking divestiture of substantial assets or businesses of Gilead or
NeXstar. Private parties may also seek to take legal action under antitrust
laws.
Based on information available to them, Gilead and NeXstar believe that the
merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
merger on antitrust grounds will not be made or that, if such a challenge were
made, Gilead and NeXstar would prevail or would not be required to accept
conditions, possibly including certain divestitures, in order to consummate the
merger.
Consummation of the merger is conditioned upon the expiration or termination
of the waiting period requirements of the Hart-Scott-Rodino Act. Gilead and
NeXstar may waive this condition in accordance with the terms of the merger
agreement. Although Gilead and NeXstar have agreed to use their reasonable
efforts to comply with the Hart-Scott-Rodino Act, there can be no assurance
regarding the timing of the expiration of the waiting period or that additional
approvals will not be required.
NO APPRAISAL RIGHTS
NeXstar and Gilead are each incorporated under Delaware law, and the
Delaware General Corporation Law governs the availability of appraisal rights
with respect to mergers involving NeXstar and Gilead. NeXstar and Gilead
stockholders are not entitled to appraisal rights under the Delaware General
Corporation Law in connection with the merger.
RESALE OF GILEAD COMMON STOCK
Gilead common stock issued in connection with the merger will be freely
transferable, except that shares issued to any NeXstar stockholder who is an
affiliate of NeXstar or who becomes an affiliate of Gilead are subject to
restrictions on resale under federal securities laws and under certain
agreements entered into with Gilead relating to pooling-of-interests accounting.
An "affiliate" is defined generally as including, without limitation, directors,
certain executive officers and other persons who control a company. Gilead has
agreed to enter into a registration rights agreement with certain affiliates of
NeXstar in order to permit those affiliates, subject to restrictions contained
in the registration rights agreement and restrictions relating to
pooling-of-interests accounting, freely to resell their shares of Gilead common
stock issued in connection with the merger.
VOTING AGREEMENTS
All of NeXstar's directors, Warburg, Pincus Investors L.P. and Warburg,
Pincus Capital Partners Liquidating Trust, who own in the aggregate issued and
outstanding shares of NeXstar common stock representing approximately 30.6% of
the shares of NeXstar common stock issued and outstanding as of the NeXstar
record date, have agreed that, prior to the earlier of the effective time of the
merger or the termination of the merger agreement, they will vote their shares
of NeXstar common stock in favor of:
- the merger;
- the adoption and approval of the terms of the merger agreement; and
- each of the other actions contemplated by the merger agreement.
55
<PAGE>
However, if the average of the closing prices of Gilead common stock for the
20 trading days ending on the day that is three trading days prior to the day
that NeXstar stockholders vote on the merger is less than $27.00, the voting
agreements may be terminated.
Each of the stockholders who entered into a voting agreement has also agreed
that, during the period commencing on the date of the voting agreement and
ending on the earlier of the effective time of the merger or the termination of
the merger agreement, such stockholder will not, in his capacity as a
stockholder, directly or indirectly, and will not authorize any of its
representatives to:
- solicit, initiate or encourage the submission or announcement of any
Takeover Proposal, as defined on page 67 under the caption
"Non-Solicitation";
- participate in any discussions or negotiations regarding, or furnish to
any person any information with respect or in response to, or take any
other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; or
- induce or encourage any other stockholder of NeXstar to vote against, or
to fail to vote in favor of, the approval and adoption of the merger
agreement, the approval of the merger or any of the other actions
contemplated by the merger agreement.
All stockholders who entered into voting agreements with Gilead have also
agreed to cease, and to ensure any of such stockholders' representatives cease,
any existing discussions with any person that relate to a Takeover Proposal.
AFFILIATE AGREEMENTS
It is a condition to Gilead's obligation to consummate the merger that each
person who could reasonably be deemed to be an affiliate of NeXstar execute an
agreement that, during the period from the date of the affiliate agreement
through the date on which financial results covering at least 30 days of
post-merger combined operations of Gilead and NeXstar have been published by
Gilead, prohibits the sale, transfer or other disposition by such affiliate or
reduction of such affiliate's interest in or risk relating to:
- any capital stock of NeXstar, except pursuant to and upon consummation of
the merger,
- any option or other right to purchase shares of capital stock of NeXstar,
except pursuant to and upon consummation of the merger;
- any shares of capital stock of Gilead; or
- any option or other right to purchase any shares of capital stock of
Gilead.
SHARE OPTION AGREEMENT
The following is a summary of the material provisions of the share option
agreement, a copy of which is attached as Appendix B to this joint proxy
statement/prospectus. We encourage you to read the share option agreement in its
entirety.
NUMBER OF SHARES/EXERCISE PRICE
Simultaneously with the execution of the merger agreement, NeXstar granted
to Gilead an option to purchase a number of shares of NeXstar common stock equal
to up to 19.9% of the shares of NeXstar common stock outstanding as of the date
of the share option agreement at an exercise price of $17.48 per share. The
exercise price is subject to adjustment.
56
<PAGE>
EXERCISABILITY
The option will become exercisable following the occurrence of an exercise
event (as defined below) until the earlier of:
- the date the merger becomes effective;
- one year after the date on which Gilead receives written notice from
NeXstar of the occurrence of an exercise event; or
- the date on which the merger agreement is validly terminated if an
exercise event has not occurred on or prior to such date.
An "exercise event" is deemed to occur if Gilead has the right to terminate
the merger agreement as a result of:
- NeXstar's stockholders failing to approve the merger and the merger
agreement at the special meeting of NeXstar's stockholders and a Takeover
Proposal, has been announced or made;
- NeXstar's special meeting being canceled or otherwise not held or a final
vote of NeXstar's stockholders with respect to the merger not having been
taken prior to September 15, 1999 except as a result of a judgment,
injunction, order or decree or events or circumstances beyond the
reasonable control of NeXstar; or
- the occurrence of any of the Triggering Events described on page 70 under
the caption "Termination."
REPURCHASE OF THE OPTION OF GILEAD
For a specified period of time after the occurrence of an exercise event,
Gilead has the right to require NeXstar to repurchase from Gilead the
unexercised portion of the option and all shares of NeXstar common stock
purchased by Gilead pursuant to the option that Gilead then owns at prices
specified in the share option agreement.
PROFIT LIMITATION
Gilead may not exercise its rights under the share option agreement in a
manner that would result in a cash payment to Gilead of an aggregate amount
under the share option agreement and under the termination fee provisions of the
merger agreement of more than the sum of:
- the aggregate exercise price paid by Gilead for any NeXstar shares
acquired by Gilead upon exercise of the option, plus
- $18,000,000.
57
<PAGE>
THE MERGER AGREEMENT
GENERAL
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Appendix A to this joint proxy
statement/prospectus. This summary is not complete and stockholders are urged to
read the merger agreement in its entirety.
The merger agreement provides for the merger of Gazelle Acquisition Sub with
and into NeXstar. As a result of the merger, NeXstar will become a wholly owned
subsidiary of Gilead and the former stockholders of NeXstar will become
stockholders of Gilead. Gazelle Acquisition Sub has been formed solely for the
purpose of effecting the merger, and there will be no other activity in Gazelle
Acquisition Sub. The merger will become effective upon the filing of a
certificate of merger with the Delaware Secretary of State or such later time as
may be specified in the certificate of merger. The effective time of the merger
will occur no later than the fifth business day after all the conditions to
closing have been met or waived. It is currently anticipated that the effective
time will occur on or shortly after July 29, 1999. There can be no assurance,
however, that the required approvals will be obtained or that the other
conditions to the merger will be satisfied by such date, or at all, or that the
merger agreement will not be terminated. See "Conditions to the Merger" (page
62) and "Termination" (page 70).
MERGER CONSIDERATION
If the merger is approved and completed, holders of NeXstar common stock
will receive a fraction of a share of Gilead common stock in exchange for each
share of NeXstar common stock that they own. This fraction will be determined
based upon the average of the closing prices of Gilead common stock for the
period of 20 trading days ending on the day that is three trading days prior to
the day that the NeXstar stockholders vote on the merger. If this 20-day average
is between $36.47 and $45.88, for each share of NeXstar common stock NeXstar
stockholders will receive 0.4250 of a share of Gilead common stock. If this
20-day average is below $36.47 but greater than $31.00, for each share of
NeXstar common stock NeXstar stockholders will receive a fraction of a share of
Gilead common equal to $15.50 divided by that 20-day average. If this 20-day
average is above $45.88 but less than $51.50, for each share of NeXstar common
stock NeXstar stockholders will receive a fraction of a share of Gilead common
stock equal to $19.50 divided by that 20-day average. If this 20-day average is
less than $31.00, for each share of NeXstar common stock NeXstar stockholders
will receive 0.5000 of a share of Gilead common stock. If this 20-day average is
greater than $51.50, for each share of NeXstar common stock NeXstar stockholders
will receive 0.3786 of a share of Gilead common stock. Gilead has established a
toll free telephone number that NeXstar stockholders may call at any time
commencing on or soon after the close of trading on July 26, 1999 and prior to
the day they vote on the merger that will tell them the fraction of a share of
Gilead common stock they will receive in the merger. This number is
1-800-207-3158.
The following table shows the fraction of a share of Gilead common stock
that NeXstar stockholders would receive for each share of NeXstar common stock
they own based upon a range of the average closing prices of Gilead common stock
over 20 trading days ending on the day that is three
58
<PAGE>
days prior to the day that the NeXstar stockholders vote on the merger and also
shows the implied value of that fraction of a share of Gilead common stock:
<TABLE>
<CAPTION>
AND THE IMPLIED VALUE* OF
THE FRACTION OF A SHARE OF
THEN EACH SHARE OF NEXSTAR GILEAD COMMON STOCK THAT A
COMMON STOCK WOULD BE NEXSTAR STOCKHOLDER WOULD
CONVERTED INTO THE FOLLOWING RECEIVE FOR EACH SHARE OF
APPROXIMATE FRACTION OF A NEXSTAR COMMON STOCK WOULD
IF THE 20-DAY AVERAGE* IS: SHARE OF GILEAD COMMON STOCK: BE:
- --------------------------------------------------------- ----------------------------- ---------------------------
<S> <C> <C>
$60.00................................................... 0.3786 $ 22.72
$59.00................................................... 0.3786 $ 22.34
$58.00................................................... 0.3786 $ 21.96
$57.00................................................... 0.3786 $ 21.58
$56.00................................................... 0.3786 $ 21.20
$55.00................................................... 0.3786 $ 20.82
$54.00................................................... 0.3786 $ 20.44
$53.00................................................... 0.3786 $ 20.07
$52.00................................................... 0.3786 $ 19.69
$51.50................................................... 0.3786 $ 19.50
$51.00................................................... 0.3824 $ 19.50
$50.00................................................... 0.3900 $ 19.50
$49.00................................................... 0.3980 $ 19.50
$48.00................................................... 0.4063 $ 19.50
$47.00................................................... 0.4149 $ 19.50
$46.00................................................... 0.4239 $ 19.50
$45.88................................................... 0.4250 $ 19.50
$45.00................................................... 0.4250 $ 19.13
$44.00................................................... 0.4250 $ 18.70
$43.00................................................... 0.4250 $ 18.28
$42.00................................................... 0.4250 $ 17.85
$41.00................................................... 0.4250 $ 17.43
$40.00................................................... 0.4250 $ 17.00
$39.00................................................... 0.4250 $ 16.58
$38.00................................................... 0.4250 $ 16.15
$37.00................................................... 0.4250 $ 15.73
$36.47................................................... 0.4250 $ 15.50
$36.00................................................... 0.4306 $ $15.50
$35.00................................................... 0.4429 $ 15.50
$34.00................................................... 0.4559 $ 15.50
$33.00................................................... 0.4697 $ 15.50
$32.00................................................... 0.4844 $ 15.50
$31.00................................................... 0.5000 $ 15.50
$30.00................................................... 0.5000 $ 15.00
$29.00................................................... 0.5000 $ 14.50
$28.00................................................... 0.5000 $ 14.00
$27.00................................................... 0.5000 $ 13.50
$26.00................................................... 0.5000 $ 13.00
$25.00................................................... 0.5000 $ 12.50
</TABLE>
- --------------------------
* The 20-day average is based on on the average of the closing prices of
Gilead common stock over 20 trading days ending on the day that is three
trading days prior to the day that the NeXstar stockholders vote on the
merger. The "implied value" is based the 20-day average. Implied value may
be significantly greater than or less than the value determined by reference
to the actual trading price of Gilead common stock at the time of the
NeXstar special meeting, completion of the merger, the date that NeXstar
stockholders receive shares of Gilead common stock or the date NeXstar
stockholders sell the Gilead shares.
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NO FRACTIONAL SHARES. No fractional shares of Gilead common stock will be
issued in connection with the merger. Each holder of NeXstar common stock who
would otherwise be entitled to a fraction of a share of Gilead common stock will
be entitled to receive a cash payment equal to his or her proportionate interest
in the net proceeds from the sale by Gilead's exchange agent of all fractional
shares that would have been issuable in the merger.
STOCK OPTIONS, WARRANTS, EMPLOYEE STOCK PURCHASE PLAN AND CONVERTIBLE DEBENTURES
STOCK OPTIONS AND WARRANTS. At the effective time, all outstanding options
with respect to NeXstar common stock under NeXstar's 1998 Stock Option Plan,
1993 Incentive Stock Plan and 1995 Director Option Plan and all outstanding
warrants to purchase NeXstar common stock will be assumed by Gilead. From and
after the effective time of the merger:
- each NeXstar option and warrant assumed by Gilead may be exercised solely
for shares of Gilead common stock;
- the number of shares of Gilead common stock subject to each NeXstar option
and warrant and the exercise price of each option and warrant will be
adjusted to reflect the exchange ratio;
- any restriction on the exercise of any such NeXstar option or warrant will
continue in full force and effect; and
- the term, exercisability, vesting schedule and other provisions of such
NeXstar option or warrant will remain unchanged unless amended or modified
by existing severance or employment agreements in connection with the
merger.
EMPLOYEE STOCK PURCHASE PLAN. Immediately prior to the effective time of
the merger, the then-current offering period under the Nexstar Employee Stock
Purchase Plan will be terminated, and all of the participants' existing payroll
accumulation accounts will be used to purchase NeXstar common stock. Thereafter,
the NeXstar Employee Stock Purchase Plan will terminate, and all of such
participants' rights thereunder will be extinguished.
CONVERTIBLE DEBENTURES. Gilead has agreed to cause NeXstar, which will be a
wholly owned subsidiary of Gilead, to comply with the terms of the Indenture,
dated as of July 31, 1997 between NeXstar and IBJ Shroder Bank & Trust Company
from and after the effective time of the merger. In addition, from and after the
effective time of the merger:
- NeXstar's 6 1/4% convertible subordinated debentures may be converted
solely into shares of Gilead common stock;
- the number of shares of Gilead common stock into which each debenture will
convert after the merger will be equal to the number of shares of NeXstar
common stock into which each debenture could have been converted
immediately before the merger multiplied by the same fraction used to
determine the number of shares of Gilead common stock that the holder of a
share of NeXstar common stock receives in the merger; and
- the conversion price of each debenture after the merger for each share of
Gilead common stock will be $16.875 divided by the same fraction used to
determine the number of shares of Gilead common stock that the holder of a
share of NeXstar common stock receives in the merger.
In addition, within 15 days of the closing of the merger, NeXstar, which
will be a wholly owned subsidiary of Gilead, will notify the holders of
debentures of the closing of the merger. The holders of debentures will then
have the right, exercisable for 30 days after NeXstar gives that notice, to
elect to have NeXstar repurchase their debentures for a price equal to 100%
of the principal amount of the debentures held plus accrued and unpaid
interest on the day that the
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debentures are repurchased. As of June 22, 1999, the aggregate principal
amount on all outstanding debentures was $80 million and the aggregate
amount of unpaid interest accrued on all of the outstanding debentures was
approximately $1,972,000.
OWNERSHIP OF GILEAD FOLLOWING THE MERGER
Depending on the average of the closing prices of Gilead common stock for 20
trading days ending on the day that is three trading days prior to the day that
the NeXstar stockholders vote on the merger, we anticipate that NeXstar
stockholders will collectively receive approximately 11,110,000 to 14,670,000
shares of Gilead common stock in the merger based on the number of shares of
NeXstar common stock outstanding on June 22, 1999. Based on these numbers, and
based upon the number of shares of Gilead Common Stock outstanding on June 22,
1999, existing NeXstar stockholders will own between 26.3% and 32.1% of the
Gilead common stock outstanding immediately after the merger.
The following table shows the approximate number of shares of Gilead common
stock that NeXstar stockholders would collectively receive in the merger and the
percentage of Gilead common stock they would own immediately after the merger
based upon a range of average 20 trading day closing prices of Gilead common
stock and based upon the number of shares of Gilead Common Stock outstanding on
June 22, 1999.
<TABLE>
<CAPTION>
THEN THE FORMER NEXSTAR
STOCKHOLDERS WOULD AND THE FORMER HOLDERS OF
COLLECTIVELY RECEIVE THE NEXSTAR COMMON STOCK WOULD HOLD
FOLLOWING NUMBER OF THE FOLLOWING PERCENTAGE OF THE
SHARES OF GILEAD COMMON OUTSTANDING GILEAD COMMON STOCK
IF THE 20-DAY AVERAGE IS: STOCK: IMMEDIATELY AFTER THE MERGER:
- -------------------------------------------------------- ------------------------ -------------------------------
<S> <C> <C>
$51.50 or greater....................................... 11,108,397 26.3%
$51.00.................................................. 11,219,892 26.5%
$50.00.................................................. 11,442,881 26.9%
$49.00.................................................. 11,677,607 27.3%
$48.00.................................................. 11,921,135 27.7%
$47.00.................................................. 12,173,465 28.2%
$46.00.................................................. 12,437,532 28.6%
Less than or equal to $45.88 and greater than or equal
to $36.47............................................. 12,469,807 28.6%
$36.00.................................................. 12,634,115 28.9%
$35.00.................................................. 12,995,006 29.5%
$34.00.................................................. 13,376,435 30.1%
$33.00.................................................. 13,781,337 30.7%
$32.00.................................................. 14,212,646 31.4%
$31.00 or less.......................................... 14,670,361 32.1%
</TABLE>
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
After the effective time of the merger, the exchange agent will mail to the
registered holders of NeXstar common stock a letter of transmittal and
instructions for use in effecting the exchange of NeXstar stock certificates.
Each holder of a NeXstar stock certificate will receive a certificate
representing the number of shares of Gilead common stock into which his or her
shares have been converted. Each holder of NeXstar common stock who would
otherwise be entitled to a fraction of a share of Gilead common stock will be
entitled to receive a cash payment equal to the holders proportionate interest
in the net proceeds from the sale by Gilead's exchange agent of all fractional
shares that would otherwise have been issuable in the merger.
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If any NeXstar stock certificate has been lost, stolen or destroyed, Gilead
may require the owner of such lost, stolen or destroyed NeXstar stock
certificate to provide an appropriate affidavit and to deliver a bond as
indemnity against any claim that may be made against the exchange agent, Gilead
or NeXstar.
NEXSTAR STOCKHOLDERS SHOULD NOT SURRENDER THEIR NEXSTAR STOCK CERTIFICATES
FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
EFFECT ON CERTIFICATES
At the effective time of the merger:
- all outstanding shares of NeXstar common stock will automatically be
converted into the right to receive Gilead common stock and cash instead
of fractional shares, and all holders of NeXstar stock certificates will
have no further rights as stockholders of NeXstar; and
- the stock transfer books of NeXstar will be closed.
If, after the effective time of the merger, a NeXstar stock certificate is
presented to the exchange agent, NeXstar or Gilead, such stock certificate will
be canceled and will be exchanged as provided above under the caption
"Conversion of Shares; Procedure for Exchange of Certificates."
CORPORATE MATTERS
At the effective time of the merger, the certificate of incorporation of
NeXstar as the surviving corporation in the merger will be the certificate of
incorporation of Gazelle Acquisition Sub and by-laws of NeXstar as the surviving
corporation will be amended and restated to conform to the by-laws of Gazelle
Acquisition Sub. Immediately after the effective time of the merger, the
directors and officers of Gazelle Acquisition Sub will become the directors and
officers of NeXstar as the surviving corporation.
CONDITIONS TO THE MERGER
The respective obligations of Gilead and Gazelle Acquisition Sub, on the one
hand, and NeXstar, on the other hand, 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:
- The merger and the merger agreement and related transactions shall have
been approved by the required vote of NeXstar's stockholders;
- The issuance of Gilead common stock in the merger shall have been approved
by the required vote of Gilead's stockholders;
- The antitrust waiting period under the Hart-Scott-Rodino Act shall have
expired or been terminated;
- No preliminary or permanent injunction or other order shall have been
issued by any court or by any governmental or regulatory agency, body or
authority which enjoins, restrains or prohibits the transactions
contemplated by the merger agreement or has the effect of making the
merger illegal and which is in effect at the effective time;
- No statute, rule, regulation, executive order, decree or order shall have
been enacted, entered, promulgated or enforced by any court or
governmental authority which prohibits the merger or has the effect of
making the merger illegal and which remains in effect at the effective
time;
- The Gilead common stock issuable to NeXstar stockholders in the merger
shall have been approved for quotation on the Nasdaq National Market upon
official notice of issuance;
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- The registration statement of which this joint proxy statement/prospectus
forms a part shall have become effective and shall not be the subject of
any stop order or proceedings seeking a stop order; and
- Gilead shall have received a letter from Ernst & Young confirming the
concurrence of Ernst & Young with Gilead's management's conclusion as to
the appropriateness of accounting for the merger as a pooling of
interests.
The obligations of Gilead and Gazelle Acquisition Sub to effect the merger
are also subject to the satisfaction or waiver, at or prior to the effective
time of the merger, of each of the following conditions:
- The representations and warranties of NeXstar in the merger agreement must
be true and correct in all material respects as of the signing of the
merger agreement and at and as of the closing of the merger, unless the
failure of such representations and warranties to be true and correct in
all material respects does not, individually or in the aggregate,
materially and adversely affect the value of NeXstar and its subsidiaries
taken as a whole, including the representation and warranty that there
shall not have been any material adverse change in the business,
properties, assets, liabilities, condition, operations or results of
operations of NeXstar and its subsidiaries taken as a whole since
September 30, 1998 and through the effective time of the merger;
- NeXstar shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants,
contained in the merger agreement to be performed or complied with by it
on or prior to the closing;
- Gilead shall have received the opinion of Cooley Godward LLP that the
merger will be treated for United States federal income tax purposes as a
reorganization;
- All material consents required to be obtained in connection with the
merger and the other transactions contemplated by the merger agreement
shall have been obtained and shall be in full force and effect; and
- There shall not be pending and there shall not have been threatened any
action, suit or proceeding in which a government entity is or is
threatened to become a party or is otherwise involved:
-- challenging or seeking to restrain or prohibit the consummation of the
merger or any of the other transactions contemplated by the merger
agreement;
-- relating to the merger and seeking to obtain from Gilead or NeXstar or
any of their subsidiaries, any damages or other relief that are or are
likely to be material to Gilead;
-- seeking to prohibit or limit in any material respect Gilead's ability
to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of NeXstar; or
-- which would materially and adversely affect the right of Gilead,
NeXstar or any of NeXstar's subsidiaries to own the assets or operate
the business of NeXstar and its subsidiaries.
The obligation of NeXstar to effect the merger is also subject to the
satisfaction or waiver, at or prior to the effective time of the merger, of each
of the following conditions:
- The representations and warranties of Gilead in the merger agreement must
be true and correct in all material respects as of the signing of the
merger agreement and at and as of the closing of the merger, unless the
failure of such representations and warranties to be true and correct in
all material respects does not, individually or in the aggregate,
materially and adversely affect
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the value of Gilead and its subsidiaries taken as a whole, including the
representation and warranty that there shall not have been any material
adverse change in the business, properties, assets, liabilities,
condition, operations or results of operations of Gilead and its
subsidiaries taken as a whole since December 31, 1998 and through the
effective time of the merger;
- Gilead shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants,
contained in the merger agreement to be performed or complied with by it
on or prior to the closing; and
- NeXstar shall have received the opinion of Willkie Farr & Gallagher that
the merger will be treated for United States federal income tax purposes
as a reorganization.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains
representations and warranties of Gilead and NeXstar, including representations
and warranties relating to:
- due organization, good standing and corporate power;
- authorization, validity and enforceability of the merger agreement;
- capitalization;
- required consents and approvals, and absence of conflicts of the
contemplated transactions with governing documents, and violations of any
agreements and laws;
- filings with the SEC and financial statements;
- absence of changes;
- regulatory compliance;
- compliance with laws;
- litigation;
- employee benefit plans;
- taxes;
- absence of undisclosed liabilities;
- proprietary assets;
- financial advisor fees or commissions;
- tax treatment of the merger;
- unlawful payments;
- governmental authorizations; and
- year 2000 compliance.
The merger agreement contains further representations and warranties by
NeXstar as to:
- the vote required to approve the merger and merger agreement;
- the receipt of a fairness opinion from Morgan Stanley;
- the supply of certain materials;
- its receivables;
- employment agreements;
- transactions with affiliates; and
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- insurance.
The merger agreement contains further representations and warranties by
Gilead and Gazelle Acquisition Sub as to:
- the vote required to approve the issuance of Gilead common stock in the
merger;
- the receipt of a fairness opinion from J.P. Morgan; and
- interim operations of Gazelle Acquisition Sub.
COVENANTS
CONDUCT OF NEXSTAR'S BUSINESS. The merger agreement requires that, during
the period between the signing of the merger agreement and the effective time of
the merger, NeXstar and each of its subsidiaries will conduct their respective
operations in all material respects only according to their ordinary and usual
course of business and will use their reasonable efforts to:
- preserve intact their respective business organizations;
- keep available the services of their directors, officers and employees;
- preserve in full force and effect all material licenses and approvals held
by them; and
- maintain satisfactory relationships with suppliers, distributors, clients
and others having material business relationships with them.
In addition, NeXstar has agreed that, during the period between the signing
of the merger agreement and the effective time of the merger, unless otherwise
approved by Gilead, it and its subsidiaries will not:
- make any change in their charter or organizational documents;
- subject to specific exceptions, issue or sell any shares of their capital
stock or other securities;
- make any other changes in their capital structure;
- declare, pay or make any dividend or other distribution or payment with
respect to, or split, combine, redeem or reclassify, any shares of their
capital stock or other securities;
- subject to specific exceptions, make or authorize any capital expenditures
in excess of $200,000 individually, or $1,000,000 in the aggregate;
- enter into or amend in any material respect any material contracts or
commitments except for contracts and amendments made in the ordinary
course of business, consistent with past practice and containing only
normal and customary terms;
- acquire, lease or license any rights or other assets, other than in the
ordinary course of business and consistent with past practice;
- acquire, lease or license any rights or other assets having a value in an
amount in excess of $200,000 individually, or $1,000,000 in the aggregate;
- dispose of other than in the ordinary course of business and consistent
with past practice, a material amount of assets or release, relinquish or
assign any material rights under any material contract;
- except as contemplated by the merger agreement or as may be required by
law, establish, adopt, enter into, accelerate the vesting under or amend
any benefit plan or program, employment agreement, option, license
agreement or retirement agreement, or pay any bonus or contingent
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<PAGE>
compensation, except any bonuses or other payments required under any
existing compensation programs or benefit plans or arrangements disclosed
to Gilead by NeXstar;
- increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to any of its directors,
officers or employees, except for routine, reasonable salary increases to
NeXstar's non-officer employees in connection with NeXstar's customary
employee review process;
- hire any employee with an annual base salary in excess of $100,000;
- change any of its sales policies, revenue recognition policies, product
return policies, personnel policies or other business policies outside the
ordinary course of business;
- take or permit to be taken any action that would adversely affect its
ability to consummate the merger or the other transactions contemplated by
the merger agreement or could preclude Gilead from accounting for the
merger as a "pooling of interests";
- take or permit to be taken any action that could reasonably be expected to
prevent the merger from constituting a reorganization within the meaning
of Section 368(a) of the Code;
- make any material tax election;
- form or acquire any subsidiary;
- enter into any hedging, option or derivative or other similar transaction
or any foreign exchange position or contract for the exchange of currency
outside the ordinary course of business or inconsistent with past
practices;
- suspend, terminate or otherwise discontinue or materially modify any
planned or ongoing clinical trials or similar activities relating to
DaunoXome, AmBisome, MiKasome, NX211 or NX1838;
- lend money to any person or entity or incur any indebtedness for borrowed
money other than by drawing under current revolving credit agreements, or
guarantee any indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of NeXstar or any of its
subsidiaries or guarantee any debt securities of others;
- agree, in writing or otherwise, to take any of the foregoing actions;
- make any material change in its method of accounting or record keeping not
otherwise required by United States generally accepted accounting
principles;
- commence or agree to the settlement of any material litigation; or
- purchase or acquire, or offer to purchase or acquire, any shares of their
capital stock.
CONDUCT OF GILEAD BUSINESS. The merger agreement requires that, during the
period between the signing of the merger agreement and the effective time of the
merger, except as disclosed by Gilead to NeXstar, Gilead and each of its
subsidiaries will conduct their respective operations in all material respects
only according to their ordinary and usual course of business and will use their
reasonable efforts to preserve intact their respective business organizations;
- keep available the services of their directors, officers and employees;
- preserve in full force and effect all material licenses and approvals held
by them; and
- maintain satisfactory relationships with suppliers, distributors, clients
and others having material business relationships with them.
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NON-SOLICITATION
NeXstar has agreed that it will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any of its or its subsidiaries'
officers or directors, investment bankers, attorneys or other advisors or
representatives to, directly or indirectly:
- solicit, initiate or encourage the submission or announcement of any
Takeover Proposal (as defined below); or
- participate in any discussions or negotiations regarding, or furnish to
any person or entity any information with respect or in response to, or
take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal.
If, however, prior to taking any of those actions:
- neither NeXstar nor any subsidiary or representative of NeXstar or any of
its subsidiaries has violated any of the restrictions set forth above or
various related restrictions;
- the board of directors of NeXstar determines in good faith, based upon the
advice of outside counsel, that such action is required in order for the
board of directors of NeXstar to comply with its fiduciary duties to
NeXstar's stockholders under applicable law; and
- NeXstar has promptly advised Gilead orally and in writing of any request
for information or of any Takeover Proposal, or any inquiry with respect
to or which could reasonably be expected to lead to any Takeover Proposal,
the material terms and conditions of such request, Takeover Proposal or
inquiry, and the identity of the person or entity making any such Takeover
Proposal or inquiry, and at least two business days have elapsed since the
delivery to Gilead of that notice and information.
then NeXstar may, prior to the adoption and approval of the merger agreement by
its stockholders, in response to a Takeover Proposal that has not been withdrawn
and that, but for the inclusion of a "due diligence condition" as part of such
Takeover Proposal, constitutes a Superior Proposal (as defined below):
- furnish certain information with respect to NeXstar to the person or
entity who made such Takeover Proposal pursuant to a customary
confidentiality agreement; and
- participate in discussions or negotiations with such person or entity
regarding the Takeover Proposal.
The merger agreement also provides that a breach of the non-solicitation
covenant by any advisor or representative of NeXstar would be deemed a breach by
NeXstar.
NeXstar also agreed, at the time of the signing of the merger agreement, to
immediately cease and cause to be terminated any existing discussions or
negotiations with any person or entity that relate to any Takeover Proposal.
A "Takeover Proposal" is any:
- offer, inquiry or proposal for, relating to or contemplating a merger,
consolidation, amalgamation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction or series of transactions:
-- in which NeXstar or any of its material subsidiaries is a constituent
company;
-- in which a person, entity or group of persons or entities directly or
indirectly acquires NeXstar or any material subsidiary of NeXstar or
more than 20% of NeXstar's business or directly or indirectly acquires
beneficial or record ownership of securities representing, or
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exchangeable for or convertible into, more than 20% of the outstanding
securities of any class of voting securities of NeXstar or any
material subsidiary of NeXstar; or
-- in which NeXstar or any material subsidiary of NeXstar issues
securities representing more than 20% of the outstanding securities of
any class of voting securities of NeXstar or such material subsidiary
of NeXstar; or
- offer, inquiry or proposal for, relating to or contemplating a transaction
(including any joint venture, collaboration or similar transaction)
involving the sale, lease, exchange, transfer, license, acquisition or
disposition or sharing of control of any material portion of the
intellectual property rights or other rights or assets of NeXstar or any
material subsidiary of NeXstar, other than the transactions contemplated
by the merger agreement.
A "Superior Proposal" is any unsolicited bona fide written offer made by a
third party:
- to enter into a merger or business combination with NeXstar whereby the
shares of NeXstar common stock and other equity securities of NeXstar that
are outstanding immediately before such merger or business combination
would be exchanged for or converted into shares of common stock and other
equity securities of such third party that, on a fully diluted basis,
represent less than 50% of the common stock of that third party
outstanding immediately after such merger or business combination;
- to purchase, for a combination of cash and securities, more than 50% of
the outstanding shares of NeXstar common stock, if the common stock and
other securities of that third party that would be received by holders of
NeXstar common stock represents less than 50% of the common stock, on a
fully diluted basis, of that third party outstanding immediately after
such transaction; or
- to purchase for cash more than 50% of the outstanding shares of NeXstar
common stock;
that is on terms which the board of directors of NeXstar determines in its good
faith reasonable judgment, based upon the written opinion of a financial advisor
of nationally recognized reputation, to be more favorable to NeXstar's
stockholders than the merger.
The merger agreement provides that an offer that otherwise meets the
criteria described above is not a "Superior Proposal" if any financing required
to consummate the transaction contemplated by such offer is not committed and is
not likely to be obtained on a timely basis by the third party.
RECOMMENDATION OF NEXSTAR BOARD OF DIRECTORS
The merger agreement provides that the board of directors of NeXstar and any
committee of that board may not:
- withdraw or modify, or propose or resolve to withdraw or modify, in a
manner adverse to Gilead or Gazelle Acquisition Sub, its approval and
recommendation of the merger agreement or the merger;
- approve or recommend, or propose to approve or recommend, any Takeover
Proposal; or
- enter into any agreement or letter of intent with respect to any Takeover
Proposal.
However, the board of directors of NeXstar may appropriately withdraw or
modify its approval or recommendation of the merger agreement or the merger if,
prior to the adoption and approval of the merger agreement by the stockholders
of NeXstar:
- the board of directors of NeXstar receives a Superior Proposal that is not
withdrawn;
- neither NeXstar nor any subsidiary or representative of NeXstar or any of
its subsidiaries shall have violated any of the non-solicitation or
related covenants contained in the merger agreement;
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- the board of directors of NeXstar concludes in good faith, based upon the
advice of its outside counsel, that, in light of such Superior Proposal,
the withdrawal or modification of such recommendation is required in order
for it to comply with its fiduciary obligations to NeXstar's stockholders
under applicable law;
- NeXstar provided Gilead with at least two business days' prior notice of
any meeting of its board of directors at which its board of directors is
expected to consider such Superior Proposal; and
- NeXstar's board of directors does not withdraw or modify its
recommendation in favor of the merger for at least two business days after
it provides Gilead with the name of the person or entity making the
Superior Proposal and a copy of the Superior Proposal.
NeXstar must call, give notice of, convene and hold the special meeting of
its stockholders to vote upon the adoption and approval of the merger agreement
and approval of the merger even if the recommendation of its board of directors
has been withdrawn or modified.
MEETING OF NEXSTAR STOCKHOLDERS
NeXstar has agreed to:
- call, give notice of, convene and hold a special meeting of its
stockholders for the purpose of voting upon the merger agreement and the
merger; and
- subject to the exception described above under "Recommendation of NeXstar
Board of Directors," include in this joint proxy statement/prospectus the
recommendation of its board of directors that its stockholders approve and
adopt the merger agreement and approve the merger at the special meeting.
NeXstar's obligation to call, give notice of, convene and hold the special
meeting will not be affected by the disclosure, announcement, commencement,
submission or making of any Superior Proposal or other Takeover Proposal, or by
any withdrawal or modification of the recommendation of the board of directors
of NeXstar with respect to the merger.
MEETING OF GILEAD STOCKHOLDERS
Gilead has agreed to:
- call, give notice of, convene and hold a meeting of its stockholders for
the purpose of voting upon the issuance of Gilead common stock in the
merger; and
- include in this joint proxy statement/prospectus the recommendation of its
board of directors that its stockholders vote in favor of the issuance of
its common stock in the merger at the annual meeting.
TAX-FREE REORGANIZATION
Each of NeXstar and Gilead has agreed not to take any action prior to the
effective time that would reasonably be expected to cause the merger to fail to
qualify as a tax-free reorganization.
INDEMNIFICATION AND INSURANCE
Gilead has also agreed that from and after the effective time:
- NeXstar, which will be a wholly owned subsidiary of Gilead will indemnify
each person who was at the time the merger agreement was signed, or who
becomes prior to the effective time of the merger, an officer or director
of NeXstar, in connection with any action or omission of such
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person in his or her capacity as an officer or director of NeXstar in
connection with the merger to the fullest extent provided for under
NeXstar's certificate of incorporation and by-laws as in effect as of the
date the merger agreement was signed or permitted or required by
applicable law; and
- all rights to indemnification existing in favor of those directors and
officers that were provided in the NeXstar certificate of incorporation or
by-laws at the time the merger agreement was signed, with respect to
matters occurring through the effective time, shall survive the merger and
shall continue in full force and effect for a period of not less than six
years from the effective time.
Gilead has agreed to guarantee the due and prompt performance in full of
these indemnification obligations.
Gilead also has agreed to use its best efforts to cause NeXstar to maintain
in effect for not less than three years after the effective time the current
policies of directors' and officers' liability insurance maintained by NeXstar
with respect to matters occurring prior to the effective time, although after
the effective time:
- the surviving corporation may substitute therefor policies of at least the
same coverage, with carriers comparable to its carriers as of the signing
date, containing terms and conditions which are no less advantageous to
those directors and officers;
- the surviving corporation is not required to pay a premium at a rate for
such insurance in excess of 200% of the annual premium rate represented by
the last premium paid prior to the date the merger agreement was signed,
but in such case shall purchase as much coverage as possible for such
amount; and
- any or all of these directors and officers shall have the right to provide
funds to the surviving corporation to fund premiums to the extent they
exceed that 200% level.
OTHER OBLIGATIONS
The merger agreement contains other covenants including covenants relating
to:
- access to information and records;
- confidentiality;
- filing of this joint proxy statement/prospectus;
- letters from each party's accountants;
- providing NeXstar employees with benefits;
- notification of significant events; and
- antitrust filings.
TERMINATION
The merger agreement provides that it may be terminated, and that the merger
may be abandoned at any time prior to the effective time of the merger, whether
before or after approval of the merger by the stockholders of NeXstar:
- by mutual consent of NeXstar, Gilead and Gazelle Acquisition Sub;
- by either Gilead or NeXstar, if the effective time of the merger shall not
have occurred by September 30, 1999 unless the failure of the effective
time to occur by September 30, 1999 is attributable to a failure on the
part of the party seeking to terminate the merger agreement to
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perform any material obligation required to be performed by such party at
or prior to the effective time of the merger;
- by Gilead if NeXstar's stockholders do not approve the merger and the
merger agreement at the special meeting of NeXstar's stockholders;
- by either Gilead or NeXstar if Gilead's stockholders do not approve the
issuance of Gilead common stock in the merger;
- by either Gilead or NeXstar, if a law or regulation makes consummation of
the merger illegal or otherwise prohibited or if any government authority
prohibits the merger and the prohibition has become final and
non-appealable;
- by Gilead if NeXstar has breached a covenant or a representation or
warranty such that conditions in the merger agreement would not be
satisfied and the breach has not been cured;
- by NeXstar if Gilead has breached a covenant or a representation or
warranty such that conditions in the merger agreement would not be
satisfied and the breach has not been cured;
- by Gilead if NeXstar's special meeting is canceled or is otherwise not
held or if a final vote of NeXstar's stockholders has not been taken with
respect to the merger prior to September 15, 1999, except as a result of a
judgment, injunction, order or decree of any competent authority or events
or circumstances beyond the reasonable control of NeXstar; or
- by Gilead if one of the following "Triggering Events" occurs:
-- the board of directors of NeXstar withdraws or modifies in a manner
adverse to Gilead its approval or recommendation to NeXstar's
stockholders of the merger agreement or the merger;
-- NeXstar fails to include in this joint proxy statement/prospectus the
recommendation of its board of directors in favor of the adoption and
approval of the merger agreement and the approval of the merger;
-- the board of directors of NeXstar approves, endorses or recommends any
Takeover Proposal;
-- a tender or exchange offer relating to securities of NeXstar is
commenced and NeXstar does not send to its security holders, within
ten business days after the commencement of such tender or exchange
offer, a statement disclosing that NeXstar recommends rejection of
that tender or exchange offer;
-- NeXstar breaches any of its non-solicitation obligations in the merger
agreement;
-- after February 28, 1999, a person, entity or group of persons or
entities directly or indirectly becomes the beneficial or record owner
of securities representing, or exchangeable for or convertible into,
at least 20% of the outstanding securities of any class of voting
securities of NeXstar or any material subsidiary of NeXstar;
-- a person or entity or group of persons or entities that, as of
February 28, 1999, directly or indirectly was the beneficial or record
owner of securities representing, or exchangeable for or convertible
into, 20% or more of the outstanding securities of any class of voting
securities of NeXstar or any material subsidiary of NeXstar, directly
or indirectly acquires beneficial or record ownership of an additional
5% of the outstanding securities of any class of voting securities of
NeXstar or any material subsidiary of NeXstar; or
-- NeXstar or its board of directors or any committee thereof shall have
resolved to do or permit any of the above mentioned actions.
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EXPENSES AND TERMINATION FEES
Except as provided below, all fees and expenses incurred in connection with
the merger, the merger agreement and the transactions contemplated by the merger
agreement will be paid by the party that incurred such fees or expenses, whether
or not the merger is consummated; provided, however, that Gilead and NeXstar
shall share equally all fees and expenses, other than attorneys' fees, incurred
in connection with:
- the filing, printing and mailing of this joint proxy statement/prospectus
and the registration statement of which this joint proxy
statement/prospectus is a part; and
- certain antitrust filings by Gilead and NeXstar.
If the merger agreement is terminated by Gilead as a result of:
- the failure of NeXstar's stockholders to approve the merger agreement at
the special meeting;
- a breach by NeXstar of a covenant or a representation or warranty
contained in the merger agreement;
- the cancellation of the NeXstar special meeting or the failure of
NeXstar's stockholders to take a final vote on the merger prior to
September 15, 1999; or
- the occurrence of one of the "Triggering Events" described above;
NeXstar is required to pay to Gilead, upon demand, all actual out-of-pocket
costs and expenses of Gilead and Gazelle Acquisition Sub incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement.
If the merger agreement is terminated by NeXstar as a result of a breach by
Gilead of a covenant or a representation or warranty contained in the merger
agreement, Gilead has agreed to pay to NeXstar upon demand, all actual
out-of-pocket costs and expenses of NeXstar incurred in connection with the
merger agreement and the transactions contemplated by the merger agreement.
NeXstar has agreed to pay to Gilead upon demand a fee of $18,000,000 if:
- Gilead terminates the merger agreement because the stockholders of NeXstar
fail to approve the merger agreement at the special meeting and at or
prior to the time of that termination a Takeover Proposal was announced or
made;
- Gilead terminates the merger agreement because the NeXstar special meeting
was cancelled or NeXstar's stockholders fail to take a final vote on the
merger prior to September 15, 1999; or
- Gilead terminates the merger agreement because the occurrence of one of
the Triggering Events described above.
Gilead has agreed to pay to NeXstar upon demand a fee of $5,000,000 if:
- NeXstar terminates the merger agreement because the stockholders of Gilead
fail to approve the issuance of Gilead common stock in the merger at the
Gilead annual meeting; and
- there shall not have occurred, and no facts, events or circumstances shall
have been publicly announced that are likely to result in, a material
adverse change to the business, properties, assets, liabilities, condition
(financial or otherwise), operations or results of operations of NeXstar
and its subsidiaries taken as a whole.
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DESCRIPTION OF GILEAD CAPITAL STOCK
The authorized capital stock of Gilead consists of 60,000,000 shares of
Gilead common stock, $.001 par value, of which, as of the Gilead record date
approximately 31,057,084 shares are outstanding, and 5,000,000 shares of
preferred stock, $.001 par value, of which, as of the date of this joint proxy
statement/prospectus no shares of series A preferred stock and approximately
1,133,786 shares of series B preferred stock are outstanding. In connection with
the Gilead annual meeting, Gilead is asking its stockholders to approve an
amendment to its restated certificate of incorporation increasing the authorized
shares of Gilead common stock to 100,000,000 shares.
GILEAD COMMON STOCK
Holders of Gilead common stock have one vote per share on all matters
submitted to a vote of stockholders. Stockholders do not have cumulative voting
rights. The holders of Gilead common stock have the right to receive dividends
if they are declared by the Gilead board of directors and there are sufficient
funds to legally pay dividends, subject to the rights of the holders of any
outstanding Gilead preferred stock to receive preferential dividends. Upon the
liquidation of Gilead, holders of Gilead common stock would share ratably in any
assets available for distribution to stockholders after payment of all
obligations of Gilead and the aggregate liquidation preference (including
accrued and unpaid dividends) of any outstanding Gilead preferred stock.
The Gilead common stock is not redeemable and has no preemptive,
subscription or conversion rights. Shares of Gilead common stock currently
outstanding are, and the Gilead common stock to be issued in the merger will be,
validly issued, fully paid and nonassessable.
ChaseMellon Stockholder Services is the transfer agent and registrar for
Gilead common stock.
GILEAD PREFERRED STOCK
The Gilead board of directors has the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of Gilead preferred stock of
which 400,000 are authorized for issuance as series A junior participating
preferred stock, none of which are outstanding, and 1,133,786 are authorized,
issued and are outstanding as series B participating preferred stock. Gilead's
board of directors may issue Gilead preferred stock in one or more series and
fix the rights, preferences, privileges and restrictions of such preferred stock
including:
- dividend rights;
- dividend rate;
- conversion rights;
- voting rights;
- rights and terms of redemption;
- redemption price or prices;
- the liquidation preferences of any wholly unissued series of preferred
stock; and
- the number of shares constituting any series or the designation of such
series.
The issuance of Gilead preferred stock could decrease the amount of earnings
and assets available for distribution to the holders of Gilead common stock or
adversely affect the rights and powers, including voting rights, of the holders
of Gilead common stock. Except as contemplated in the Gilead preferred share
purchase rights plan, dated November 21, 1994, between Gilead and First
Interstate Bank, Gilead has no present plans to issue any additional Gilead
preferred stock.
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GILEAD SERIES A PREFERRED STOCK
Holders of Gilead series A junior preferred stock have 100 votes per share
of Gilead series A junior preferred stock and vote as a single class with the
holders of Gilead common stock and Gilead series B preferred stock, on all
matters submitted to a vote of stockholders. Holders of Gilead series A
preferred stock do not have cumulative voting rights. The holders of Gilead
series A preferred stock have the right, subject to the rights of the holders of
any shares of preferred stock to receive preferential dividends and in
preference to the holders of Gilead common stock, to receive, when and if
declared by the Gilead board of directors, quarterly dividends in an amount
equal to the greater of $1.00 or, subject to adjustment upon the occurrence of
certain events, 100 times the aggregate per share amount of all non-cash
dividends or other distributions declared on Gilead common stock since the
previous quarterly payment or, in the case of the first quarterly payment, since
the first issuance of Gilead series A preferred stock. Upon the liquidation of
Gilead, before any payment may be made to holders of Gilead common stock or
shares of other preferred stock ranking junior to the Gilead series A junior
preferred stock, holders of Gilead series A preferred stock are entitled to $100
per share of series A preferred stock plus all declared and unpaid dividends for
each share of Gilead series A preferred stock held.
The Gilead series A preferred stock is not convertible or redeemable and has
no preemptive, subscription or conversion rights. The Gilead series A preferred
stock was authorized for issuance in connection with the rights plan as
described below under "Comparison of Stockholders' Rights-- Anti-takeover
Protections--Gilead Rights Plan." There are no shares of Gilead series A
preferred stock currently outstanding.
GILEAD SERIES B PREFERRED STOCK
Holders of Gilead series B preferred stock have one vote per share of common
stock into which the holder's shares of Gilead series B preferred stock are
convertible and vote as a single class with the holders of Gilead common stock
and the holders of Gilead series A preferred stock on all matters submitted to a
vote of stockholders. Holders of Gilead series B preferred stock do not have
cumulative voting rights. The holders of Gilead series B stock have the right to
receive, when and if declared by Gilead's board of directors, cash dividends at
the rate of 5% of the original issue price of $35.28 per year. No cash dividend
may be declared or paid on Gilead common stock until all dividends on the Gilead
series B preferred stock have been paid or set aside. In the event cash
dividends are paid on Gilead common stock, an additional dividend must be paid
to the holders of Gilead series B preferred stock. This dividend shall be equal
to the amount paid or set aside for each share of common stock for each share of
Gilead common stock into which the holder's shares of Gilead series B preferred
stock are convertible. Upon the liquidation of Gilead, before any payment may be
made to holders of Gilead common stock, holders of Gilead series B preferred
stock are entitled to be paid out of Gilead's assets an amount per share of
Gilead series B preferred stock equal to the price originally paid to Gilead
upon issuance of the shares plus all declared and unpaid dividends for each
share of Gilead series B preferred stock held.
The Gilead series B preferred stock is convertible into Gilead common stock
at the option of the holder or if the arithmetic average of the closing prices
for Gilead common stock quoted on the Nasdaq National Market over any 30
consecutive trading days is greater than 140% of the original issue price of
$35.28. The conversion rate is equal to the original issue price of $35.28
divided by the conversion price. The conversion price is currently equal to the
original issue price of $35.28, but is subject to adjustment upon the occurrence
of certain events. Gilead series B preferred stock is not redeemable and has no
preemptive, subscription or conversion rights except as described above. There
are 1,133,786 shares of Gilead series B preferred stock currently outstanding,
all of which are validly issued, fully paid and nonassessable.
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COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the merger, the holders of NeXstar common stock will
become holders of Gilead common stock. Both NeXstar and Gilead are incorporated
in the State of Delaware. There are certain material differences between the
rights and privileges of the holders of NeXstar common stock and the holders of
Gilead common stock.
PERCENTAGE OF VOTING STOCK; INFLUENCE OVER AFFAIRS
Upon completion of the merger, the percentage ownership of Gilead by each
former NeXstar stockholder will be substantially less than that stockholder's
current percentage ownership of NeXstar. Accordingly, former NeXstar
stockholders will have a significantly smaller voting influence over the affairs
of Gilead than they currently enjoy over the affairs of NeXstar.
EXISTENCE OF SENIOR PREFERRED STOCK
Under the NeXstar certificate of incorporation, there is no series of
capital stock issued or outstanding with rights, preferences or privileges
senior to the NeXstar common stock. Gilead has shares of Gilead series B
preferred stock issued and outstanding under its certificate, and the holders of
such shares have rights, preferences and privileges senior to the holders of
Gilead common stock, including, without limitation, a preferential dividend and
a liquidation preference. Gilead also has authorized shares of Gilead series A
preferred stock. The material rights, preferences and privileges of Gilead
series B preferred stock are described under "Description of Gilead Capital
Stock--Gilead Preferred Stock."
ANTI-TAKEOVER PROTECTIONS
Gilead and NeXstar have each adopted certain anti-takeover provisions, which
may have the effect of discouraging, delaying or preventing a merger or
acquisition of the companies.
GILEAD RIGHTS PLAN
Gilead is subject to certain anti-takeover provisions under the Gilead
preferred share purchase rights plan. The rights trade with Gilead common stock
and are not currently exercisable. Under certain circumstances, the rights
initially become exercisable for 1/100 of a share of Gilead series A preferred
stock. The Gilead rights plan also provides that:
- if a third party acquires more than 15% of Gilead common stock, the rights
holders, other than such third party, would have the right to purchase a
certain number of shares of Gilead common stock at a discount;
- if Gilead is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, the rights holders would have the right to acquire a certain number
of shares of the common stock of the acquiring company at a discount; or
- the Gilead board of directors may under certain circumstances exchange
each right, other than those held by such third party, for one share of
Gilead common stock.
NeXstar has not adopted a share purchase rights plan.
ACTION BY WRITTEN CONSENT
NeXstar's by-laws provide that any action that may be or is required to be
taken at any annual meeting or special meeting of the stockholders of NeXstar
may be taken without a meeting. The action may be taken without prior notice and
without a vote, if a consent in writing, setting forth the action is signed by
the holders of outstanding capital stock having not less than the minimum number
of votes that would be necessary to authorize or take that action at a meeting
at which all shares entitled to
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vote were present and voted. Gilead's by-laws do not permit the stockholders to
take action by written consent.
POWER OF STOCKHOLDERS TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under the by-laws of NeXstar, a special meeting of the NeXstar stockholders
may be called by the board of directors of NeXstar, the Chairman of the board of
directors, or if no Chairman has been elected, by the President and Chief
Executive Officer, and shall be called by the Chairman of the board of directors
or, if none, the President and Chief Executive Officer at the request of the
holders of a majority of the outstanding shares of capital stock entitled to
vote. The by-laws of Gilead provide that special meetings of the Gilead
stockholders may be called only by the Chairman of the Gilead board of
directors, the President of Gilead, the Gilead board of directors pursuant to a
resolution adopted by a majority of the total number of authorized directors or
by the holders of shares entitled to cast 10% or more of the votes.
REMOVAL OF DIRECTORS
Directors of NeXstar can be removed at any time with or without cause by the
affirmative vote of at least the majority of the outstanding shares entitled to
vote. A director of Gilead can be removed prior to the expiration of his or her
term for cause by the affirmative vote of the holders of at least a majority of
the outstanding shares of voting stock. A director of Gilead can be removed at
any time without cause by the affirmative vote of at least 66 2/3% of the
outstanding shares of voting stock.
The differences outlined above between the rights and privileges of the
holders of NeXstar common stock and the holders of Gilead common stock could,
under certain circumstances, have the effect of reducing the likelihood that the
stockholders of NeXstar will receive a significant premium for their shares of
NeXstar common stock in connection with hostile takeovers or changes in control
or management of NeXstar relative to the likelihood that the stockholders of
Gilead will receive a premium in similar circumstances.
PROPOSAL 2
ELECTION OF GILEAD DIRECTORS
There are seven nominees for the seven board of directors positions
presently authorized by resolution of the Gilead board of directors. Each
director to be elected will hold office until the next annual meeting of Gilead
stockholders and until his successor is elected and has qualified, or until such
director's earlier death, resignation or removal. Each nominee listed below is
currently a director of Gilead. Messrs. Davignon, Denny, Martin, Moore, Rumsfeld
and Shultz were elected by the stockholders. Dr. Berg was appointed to the
Gilead board of directors in April 1998.
Gilead shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the seven nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present and in person or
represented by proxy and entitled to vote on the proposal at the meeting.
THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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NOMINEES
The names of the nominees in alphabetical order, and certain information
about them as of April 14, 1999, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GILEAD/PRINCIPAL OCCUPATION
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Paul Berg(1)......................... 72 Cahill Professor, Department of Biochemistry, Stanford University
School of Medicine
Etienne F. Davignon.................. 66 Chairman, Societe Generale de Belgique
James M. Denny, Sr.(1)(2)............ 66 Managing Director, William Blair Capital Partners V
John C. Martin....................... 47 President and Chief Executive Officer
Gordon E. Moore(1)(2)................ 70 Chairman Emeritus, Intel Corporation
Donald H. Rumsfeld................... 66 Chairman of the Gilead Board of Directors
George P. Shultz(2).................. 78 Distinguished Fellow, Hoover Institution, Stanford University
</TABLE>
- ------------------------
(1) Member of the compensation committee
(2) Member of the audit committee
Dr. Berg joined the Gilead board of directors in April 1998. Dr. Berg is
currently Cahill Professor in Cancer Research in the Department of Biochemistry
at Stanford University School of Medicine, where he has been on the faculty
since 1959. He has served as Director of the Stanford University Beckman Center
for Molecular and Genetic Medicine since its founding in 1985. Dr. Berg is a
director of Affymetrix, Inc. and Transgene, Inc. He is the founder and a
scientific advisor to Schering-Plough's DNAX Research Institute. Dr. Berg also
serves as a member of Gilead's Scientific Advisory Board. Dr. Berg received the
Nobel Prize for Chemistry in 1980.
Mr. Davignon joined the Gilead board of directors in September 1990. He has
served as the Chairman of Societe Generale de Belgique, a diversified financial
and industrial company, since 1985. Mr. Davignon served as the European
Community's Commissioner for Industry and International Markets from 1977 to
1981, and as the EC's Vice President for Research, Industry and Energy Policies
from 1981 to 1984. Mr. Davignon is a director of Fiat S.A., Compagnie de Suez,
Minorco S.A. and a number of other European companies.
Mr. Denny joined the Gilead board of directors in January 1996. Mr. Denny is
a Managing Director of William Blair Capital Partners V and VI, private equity
funds. Mr. Denny is a retired Vice Chairman of Sears, Roebuck & Co. As Vice
Chairman, he had responsibility for Allstate Insurance Corporation, Coldwell
Banker Real Estate Group and the corporate financial organization. Previously,
he served as Executive Vice President and Chief Financial and Planning Officer
of G.D. Searle & Co., as well as Chairman of Pearle Health Services, Inc., a
Searle-affiliated company. He is a director of Allstate Corporation, Astra A.B.,
GATX Corporation and ChoicePoint, Inc. and is a Chairman of Northwestern
Memorial Hospital.
Dr. Martin is Gilead's President and Chief Executive Officer. Dr. Martin
joined Gilead in October 1990 as Vice President for Research and Development,
was appointed Chief Operating Officer in October 1995, and was appointed
President and Chief Executive Officer and elected to the Gilead board of
directors in April 1996. From 1984 to 1990 he was employed at Bristol-Myers
Squibb, a pharmaceutical company, where he was Director of Antiviral Chemistry.
Dr. Martin was employed at Syntex Corporation, a pharmaceutical company, from
1978 to 1984. Dr. Martin is the co-inventor of ganciclovir, a pharmaceutical now
used for treatment of cytomegalovirus infection. He is currently the President
of the International Society for Antiviral Research. Dr. Martin received his
Ph.D. in organic chemistry from the University of Chicago.
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Dr. Moore joined the Gilead board of directors in January 1996, and served
as a member of Gilead's Business Advisory Board from July 1991 until January
1996. Dr. Moore is a co-founder and Chairman Emeritus of Intel Corporation,
where he previously served as Chairman, President and Chief Executive Officer.
He also served as Director of Research and Development for the Fairchild
Semiconductor Division of Fairchild Camera and Instrument Corporation. Dr. Moore
is a director of Transamerica Corporation and is Chairman of the Board of
Trustees at the California Institute of Technology. He received the National
Medal of Technology in 1990.
Mr. Rumsfeld joined the Gilead board of directors in July 1988 and was
elected Chairman of the Board in January 1997. Mr. Rumsfeld has been in private
business since August 1993. He served as the Chairman and Chief Executive
Officer of General Instrument Corporation, a diversified electronics company,
from 1990 to 1993, and was Chief Executive Officer of G.D. Searle & Co., a
pharmaceutical company, from 1977 to 1985. Mr. Rumsfeld formerly served as
Presidential Envoy to the Middle East, U.S. Secretary of Defense, White House
Chief of Staff, U.S. Ambassador to NATO and a U.S. Congressman. Mr. Rumsfeld is
a director of ABB AB, Gulfstream Aerospace Corp., RAND Corporation and Tribune
Company. In 1977, Mr. Rumsfeld was awarded the Medal of Freedom, the nation's
highest civilian award.
Dr. Shultz joined the Gilead board of directors in January 1996. Dr. Shultz
currently serves as Distinguished Fellow at the Hoover Institution and as a
director of the Bechtel Group, Inc., AirTouch Communications and Gulfstream
Aerospace Corporation. Dr. Shultz served as U.S. Secretary of State from 1982 to
1989 and earlier served as Secretary of Labor, Director of the Office of
Management and Budget and Secretary of the Treasury. Previously, he served as
Dean of the Graduate School of Business at the University of Chicago and as
President of the Bechtel Group, Inc. In 1989, Dr. Shultz was awarded the Medal
of Freedom, the nation's highest civilian honor.
BOARD COMMITTEES AND MEETINGS
During 1998 the Gilead board of directors held four meetings. The Gilead
board of directors has an audit committee and a compensation committee.
The audit committee meets with Gilead's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Gilead board of directors the independent auditors
to be retained; and receives and considers the auditors' comments as to
controls, adequacy of staff, and management performance and procedures in
connection with audit and financial controls. The audit committee, which during
1998 was composed of Messrs. Denny (Chairman), Moore, Rumsfeld and Shultz, met
four times during such period.
The compensation committee makes recommendations and, with respect to
executive officers, determinations concerning salaries and incentive
compensation, awards stock options to employees and consultants under Gilead's
stock option plans and otherwise determines compensation levels and performs
such other functions regarding compensation as the Gilead board of directors may
delegate. The compensation committee, which during 1998 was composed of Messrs.
Berg, Denny, Moore (Chairman) and Rumsfeld, met one time during such period.
During 1998, each director attended at least 75% of the meetings of the
Gilead board of directors and of the committees on which he served, held during
the period for which he was a director or committee member, respectively.
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EXECUTIVE OFFICERS
The names of Gilead's executive officers who are not also directors of
Gilead and certain information about each of them are set forth below:
Jeffrey W. Bird, age 38, is Gilead's Senior Vice President, Business
Operations. Dr. Bird joined Gilead in September 1988 and worked as Director of
Scientific Programs and Research Scientist until March 1990. After completing
his medical degree, he returned to Gilead in December 1991 as Director of
Corporate Development, became Vice President of Corporate Development in March
1995 and was appointed Senior Vice President, Business Operations in January
1998, at which time he became an executive officer. Dr. Bird received his M.D.
and Ph.D. degrees at Stanford University Medical School.
Norbert W. Bischofberger, age 43, is Gilead's Senior Vice President,
Research. Dr. Bischofberger joined Gilead in 1990 as Director of Organic
Chemistry, became Vice President of Organic Chemistry in March 1993 and was
named Vice President of Research in August 1995. Dr. Bischofberger was appointed
Senior Vice President, Research in January 1998, at which time he became an
executive officer. Prior to joining Gilead, Dr. Bischofberger worked in research
at Genentech, Inc. from 1986 to 1990, most recently as Manager of DNA Synthesis.
He received his B.S. in chemistry at the University of Innsbruck in Austria, and
his Ph.D. in Organic Chemistry at the Eidgennossische Technische Hochschule
(ETH) in Zurich, Switzerland.
Howard S. Jaffe, age 41, is Gilead's Senior Vice President, Drug
Development. Dr. Jaffe joined Gilead in December 1991 as Vice President,
Clinical Affairs, became Vice President and Chief Medical Officer in March 1995
and became Senior Vice President, Drug Development in August 1996. Dr. Jaffe is
an assistant clinical professor and attending physician at the University of
California, San Francisco. From 1986 until joining Gilead, he was employed by
Genentech, Inc., most recently as Director of Clinical Research and Cytokine
Project Team Leader. Dr. Jaffe received his M.D. from the Yale University School
of Medicine and performed his residency and fellowship training at the
University of California, San Francisco.
Mark L. Perry, age 43, is Gilead's Senior Vice President, Chief Financial
Officer and General Counsel. Mr. Perry joined Gilead in July 1994 as its Vice
President and General Counsel and became Chief Financial Officer in May 1996.
Mr. Perry was appointed Senior Vice President, Chief Financial Officer and
General Counsel in January 1998. He has also served as Corporate Secretary since
May 1994. From 1981 to 1994, Mr. Perry was with Cooley Godward LLP in San
Francisco and Palo Alto, California. Cooley Godward serves as Gilead's primary
outside counsel. Mr. Perry was an associate with Cooley Godward from 1981 to
1987, and a partner from 1987 to 1994. Mr. Perry received his J.D. from the
University of California, Davis and is a member of the California bar.
PROPOSAL 3
APPROVAL OF THE GILEAD AMENDED 1991 STOCK OPTION PLAN
In November 1991, the Gilead board of directors adopted, and the
stockholders subsequently approved, Gilead's 1991 Stock Option Plan. In March
1999, the Gilead board of directors adopted an amendment to the 1991 Stock
Option Plan. The amendment increases the number of shares of Gilead common stock
authorized for issuance under the 1991 Stock Option Plan from 6,500,000 to
10,000,000. The Gilead board of directors adopted this amendment to enable
Gilead to continue to grant stock options to employees of the combined company
at levels that the Gilead board of directors and the compensation committee deem
to be appropriate. The amendment takes into account the need for increased share
reserves in connection with the merger with NeXstar.
As of June 22, 1999, and without giving effect to the March 1999 amendment,
803,680 shares of Gilead common stock, plus any shares that might in the future
be returned as a result of the cancellation or expiration of options, remained
available for future grant under the 1991 Stock Option Plan.
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After giving effect to the March 1999 amendment, 4,303,680 shares, plus any
shares that might in the future be returned as a result of the cancellation or
expiration of options, remained available for future grant as of June 22, 1999
under the 1991 Stock Option Plan.
During 1998, under the 1991 Stock Option Plan, Gilead granted the following:
- options to purchase 255,000 shares at exercise prices ranging from $22.875
to $38.00 per share to all current executive officers, as a group;
- options to purchase 807,400 shares at exercise prices ranging from $20.125
to $38.625 per share to all employees, other than executive officers, as a
group; and
- no options to current directors who are not officers.
For information regarding stock option grants, see "Executive
Compensation--Stock Option Grants and Exercises."
Stockholders are requested in this proposal to approve the 1991 Stock Option
Plan, as amended. If the stockholders do not approve this proposal, the 1991
Stock Option Plan will continue in the form prior to the amendment.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Amended 1991 Stock Option Plan. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF ADOPTING THE AMENDED 1991 STOCK OPTION PLAN.
The essential features of the 1991 Stock Option Plan are outlined below:
GENERAL
The 1991 Stock Option Plan provides for the grant of both incentive stock
options and nonstatutory stock options. Incentive stock options granted under
the 1991 Stock Option Plan are intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code. Nonstatutory
stock options granted under the 1991 Stock Option Plan are intended not to
qualify as incentive stock options under the Internal Revenue Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of the options
included in the 1991 Stock Option Plan.
PURPOSE
The 1991 Stock Option Plan was adopted to provide a means:
- by which selected directors and employees of, and consultants to, Gilead
and its affiliates could be given an opportunity to receive stock in
Gilead;
- to secure and retain the services of persons capable of filling such
positions;
- to assist in retaining the services of employees holding key positions;
and
- to provide incentives for such persons to exert maximum efforts for the
success of Gilead and its affiliates.
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ADMINISTRATION
The Gilead board of directors administers the 1991 Stock Option Plan unless
and until the board of directors delegates administration to a committee. Under
the plan, the committee would consist of one or more members of the Gilead board
of directors and all of the members of the Gilead board of directors on the
committee may be non-employee directors or outside directors.
The Gilead board of directors has delegated administration of the 1991 Stock
Option Plan to the compensation committee of the board of directors. In this
proposal, the "board of directors" refers to the compensation committee as well
as to the Gilead board of directors. In connection with the administration of
the 1991 Stock Option Plan, the compensation committee generally has the powers
possessed by the Gilead board of directors. However, the committee's powers may
be restricted by resolutions adopted by the Gilead board of directors from time
to time so long as the resolutions are not inconsistent with the provisions of
the 1991 Stock Option Plan.
The Gilead board of directors or the compensation committee may delegate to
a committee of one or more members of the Gilead board of directors the
authority to grant options to eligible persons who are not then subject to
Section 16 of the Securities Exchange Act of 1934, as amended, and/or who are
either:
- not then employees covered by Section 162(m) of the Internal Revenue Code
and are not expected to be covered by Section 162(m) of the Internal
Revenue Code at the time of recognition of income resulting from such
option; or
- not persons with respect to whom Gilead wishes to avoid the application of
Section 162(m) of the Internal Revenue Code.
The Gilead board of directors may abolish such committee at any time and
return the administration of the 1991 Stock Option Plan to the Gilead board of
directors.
The Gilead board of directors generally has the power to construe and
interpret the 1991 Stock Option Plan. In addition, subject to the provisions of
the 1991 Stock Option Plan, the Gilead board of directors has the power to
determine the following:
- the persons to whom and the dates on which options will be granted;
- what type of option will be granted;
- the number of shares to be subject to each option;
- the time or times during the term of each option within which all or a
portion of the option may be exercised;
- the exercise price;
- the type of consideration; and
- other terms of the option.
SHARES SUBJECT TO THE 1991 STOCK OPTION PLAN
The common stock that may be sold pursuant to options under the 1991 Stock
Option Plan shall not exceed in the aggregate 10,000,000 shares of Gilead common
stock. If any option expires or terminates, in whole or in part, without having
been exercised in full, the stock not purchased under such option again will
become available for issuance under the 1991 Stock Option Plan.
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ELIGIBILITY
Incentive stock options may be granted only to employees. Nonstatutory stock
options may be granted to employees, directors or consultants. As of February
26, 1999, approximately 293 employees were eligible to participate in the 1991
Stock Option Plan.
Generally, a person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of Gilead will not be eligible for
the grant of an incentive stock option. However, such 10% stockholder may be
granted an incentive stock option if: (1) the exercise price of the option is at
least 110% of the fair market value of the common stock subject to the option on
the option's date of grant; and (2) the term of the option does not exceed 5
years from the date of grant. No person is eligible to be granted options
covering more than 500,000 shares of Gilead common stock in any calendar year.
TERM AND TERMINATION
No option is exercisable after the expiration of 10 years from the date it
was granted.
In the event an optionee's continuous service to Gilead or its affiliates is
terminated, the optionee's ability to exercise his or her option is restricted.
In such a case, the optionee may exercise his or her option, to the extent that
he or she was entitled to exercise it at the time of termination, but only
within the earlier of (1) the period of time after the termination of the
optionee's continuous service specified in the option agreement or (2) the
expiration of the term of the option as specified in the option agreement. In
the case of an incentive stock option, such period of time may not exceed 90
days from the date of termination except in the event of death or disability.
In the event an optionee's continuous service to Gilead or its affiliates
terminates as a result of the optionee's death or disability, the ability of the
optionee or such optionee's estate, heirs or beneficiaries to exercise his or
her option is restricted. In such a case, the option may be exercised, but only
within the period ending on the earlier of (1) 12 months following such
termination or such longer or shorter period as specified in the option
agreement or (2) the expiration of the term of the option as specified in the
option agreement.
EXERCISE PRICE
The exercise price of each incentive stock option and each nonstatutory
stock option granted under the 1991 Stock Option Plan will not be less than 100%
of the fair market value of Gilead common stock on the date of grant. As of June
22, 1999, the closing price for Gilead common stock as reported by the Nasdaq
Stock Market was $50.03125. Gilead is prohibited from repricing outstanding
options granted under the 1991 Stock Option Plan without the consent of Gilead's
stockholders.
EXERCISE PRICE AND PAYMENT
The option's exercise price is paid either:
- in cash at the time of exercise or purchase; or
- if determined by the Gilead board of directors at the time of grant, by
(1) deferred payment or other arrangement or (2) in any other form of
legal consideration that may be acceptable to the Gilead board of
directors, such as by delivery to Gilead of other common stock of Gilead.
In the case of any deferred payment arrangement, interest will be compounded
at least annually. In addition, interest will be charged at the minimum rate of
interest necessary to avoid imputed interest for federal tax purposes.
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TRANSFERABILITY
An incentive stock option is not transferable except by will or by the laws
of descent and distribution. Moreover, an incentive stock option is exercisable
during the lifetime of the person to whom the incentive stock option is granted
only by such person. A nonstatutory stock option generally will not be
transferable except by will or by the laws of descent and distribution. In
addition, an optionee may designate a beneficiary who may exercise his or her
option after death.
VESTING
Options granted under the 1991 Stock Option Plan may become exercisable in
monthly, quarterly or other periodic installments. The option agreement may
provide that from time to time during each of such installment periods, the
option may become exercisable or vest with respect to some or all of the shares
allotted to that period. In addition, it may provide that the option may be
exercised with respect to some or all of the shares allotted to such period or
any prior period as to which the option became vested but was not fully
exercised. The option agreement may also provide that an optionee may exercise
an option prior to full vesting, so long as Gilead has a repurchase right with
respect to any unvested shares.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the common stock subject to the 1991 Stock Option
Plan, or subject to any option, without receipt of cash or other property by
Gilead through:
- merger, consolidation, reorganization, recapitalization;
- stock dividend, dividend in property other than cash, stock split,
liquidating dividend; or
- combination of shares, exchange of shares, change in corporate structure
or otherwise,
the class(es) and maximum number of shares subject to the 1991 Stock Option
Plan, the maximum annual grant of shares under the 1991 Stock Option Plan and
the class(es) and number of shares and price per share of stock subject to
outstanding options will be appropriately adjusted.
In the event of:
- a dissolution or liquidation of Gilead;
- a merger or consolidation in which Gilead is not the surviving
corporation;
- a reverse merger in which Gilead is the surviving corporation but the
shares of Gilead common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or
- any other capital reorganization in which more than 50% of the shares of
Gilead entitled to vote are exchanged (collectively, a "change in
control"),
then, in the discretion of the Gilead board of directors and to the extent
permitted by applicable law, either (1) the surviving corporation will assume
outstanding options or will substitute similar options for those outstanding
under the 1991 Stock Option Plan, (2) the time during which such options may be
exercised will be accelerated and the options terminated if not exercised prior
to such event or (3) the options will continue in full force and effect.
If, within one month before or 13 months after the date of a change in
control, the continuous service of an optionee terminates due to an involuntary
termination (not including death or disability) without "cause" (as such term is
defined in the 1991 Stock Option Plan) or a voluntary termination by the
optionee due to a "constructive termination" (as such term is defined in the
1991 Stock Option Plan), then the vesting and exercisability of all options held
by that optionee will be accelerated, or any
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reacquisition or repurchase rights held by Gilead with respect to the option
will lapse. However, if such potential acceleration of the vesting and
exercisability of options (or lapse of reacquisition or repurchase rights held
by Gilead with respect to options) would cause a contemplated change in control
transaction that would otherwise be eligible to be accounted for as a
"pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles as determined by
Gilead's independent public accountants prior to the change in control, then
such acceleration will not occur.
In the event that such acceleration of the vesting and exercisability of the
options (or lapse of reacquisition or repurchase rights held by Gilead with
respect to options) as described above, when added to the benefits otherwise
payable to an optionee, constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code that otherwise would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, then the
optionee's benefits will be delivered to such lesser extent that will result in
no portion of the benefits being subject to the excise tax.
AMENDMENT OF THE 1991 STOCK OPTION PLAN
The Gilead board of directors at any time, and from time to time, may amend
the 1991 Stock Option Plan. However, no amendment will be effective unless
approved by the stockholders of Gilead within 12 months before or after the
adoption of the amendment, where the amendment will:
- increase the number of shares reserved for issuance under the 1991 Stock
Option Plan;
- modify the requirements as to eligibility for participation; or
- require stockholder approval in order for the 1991 Stock Option Plan to
satisfy the requirements of Section 422 of the Internal Revenue Code, Rule
16b-3 promulgated under the Securities Exchange Act of 1934 or any
securities exchange requirements.
The Gilead board of directors may in its sole discretion submit any other
amendment to the 1991 Stock Option Plan for stockholder approval.
TERMINATION OR SUSPENSION OF THE 1991 STOCK OPTION PLAN
The Gilead board of directors may suspend or terminate the 1991 Stock Option
Plan at any time. Unless sooner terminated, the 1991 Stock Option Plan will
terminate on October 31, 2001. No options may be granted under the 1991 Stock
Option Plan while the 1991 Stock Option Plan is suspended or after it is
terminated.
FEDERAL INCOME TAX INFORMATION
The following describes the material federal income tax consequences to an
optionee and Gilead associated with the grant and exercise of options under the
1991 Stock Option Plan. This discussion does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1991 Stock
Option Plan are intended to be eligible for the favorable federal income tax
treatment applicable to "incentive stock options" under the Internal Revenue
Code.
There generally are no federal income tax consequences to the optionee or
Gilead by reason of the grant or exercise of an incentive stock option. However,
the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for (1) more than two years from the date on which the option is granted
and (2) more than one year from the date on
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which the shares are transferred to the optionee upon exercise of the option,
any gain or loss on a disposition of such stock will be capital gain or loss.
The disposition of the stock before the expiration of either of these
holding periods is generally referred to as a "disqualifying disposition." A
disqualifying disposition generally results in the optionee realizing taxable
ordinary income equal to the lesser of (1) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (2) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss.
The capital gain or loss will be long-term or short-term depending on whether
the stock was held for more than one year.
Capital gains are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Securities
Exchange Act of 1934.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Gilead will generally be entitled to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs. Gilead's ability to take this deduction will generally
depend upon the satisfaction of the requirement of reasonableness, the
provisions of Section 162(m) of the Internal Revenue Code and a tax reporting
obligation.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
1991 Stock Option Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or Gilead by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income. The
ordinary income will generally be equal to the excess of the stock's fair market
value on the date of exercise over the option exercise price.
Generally, Gilead is required to withhold from regular wages or supplemental
wage payments of employees an amount based on any ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Internal Revenue Code and the satisfaction of a reporting obligation,
Gilead will generally be entitled to a business expense deduction equal to the
taxable ordinary income realized by the optionee.
Upon disposition of the stock, the optionee will recognize a capital gain or
loss. The capital gain or loss will be equal to the difference between the
selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long-term or short-term depending on how long the optionee holds the
stock. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Securities Exchange Act of 1934.
POTENTIAL LIMITATION ON GILEAD DEDUCTIONS. Section 162(m) of the Internal
Revenue Code denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to options granted in the future under the 1991 Stock
Option Plan, when combined with all other types of compensation received by a
covered employee from Gilead, may cause this limitation to be exceeded in any
particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. Under
United States Treasury Regulations, compensation attributable to stock options
will qualify as performance-based compensation, if the option is granted by a
compensation committee comprised solely of "outside directors" and either:
- (1) the option plan contains a per-employee limitation on the number of
shares for which options may be granted during a specified period, (2) the
per-employee limitation is approved by
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the stockholders, and (3) the exercise price of the option is no less than
the fair market value of the stock on the date of grant; or
- the option is granted or exercisable only upon the achievement, as
certified in writing by the compensation committee, of an objective
performance goal established in writing by the compensation committee
while the outcome is substantially uncertain, and the option is approved
by stockholders.
PROPOSAL 4
APPROVAL OF THE GILEAD AMENDED EMPLOYEE STOCK PURCHASE PLAN
In November 1991 the Gilead board of directors adopted, and the stockholders
subsequently approved, Gilead's Employee Stock Purchase Plan. In March 1999 the
Gilead board of directors adopted an amendment of the Employee Stock Purchase
Plan. The amendment increases the number of shares of Gilead common stock
authorized for issuance under the Employee Stock Purchase Plan from 1,250,000 to
1,580,000 shares. This amendment will allow Gilead to continue to provide its
growing employee base with the ability to purchase stock at levels the Gilead
board of directors believes appropriate.
As of June 22, 1999, 794,049 shares of Gilead common stock have been
purchased under the Employee Stock Purchase Plan. During 1998, Gilead's
executive officers, Dr. Martin, Dr. Bird, Dr. Bischofberger, and Dr. Jaffe each
purchased 1,020 shares and Mr. Perry purchased 644 shares under the Employee
Stock Purchase Plan. The executive officers, as a group, purchased a total of
4,724 shares, at an average price of $20.825 per share.
Stockholders are requested in this proposal to approve the Employee Stock
Purchase Plan as amended. If the stockholders fail to approve this proposal, the
Employee Stock Purchase Plan will continue in the form prior to the amendment.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Employee Stock Purchase Plan. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF ADOPTING THE AMENDED EMPLOYEE STOCK PURCHASE PLAN.
The essential features of the Employee Stock Purchase Plan are outlined
below.
PURPOSE
The purpose of the Employee Stock Purchase Plan is:
- to provide a means by which employees of Gilead and any parent or
subsidiary of Gilead designated by the Gilead board of directors to
participate in the Employee Stock Purchase Plan may be given an
opportunity to purchase Gilead common stock through payroll deductions;
and
- to assist Gilead in (1) securing the services of new employees, (2)
retaining the services of existing employees, and (3) providing incentives
for such persons to exert maximum efforts for the success of Gilead.
The rights to purchase Gilead common stock granted under the Employee Stock
Purchase Plan are intended to qualify as options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Internal Revenue
Code.
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ADMINISTRATION
The Employee Stock Purchase Plan is administered by the Gilead board of
directors, which has the final power to construe and interpret the Employee
Stock Purchase Plan and the rights granted under it. Subject to the provisions
of the Employee Stock Purchase Plan, the Gilead board of directors has the power
to determine:
- when and how rights to purchase common stock of Gilead will be granted;
- the provisions of each offering of such rights, which need not be
identical; and
- whether employees of any parent or subsidiary of Gilead, shall be eligible
to participate in the Employee Stock Purchase Plan.
The Gilead board of directors has the power to delegate administration of
the Employee Stock Purchase Plan to a committee of two or more members of the
Gilead board of directors. The Gilead board of directors may abolish any such
committee at any time and revest in the Gilead board of directors the
administration of the Employee Stock Purchase Plan. As used in this proposal,
the "board of directors" refers to such committee as well as to the Gilead board
of directors itself.
OFFERINGS
The Employee Stock Purchase Plan is implemented by offerings of rights to
all eligible employees from time to time by the Gilead board of directors. Such
offerings have a duration not exceeding 27 months and may contain multiple
purchase periods.
SHARES SUBJECT TO THE EMPLOYEE STOCK PURCHASE PLAN
An aggregate of 1,580,000 shares of common stock is authorized for issuance
under the Employee Stock Purchase Plan, after giving effect to the March 1999
amendment. If rights granted under the Employee Stock Purchase Plan expire,
lapse or otherwise terminate without being exercised, the shares of Gilead
common stock not purchased under such rights again become available for issuance
under the Employee Stock Purchase Plan.
ELIGIBILITY
Generally, a person who is customarily employed (1) at least 20 hours per
week and (2) five months per calendar year by Gilead, or by any affiliate
designated from time to time by the Gilead board of directors on the first day
of an offering period, is eligible to participate in that offering under the
Employee Stock Purchase Plan. However, the Gilead board of directors may also
require that the person be in the continuous employ of Gilead for such period of
time preceding the first day of the offering period as determined by the Gilead
board of directors, which period must be in all cases be less than two years.
If, during the course of an offering, an employee satisfies the eligibility
requirements discussed above, the Gilead board of directors may provide that
such employee may participate in that offering.
Despite the above, no employee is eligible for the grant of any rights under
the Employee Stock Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of Gilead or of any
affiliate, including any stock which such employee may purchase under all
outstanding rights and options. In addition, an employee may not be granted
rights to buy more than $25,000 worth of stock. For purposes of this limitation,
the fair market value of the shares is determined at the time the rights are
granted and includes rights to purchase shares under all employee stock purchase
plans of Gilead in any calendar year. As of June 22, 1999, approximately 289
employees were eligible to participate in the Employee Stock Purchase Plan.
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PARTICIPATION IN THE PLAN
An eligible employee becomes a participant in the Employee Stock Purchase
Plan by delivering to Gilead, in the time set forth in the offering, an
agreement to participate. The agreement authorizes Gilead to make payroll
deductions of up to 15% or such lower percentage as the Gilead board of
directors may determine for a particular offering of the employee's base
compensation during the offering.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Employee Stock Purchase Plan cannot be less than the lower of (1) 85% of the
fair market value of a share of common stock on the date of commencement of the
offering period, or (2) 85% of the fair market value of a share of common stock
on the date of purchase.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the purchase period. A participant may increase, reduce or commence such payroll
deductions after the beginning of any purchase period only as provided for in
the offering. All payroll deductions made for a participant are credited to his
or her account under the Employee Stock Purchase Plan and deposited with the
general funds of Gilead. A participant may make additional payments into such
account only if specifically provided for in the offering, and only if the
participant has not had the maximum allowable amount withheld during the
offering.
PURCHASE OF STOCK
By executing an agreement to participate, an employee is entitled to
purchase shares under the Employee Stock Purchase Plan. In connection with
offerings made under the Employee Stock Purchase Plan, the Gilead board of
directors specifies a maximum number of shares that any employee may be granted
the right to purchase. In addition, the Gilead board of directors specifies a
maximum number of shares that may be purchased pursuant to such offering by all
participants, as a group.
If the total number of shares to be purchased by the participants, as a
group, upon exercise of rights granted in the offering were to exceed the
maximum number set for the offering, the Gilead board of directors would make a
pro rata allocation of shares available in a uniform and equitable manner.
Unless the employee's participation is discontinued, his or her right to
purchase shares is exercised automatically at the end of the purchase period at
the applicable price. See "Withdrawal" below.
WITHDRAWAL
While each participant in the Employee Stock Purchase Plan is required to
sign an agreement authorizing payroll deductions, the participant may withdraw
from a given offering by delivering to Gilead a notice of withdrawal from the
Employee Stock Purchase Plan. The notice of withdrawal will terminate his or her
payroll deductions. A participant may elect to withdraw at any time prior to the
end of the applicable purchase period or as specified in the offering.
Upon any withdrawal from an offering by the employee, at the election of
such employee, Gilead will distribute to the employee his or her accumulated
payroll deductions without interest, and such employee's interest in the
offering will be automatically terminated. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Employee Stock Purchase Plan.
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TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Employee Stock Purchase
Plan terminate immediately upon termination of an employee's employment for any
reason. Upon a termination of employment, Gilead will distribute to the employee
all of his or her accumulated payroll deductions, reduced to the extent, if any,
such deductions have been used to acquire stock for the terminated employee,
under the offering. The deductions will be returned to the employee without
interest unless the terms of the offering specifically provide for interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Employee Stock Purchase Plan are not transferable
and may be exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Gilead board of directors may suspend or terminate the Employee Stock
Purchase Plan at any time. Unless terminated earlier, the Employee Stock
Purchase Plan will terminate on November 14, 2001.
The Gilead board of directors may amend the Employee Stock Purchase Plan at
any time. Any amendment of the Employee Stock Purchase Plan must be approved by
the stockholders within 12 months of its adoption by the Gilead board of
directors to the extent required. For example, an amendment may require
stockholder approval (1) in order for the Employee Stock Purchase Plan to obtain
employee stock purchase plan treatment under Section 423 of the Internal Revenue
Code or (2) to comply with the requirements of Rule 16b-3 under the Securities
Exchange Act of 1934 or any securities exchange listing requirements.
Rights granted before amendment or termination of the Employee Stock
Purchase Plan will not be altered or impaired by any amendment or termination of
the Employee Stock Purchase Plan without the consent of the person to whom such
rights were granted.
ADJUSTMENTS UPON CHANGES IN STOCK
In the event of a dissolution, liquidation or specified type of merger of
Gilead, then, as determined by the Gilead board of directors in its sole
discretion (1) any surviving corporation may assume outstanding rights or
substitute similar rights for those outstanding under the Employee Stock
Purchase Plan, (2) such rights may continue in full force and effect or (3)
participants' accumulated payroll deductions may be used to purchase common
stock immediately prior to the transaction described above and the participants'
rights under the ongoing offering will be terminated.
FEDERAL INCOME TAX INFORMATION
The following describes the material federal income tax consequences to a
participant and Gilead associated with the grant and exercise of rights under
the Employee Stock Purchase Plan. This discussion does not purport to be
complete and does not discuss the income tax laws of any state or foreign
country in which a participant may reside.
Rights granted under the Employee Stock Purchase Plan are intended to
qualify for favorable federal income tax treatment applicable to rights granted
under an employee stock purchase plan which qualifies under the provisions of
Section 423 of the Internal Revenue Code.
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A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. No other income will be taxable to a
participant until disposition of the shares acquired. The method of taxation
will depend upon the holding period of the purchased shares. However, Gilead may
be required to withhold for FICA purposes upon the purchase of shares under the
Employee Stock Purchase Plan.
If the stock purchased in an offering is sold or otherwise disposed of (1)
more than two years after the beginning of the offering and (2) more than one
year after the stock is transferred to the participant, then the lesser of (A)
the excess of the fair market value of the stock at the time of such disposition
over the purchase price and (B) the excess of the fair market value of the stock
as of the beginning of the offering over the purchase price, determined as of
the beginning of the offering, will be treated as ordinary income. Any further
gain or any loss will be taxed as a long-term capital gain or loss.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the purchase date over the purchase price will be treated as ordinary
income at the time of such disposition. In addition, Gilead may, in the future,
be required to withhold income taxes relating to such ordinary income from other
payments made to the participant.
The balance of any gain will be treated as capital gain. Even if the stock
is later disposed of for less than its fair market value on the purchase date,
the same amount of ordinary income is taxed to the participant. In such cases, a
capital loss is recognized equal to the difference between the sales price and
the fair market value of the stock on such purchase date. Any capital gain or
loss will be long-term or short-term depending on whether the stock was held for
more than one year.
There are no federal income tax consequences to Gilead by reason of the
grant or exercise of rights to purchase its stock under the Employee Stock
Purchase Plan. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Internal Revenue Code and the satisfaction of a tax
reporting obligation, Gilead is generally entitled to a deduction to the extent
amounts are taxed as ordinary income to a participant by reason of a disposition
before the expiration of the holding periods described above. However, the
Internal Revenue Service may require Gilead to withhold at the time of
disqualifying disposition in order to take a compensation deduction.
PROPOSAL 5
APPROVAL OF THE GILEAD AMENDED 1995 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
In November 1995, the Gilead board of directors adopted, and the
stockholders subsequently approved, Gilead's 1995 Non-Employee Directors' Stock
Option Plan. In January 1999, the Gilead board of directors adopted an amendment
to the Directors' Option Plan. The amendment increased the authorized shares
under the Directors' Option Plan from 350,000 to 550,000.
Stockholders are requested in this proposal to approve the amendment to the
Directors' Option Plan, as amended. If the stockholders fail to approve this
proposal, the Directors' Option Plan will continue in the form prior to the
amendment.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Directors' Option Plan. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
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THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF ADOPTING THE AMENDED NON-EMPLOYEE DIRECTORS' STOCK OPTION
PLAN.
The essential features of the Directors' Option Plan are outlined below.
GENERAL
The Directors' Option Plan provides for non-discretionary grants of
nonstatutory stock options, on an automatic basis pursuant to a pre-approved
schedule. Options granted under the Directors' Option Plan are not intended to
qualify as incentive stock options, as defined under Section 422 of the Internal
Revenue Code.
PURPOSE
The purpose of the Directors' Option Plan is:
- to retain the services of persons now serving as non-employee directors of
Gilead, as defined below;
- to attract and retain the services of persons capable of serving on the
Gilead board of directors; and
- to provide incentives for such persons to exert maximum efforts to promote
the success of Gilead.
ADMINISTRATION
The Directors' Option Plan is administered by the Gilead board of directors.
The Gilead board of directors has the final power to construe and interpret the
Directors' Option Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration.
The Gilead board of directors is authorized to delegate administration of
the Directors' Option Plan to a committee of not less than two members of the
Gilead board of directors. The Gilead board of directors does not presently
contemplate delegating administration of the Directors' Option Plan to any
committee of the Gilead board of directors.
SHARES SUBJECT TO THE DIRECTORS' OPTION PLAN
The common stock that may be sold pursuant to options under the Directors'
Option Plan shall not exceed in the aggregate 550,000 shares of Gilead common
stock, after giving effect to the January 1999 amendment. If any option expires
or terminates without having been exercised in full, the stock not purchased
under such option will revert to and again become available for issuance under
the Directors' Option Plan. The common stock subject to the Directors' Option
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
ELIGIBILITY
The Directors' Option Plan provides that options may be granted only to
non-employee directors of Gilead. A "non-employee director" is defined in the
Directors' Option Plan as a director of Gilead and its affiliates who is not
otherwise an employee of Gilead or any affiliate. Six of Gilead's seven
directors standing for election at the annual meeting are eligible to
participate in the Directors' Option Plan.
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TERMS OF OPTIONS
Each option under the Directors' Option Plan is subject to the following
terms and conditions:
NON-DISCRETIONARY GRANTS. Option grants under the Directors' Option Plan
are non-discretionary. Each non-employee director shall, on the later of January
2, 1996 or the date he or she is first elected to be a non-employee director, be
granted an option to purchase 25,000 shares of Gilead common stock as his or her
initial grant. On each anniversary date of the non-employee director's initial
grant, the non-employee director shall automatically be granted an option to
purchase 5,000 shares of Gilead common stock as his or her annual grant.
A non-employee director who is also the Chairperson of the Gilead board of
directors, or designated by the Gilead board of directors as the "lead
director," in circumstances where there is no Chairperson or the Chairperson is
an employee of Gilead, will be granted an option to purchase an additional
20,000 shares of Gilead common stock at the time of his or her initial grant,
and an additional 4,000 shares of Gilead common stock at the time of his or her
annual grant.
Each non-employee director who also serves on a standing committee of the
Gilead board of directors shall automatically be granted an option to purchase
an additional 1,000 shares of Gilead common stock at the time of his or her
annual grant, for each such committee. Each non-employee director who serves on
a standing committee and who is also the Chairperson of that committee shall
automatically be granted an option to purchase an additional 2,000 shares of
Gilead common stock at the time of his or her annual grant. No other options may
be granted under the Directors' Option Plan.
TRANSFERABILITY; TERM. Under the Directors' Option Plan, an option may not
be transferred by the optionee, except by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order. No option
granted under the Directors' Option Plan is exercisable by any person after the
expiration of 10 years from the date the option is granted.
OPTION EXERCISE. An option granted under the Directors' Option Plan becomes
exercisable or vests over a period of five years in equal quarterly installments
at the rate of 5% per quarter. Such vesting is conditioned upon continued
service as a non-employee director or employee of or consultant to Gilead.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Option Plan as
may be determined by the Gilead board of directors.
EXERCISE PRICE AND CONSIDERATION
The exercise price of each option granted under the Directors' Option Plan
will not be less than 100% of the fair market value of Gilead common stock on
the date of grant. As of June 22, 1999, the closing price for Gilead common
stock as reported by the Nasdaq Stock Market was $50.03125. The exercise price
of options granted under the Directors' Option Plan must be paid in cash or
shares of Gilead common stock at the time the option is exercised.
Gilead is prohibited from repricing outstanding options granted under the
Directors' Option Plan without the consent of Gilead's stockholders.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the common stock subject to the Directors' Option
Plan, or subject to any option, without receipt of consideration by Gilead
through:
- merger, consolidation, reorganization, recapitalization;
- stock dividend, dividend in property other than cash, stock split,
liquidating dividend; or
- combination of shares, exchange of shares, change in corporate structure
or otherwise,
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then the class(es) and maximum number of shares subject to the Directors' Option
Plan, the maximum annual grant of shares under the Directors' Option Plan and
the class(es) and number of shares and price per share of stock subject to
outstanding options will be appropriately adjusted.
In the event of:
- a dissolution or liquidation of Gilead;
- a merger or consolidation in which Gilead is not the surviving
corporation;
- a reverse merger in which Gilead is the surviving corporation but the
shares of Gilead common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or
- any other capital reorganization in which more than 50% of the shares of
Gilead entitled to vote are exchanged,
and to the extent permitted by applicable law, the time during which such
options may be exercised will be accelerated and the options terminated if not
exercised prior to such event. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of Gilead.
DURATION, AMENDMENT AND TERMINATION
The Gilead board of directors may amend, suspend or terminate the Directors'
Option Plan at any time or from time to time. However, the Gilead board of
directors may not amend the Directors' Option Plan with respect to the amount,
price or timing of grants more often than once every six months other than to
comply with changes to the Internal Revenue Code or the Employee Retirement
Income Security Act of 1974 or associated regulations. No amendment will be
effective unless approved by the stockholders of Gilead within 12 months before
or after its adoption by the Gilead board of directors if the amendment would:
- increase the number of shares reserved for options under the plan;
- modify the requirements as to eligibility for participation in the plan,
to the extent such modification requires stockholder approval in order for
the plan to comply with the requirements of Rule 16(b)-3; or
- modify the plan in any other way if such modification requires stockholder
approval in order for the plan to meet the requirements of Rule 16(b)-3.
Unless sooner terminated, the Directors' Option Plan will terminate on
November 26, 2005.
FEDERAL INCOME TAX INFORMATION
The following describes the material federal income tax consequences to an
optionee and Gilead associated with the grant and exercise of options under the
Directors' Option Plan. This discussion does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
Options granted under the Directors' Option Plan are subject to federal
income tax treatment applicable to options that are not incentive stock options.
Options granted under the Directors' Option Plan are nonstatutory options.
There are no tax consequences to the optionee or Gilead by reason of the grant
of a nonstatutory stock option.
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Upon exercise of a nonstatutory stock option, the optionee normally will
recognize taxable ordinary income equal to the excess of the stock's fair market
value on the date of exercise over the option exercise price. Because the
optionee is a director of Gilead, under existing laws, the date of taxation and
the date of measurement of taxable ordinary income may in some instances be
deferred unless the optionee files an election under Section 83(b) of the
Internal Revenue Code. The filing of a Section 83(b) election with respect to
the exercise of an option may affect the time of taxation and the amount of
income recognized at each such time.
Upon disposition of the stock, the optionee will recognize a capital gain or
loss equal to the difference between the selling price and the sum of the amount
paid for such stock plus any amount recognized as ordinary income upon exercise
of such options. Such gain or loss will be long-term or short-term depending on
whether the stock was held for more than one year.
PROPOSAL 6
APPROVAL OF AN AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION OF GILEAD
In March 1999, the Gilead board of directors approved, subject to
stockholder approval, an amendment to Gilead's restated certificate of
incorporation to increase the number of shares of Gilead common stock authorized
for issuance from 60,000,000 to 100,000,000 (resulting in an increase in the
total number of shares authorized for issuance from 65,000,000 to 105,000,000,
including 5,000,000 shares of authorized preferred stock).
As of June 22, 1999, 31,063,184 of Gilead's currently authorized 60,000,000
shares of Gilead common stock were issued and outstanding. Gilead anticipates
issuing between approximately 11,110,000 and 14,670,000 shares of common stock
to the stockholders of NeXstar upon closing of the Merger, as described under
"The Merger Agreement--Ownership of Gilead Following the Merger." In addition,
options to purchase an additional 4,283,000 shares of Gilead common stock were
outstanding as of such date, and Gilead anticipates assuming options to purchase
NeXstar stock at the closing of the merger that will be exercisable for
approximately 930,000 to 1,230,000 shares of Gilead stock. The Gilead board of
directors considers it advisable to have additional shares available for
issuance under Gilead's stock option plans and stock purchase plan as well as
for possible future financings, corporate partner transactions or product or
business acquisitions involving the issuance of equity. With the exception of
the merger, Gilead's existing stock option plans and stock purchase plan, Gilead
has no other present plans which would result in the issuance of new shares.
If this amendment is adopted, it will become effective upon filing of a
certificate of amendment of Gilead's restated certificate of incorporation with
the Secretary of State of the State of Delaware. Thereafter, additional shares
of Gilead common stock may be issued by direction of the Gilead board of
directors at such times, in such amounts and upon such terms as the Gilead board
of directors may determine, without further approval of the stockholders unless,
in any instance, such approval is expressly required by regulatory agencies or
otherwise. Adoption of the proposed amendment and issuance of additional shares
of common stock would not affect the rights of the holders of currently
outstanding Gilead common stock, except for effects incidental to increasing the
number of shares of Gilead common stock outstanding, such as dilution of
earnings per share and voting rights of current holders of Gilead common stock.
The affirmative vote of the holders of a majority of the shares of Gilead
common stock outstanding will be required to approve the amendment of Gilead's
restated certificate of incorporation. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF AMENDING THE RESTATED CERTIFICATE OF INCORPORATION.
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PROPOSAL 7
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS OF GILEAD
The Gilead board of directors has selected Ernst & Young LLP as Gilead's
independent auditors for the year ending December 31, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the annual meeting. Ernst & Young LLP has
audited Gilead's financial statements since its inception in 1987.
Representatives of Ernst & Young LLP are expected to be present at the annual
meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as Gilead's
independent auditors is not required by Gilead's by-laws or otherwise. However,
the Gilead board of directors is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Gilead board of directors
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the audit committee and the Gilead board of directors in their
discretion may direct the appointment of a different independent accounting firm
at any time during the year if they determine that such a change would be in the
best interests of Gilead and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Gilead annual meeting
will be required to ratify the selection of Ernst & Young LLP.
THE GILEAD BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE RATIFICATION OF THE SELECTION OF THE INDEPENDENT
AUDITORS.
OTHER INFORMATION REGARDING GILEAD
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Gilead common stock as of February 26, 1999 by: (1) each current director and
nominee for director; (2) each named executive officer (as defined below); (3)
all executive officers and directors of Gilead as a group; and (4) all those
known by Gilead to be beneficial owners of more than five percent of Gilead
common stock and series B preferred stock on a combined basis.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
<S> <C> <C>
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ------------------------------------------------------------------------------------------ ---------- -------------
Wellington Management Company, LLP(2) .................................................... 4,287,860 13.4%
75 State Street
Boston, MA 02109
T. Rowe Price Associates(3) .............................................................. 3,164,300 9.9%
100 East Pratt Street
Baltimore, MD 21202
Capital Research and Management Company(4) ............................................... 2,895,000 9.0%
333 South Hope Street
Los Angeles, CA 90025
Capital Guardian Trust Company and Capital International S.A.(5) ......................... 1,895,000 5.9%
11100 Santa Monica Boulevard, Suite 1500
Los Angeles, CA 90025
</TABLE>
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ------------------------------------------------------------------------------------------ ---------- -------------
<S> <C> <C>
John C. Martin(6)......................................................................... 349,045 1.1%
Donald H. Rumsfeld(7)..................................................................... 166,232 *
Norbert W. Bischofberger(8)............................................................... 112,153 *
Howard S. Jaffe(9)........................................................................ 96,213 *
Mark L. Perry(10)......................................................................... 94,548 *
Jeffrey W. Bird(11)....................................................................... 79,043 *
James M. Denny, Sr.(12)................................................................... 53,524 *
Etienne F. Davignon(13)................................................................... 53,330 *
Gordon E. Moore(14)....................................................................... 47,531 *
George P. Shultz(15)...................................................................... 31,400 *
Paul Berg(16)............................................................................. 5,200 *
All executive officers and directors as a group (11 persons)(17).......................... 1,088,219 3.4%
</TABLE>
- ------------------------
* Less than one percent
(1) This table is based upon information supplied by Gilead's officers,
directors and principal stockholders and Schedules 13D and 13G filed with
the Securities and Exchange Commission. Unless otherwise indicated in the
footnotes to this table, and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting
and investment power with respect to the shares indicated as beneficially
owned. Applicable percentages are based on 30,884,298 shares of Gilead
common stock and 1,133,786 shares of Gilead series B preferred stock
outstanding on February 26, 1999, for a total of 32,018,084 outstanding
shares, adjusted as required by rules promulgated by the SEC.
(2) Based on a Schedule 13G filed with the Commission on January 24, 1999. The
Wellington Management Company, LLP is a registered investment adviser. The
Wellington Management Company in its capacity as investment adviser is
considered a "beneficial owner" in the aggregate of 4,287,860 shares of
Gilead common stock. Such shares are owned by numerous investment advisory
clients of The Wellington Management Company, none of which is known to
have beneficial ownership of more than 5% of that class of securities of
Gilead. As of December 31, 1998 The Wellington Management Company had
shared voting power with respect to 1,770,280 shares and shared dispositive
power with respect to 4,228,860 shares.
(3) Based on a Schedule 13G filed with the Commission on February 12, 1999. T.
Rowe Price Associates, Inc., in its capacity as a registered investment
adviser is considered a "beneficial owner" in the aggregate of 3,164,300
shares of Gilead common stock. Such shares are owned by various individual
and institutional investors for which T. Rowe Price Associates, Inc. serves
as investment adviser with power to direct investments and/or sole power to
vote the shares. For purposes of the reporting requirements of the
Securities and Exchange Act of 1934, T. Rowe Price Associates is deemed to
be a beneficial owner of such shares; however, T. Rowe Price Associates
expressly disclaims such beneficial ownership.
(4) Based on a Schedule 13G filed with the Commission on February 8, 1999. The
Capital Research and Management Company is a registered investment adviser
that manages The American Funds Group of mutual funds. The Capital Research
and Management Company in its capacity as investment adviser is considered
a "beneficial owner" in the aggregate of 2,895,000 shares of
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Gilead common stock. Such shares are owned by accounts under the
discretionary investment management of The Capital Research and Management
Company. As of December 31, 1998, The Capital Research and Management
Company had sole dispositive power with respect to 2,895,000 shares.
(5) Based on a Schedule 13G filed with the Commission on February 8, 1999. The
Capital Guardian Trust Company is a California state-chartered trust
company that acts as investment manager to large institutional accounts
(primarily pension funds). Capital International S.A. provides investment
management services to institutional accounts. The Capital Guardian Trust
Company and Capital International S.A., in their capacity as investment
managers, are considered "beneficial owners" in the aggregate of 1,865,000
shares of Gilead common stock. Such shares are owned by accounts under the
discretionary investment management of The Capital Guardian Trust Company
and Capital International S.A. As of December 31, 1998, The Capital
Guardian Trust Company had sole voting power with respect to 1,662,000
shares and sole dispositive power with respect to 1,865,000 shares and
Capital International S.A. had sole voting and dispositive power with
respect to 30,000 shares.
(6) Includes 318,325 shares subject to stock options exercisable within 60
days.
(7) Includes 39,889 shares held in a grantor annuity trust for which Mr.
Rumsfeld is the donor and trustee and 37,000 shares subject to stock
options exercisable within 60 days.
(8) Includes 12,534 shares held in trust for which Dr. Bischofberger and his
wife are trustees and 96,599 shares subject to stock options exercisable
within 60 days.
(9) Includes 13,548 shares held in trust for which Dr. Jaffe and his wife are
trustees and 82,665 shares subject to stock options exercisable within 60
days.
(10) Includes 500 shares held in account for Mr. Perry's minor child for which
Mr. Perry is the custodian and 86,000 shares subject to stock options
exercisable within 60 days.
(11) Includes 72,597 shares subject to stock options exercisable within 60
days.
(12) Includes 19,998 shares held by a partnership in which Mr. Denny is a
managing partner, as to which Mr. Denny disclaims beneficial ownership.
Also includes 7,426 shares held in partnership with Mr. Denny's wife and
26,100 shares subject to stock options exercisable within 60 days.
(13) Includes 53,330 shares subject to stock options exercisable within 60
days.
(14) Includes 30,866 shares subject to stock options exercisable within 60
days.
(15) Includes 21,400 shares subject to stock options exercisable within 60
days.
(16) Includes 5,200 shares subject to stock options exercisable within 60 days.
(17) Includes 830,082 shares subject to stock options exercisable within 60
days. See notes (6) through (16) above.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Gilead's
directors and executive officers, and persons who own more than ten percent of a
registered class of Gilead's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of Gilead. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulation to furnish Gilead
with copies of all Section 16(a) forms they file.
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To Gilead's knowledge, based solely on a review of the copies of such
reports furnished to Gilead and written representations that no other reports
were required, during 1998, Gilead's executive officers, directors and greater
than ten percent beneficial owners complied with all Section 16(a) filing
requirements applicable to these executive officers, directors and greater than
ten percent beneficial owners.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of Gilead receives a fee of $1,000 for each
meeting attended. In the year ended December 31, 1998, the total compensation
paid to current non-employee directors was $19,000. The members of the Gilead
board of directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Gilead board of directors meetings in
accordance with Gilead's policy.
Each non-employee director of Gilead also receives stock option grants under
the Directors' Option Plan. The Directors' Option Plan provides for
non-discretionary grants of nonstatutory stock options to non-employee directors
of Gilead, on an automatic basis pursuant to a pre-approved schedule. Options
granted under the Directors' Option Plan are granted at prices not less than
fair market value on the date of grant, become exercisable over a period of five
years in equal quarterly installments at the rate of 5% per quarter and expire
after ten years. Such vesting is conditioned upon continuous service as a
non-employee director of or consultant to Gilead. The exercise price of options
granted must be paid in cash or shares of common stock of Gilead at the time the
option is exercised.
Each non-employee director was granted as of January 2, 1996, or will be
granted on the date he or she is first elected to be a non-employee director, an
option to purchase 25,000 shares of Gilead common stock, the initial grant.
Thereafter, on each anniversary date of a non-employee director's initial grant,
the non-employee director is automatically granted an option to purchase 5,000
shares of Gilead common stock, the annual grant. A non-employee director who is
also the Chairperson of the Gilead board of directors is granted an option to
purchase an additional 20,000 shares of Gilead common stock at the time of his
or her initial grant or later election as Chairperson, and an additional 4,000
shares of Gilead common stock at the time of his or her annual grant. Each
non-employee director who also serves on a standing committee of the Gilead
board of directors is automatically granted an option to purchase an additional
1,000 shares of Gilead common stock at the time of his or her initial grant, and
an additional 1,000 shares of Gilead common stock at the time of his or her
annual grant, for each such committee. Each non-employee director who serves on
a standing committee and who is also the Chairperson of that committee is
automatically granted an option to purchase an additional 2,000 shares of Gilead
common stock at the time of his or her annual grant. No other options may be
granted under the Directors' Option Plan.
During 1998, Gilead granted options covering 66,000 shares (net of
cancellations) to its current non-employee directors, at exercise prices ranging
from $25.00 to $38.25 per share. Each option granted had an exercise price equal
to fair market value on the date of grant.
As of June 22, 1999, options to purchase a total of 311,000 shares of Gilead
common stock were outstanding under the Directors' Option Plan.
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the years ended December 31, 1998, 1997, and
1996, certain compensation awarded or paid to, or earned by, Gilead's Chief
Executive Officer and its four other most highly compensated executive officers
at December 31, 1998 (the "named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
FISCAL YEAR ------------------------ SECURITIES
ENDED SALARY UNDERLYING
NAME AND PRINCIPAL POSITION DECEMBER 31, ($)(1) BONUS ($) OPTIONS (#)(2)
- ----------------------------------------------------- ---------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
John C. Martin....................................... 1998 $ 354,375 $ 150,000 65,000
President and Chief Executive 1997 $ 326,667 $ 150,000 75,000
Officer 1996 $ 298,333 $ 110,000 75,000
Jeffrey W. Bird...................................... 1998 $ 222,750 $ 100,000 65,000
Senior Vice President, 1997 $ 187,917 $ 100,000 40,000
Business Operations 1996 $ 150,417 $ 30,000 20,000
Norbert W. Bischofberger............................. 1998 $ 222,752 $ 115,000 55,000
Senior Vice President, 1997 $ 199,583 $ 75,000 40,000
Research 1996 $ 179,167 $ 50,000 30,000
Howard S. Jaffe...................................... 1998 $ 278,461 $ 100,000 35,000
Senior Vice President, 1997 $ 269,167 $ 100,000 40,000
Drug Development 1996 $ 250,417 $ 100,000 65,000
Mark L. Perry........................................ 1998 $ 253,125 $ 100,000 35,000
Senior Vice President, 1997 $ 244,458 $ 75,000 40,000
Chief Financial Officer and 1996 $ 238,000 $ 60,000 20,000
General Counsel
</TABLE>
- ------------------------
(1) Includes amounts earned but deferred at the election of the named executive
officer pursuant to Gilead's 401(k) employee savings and retirement plan. To
date, Gilead has not made any matching contributions under such plan.
(2) Gilead has not granted any stock appreciation rights, has not made any
long-term incentive plan awards and did not make any restricted stock grants
to the named executive officers during the periods covered.
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STOCK OPTION GRANTS AND EXERCISES
As of June 22, 1999 options to purchase a total of 3,794,978 shares of
common stock had been granted and remained outstanding under the 1991 Stock
Option Plan, and options to purchase 803,680 shares of common stock remained
available for grant thereunder. In addition, as of such date, options to
purchase a total of 177,022 shares of common stock were outstanding under
Gilead's 1987 Incentive Stock Option Plan and 1987 Supplemental Stock Option
Plan and pursuant to certain option grants made outside of Gilead's option
plans.
Gilead grants both incentive stock options and nonstatutory stock options to
its executive officers under the 1991 Stock Option Plan. The following tables
show, for the year ended December 31, 1998, the last fiscal year, certain
information regarding options granted to, exercised by, and held at year end by
the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL OPTIONS EXERCISE OR APPRECIATION FOR OPTION
UNDERLYING GRANTED TO BASE TERM(3)
OPTIONS GRANTED EMPLOYEES IN FISCAL PRICE EXPIRATION ------------------------
NAME (#)(1) YEAR(2) ($/SH.) DATE 5% ($) 10% ($)
- ---------------------------------- --------------- ------------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John C. Martin.................... 65,000 6.12% $ 22.875 07/22/08 $ 935,096 $ 2,369,633
Jeffrey W. Bird................... 30,000 2.82% $ 38.000 01/21/08 $ 716,946 $ 1,816,818
35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Norbert W. Bischofberger.......... 20,000 1.88% $ 38.000 01/21/08 $ 477,964 $ 1,211,212
35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Howard S. Jaffe................... 35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
Mark L. Perry..................... 35,000 3.29% $ 22.875 07/22/08 $ 503,513 $ 1,275,956
</TABLE>
- ------------------------
(1) The terms of such options, which include both incentive and nonstatutory
stock options, are consistent with those of options granted to other
employees under Gilead's 1991 Stock Option Plan. The options vest at the
rate of 20% after one year and 5% per quarter thereafter during the
optionee's employment. Subject to certain exceptions, the maximum term of
options granted under the 1991 Stock Option Plan is ten years.
(2) Based on options to purchase 1,062,400 shares of Gilead common stock granted
to employees, including executive officers, for the year ended December 31,
1998.
(3) The potential realizable value is based on the term of the option at the
date of the grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term, and that the option is exercised
and sold on the last day of the option term for the appreciated stock price.
Actual gains, if any, are dependent on the actual future performance of
Gilead common stock and the timing of exercise and sale transactions by the
holder. There can be no assurance that the amounts reflected in this table,
or that any gains, will be achieved.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 12/31/98 (#) AT 12/31/98 ($)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(3)
- ------------------------------------ ------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
John C. Martin...................... 25,165 $ 540,196 288,325/208,000 $ 7,509,989/$3,378,875
Jeffery W. Bird..................... 15,832 $ 587,141 59,097/120,600 $ 1,631,730/$1,815,612
Norbert W. Bischofberger............ 2,000 $ 44,500 91,599/112,600 $ 2,374,795/$1,776,613
Howard S. Jaffe..................... 42,735 $ 886,837 76,065/132,200 $ 1,745,509/$2,715,038
Mark L. Perry....................... 15,000 $ 397,500 74,000/121,000 $ 2,115,875/$1,991,937
</TABLE>
- ------------------------
(1) Represents the fair market value of Gilead common stock on the date of
exercise (based on the closing sales price reported on the Nasdaq Stock
Market or the actual sales price if the shares were sold by the optionee)
less the exercise price, and does not necessarily indicate that the shares
were sold by the optionee.
(2) Includes both in-the-money and out-of-the-money options.
(3) Fair market value of Gilead common stock at December 31, 1998 ($41.0625,
based on the closing sales price reported on the Nasdaq Stock Market), less
the exercise price.
COMPENSATION COMMITTEE REPORT(1)
During the year ended December 31, 1998, the compensation committee of the
Gilead board of directors consisted of Gordon E. Moore (Chairman), Paul Berg,
James M. Denny, Sr. and Donald H. Rumsfeld. None of the compensation committee
members is an officer or an employee of Gilead. The compensation committee is
responsible for making recommendations and taking actions concerning salaries
and incentive compensation of officers and employees of Gilead, including the
award of stock options under Gilead's stock option plans. In particular, the
compensation committee evaluates the performance of management and determines
the compensation of the Chief Executive Officer and other executive officers on
an annual basis. The Chief Executive Officer is not present during the
discussion of his compensation.
Gilead's executive compensation philosophy is to attract and retain
executive officers capable of leading Gilead to fulfillment of its business
objectives by offering competitive compensation opportunities that reward
individual contributions as well as corporate performance. In addition,
long-term equity compensation is awarded to align the interests of management
and stockholders. Gilead provides executive officers (and key employees) of
Gilead with a substantial economic interest in the long-term appreciation of
Gilead common stock through the grant of stock options, subject to vesting
restrictions.
Compensation for each of Gilead's executive officers generally consists of
three elements: cash salary, a cash bonus and stock option grants with exercise
prices set at fair market value at the time of grant. Base salaries and cash
bonuses are determined annually, based on the achievement of corporate and
individual goals set by the Gilead board of directors and Gilead's Chief
Executive Officer, as well as the financial condition and prospects for Gilead.
Long-term equity incentives are granted to executive officers from time to time
on a discretionary basis. Total compensation paid by Gilead to its executive
officers is designed to be competitive with compensation packages paid to the
management of comparable companies in the biopharmaceutical industry. As in
previous years, in making its compensation decisions the compensation committee
took into consideration executive compensation information
- ------------------------
(1) This Report is not "soliciting material," is not deemed "filed" with the SEC
and is not to be incorporated by reference in any filing of Gilead under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
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<PAGE>
from other biopharmaceutical companies, including industry surveys, publicly
available information and reports from compensation consulting firms. The
information reviewed by the compensation committee is not necessarily from the
same group of companies that are included in the market indices in the graph
included under "Performance Measurement Comparison."
Many traditional measures of corporate performance, such as earnings per
share or sales growth, are less important in reviewing performance of executives
in the biopharmaceutical industry, as compared to more established industries.
Because of Gilead's current stage of development, the compensation committee
emphasizes other indications of performance, such as the progress of Gilead's
research and development programs and corporate development activities. These
qualitative factors necessarily involve a subjective assessment by the
compensation committee of corporate performance. Moreover, the compensation
committee does not base its considerations on any single performance factor, nor
does it specifically assign relative weight to factors, but rather considers a
mix of factors and evaluates Company and individual performance against that
mix.
Compensation for Gilead's executive officers was most recently established
by the compensation committee in July 1998 and reflected the performance of
Gilead and its executive officers for the period from July 1, 1997 through June
30, 1998. During this period, Gilead made significant progress in several areas,
and met or exceeded most of its performance goals and timing milestones. Gilead
made significant progress in each of its clinical development programs,
including the presentation of pivotal data for PREVEON (adefovir dipivoxil) for
the treatment of HIV infection; the completion of four Phase III clinical trials
for GS 4104 for the treatment of influenza, in collaboration with Hoffmann-La
Roche; the completion of Phase II clinical trials of adefovir dipivoxil for the
treatment of hepatitis B infection; and the design and initiation of a Phase II
program to evaluate PMPA for the treatment of HIV infection. In addition,
progress continued in Gilead's research and preclinical development efforts. The
compensation committee believes that the continued commitment and leadership of
Gilead's executive officers were important factors in Gilead's achievements
during this period.
The compensation committee met in July 1998 to determine cash bonuses, stock
option grants and base salary levels for the next year. Determinations of the
amount of cash bonuses and stock option grants were based primarily on Gilead's
achievements described above, the compensation committee's determination of each
officer's contributions to those achievements and the compensation committee's
expectations regarding future performance. Recognizing the contributions made by
Dr. Martin as President and Chief Executive Officer, the compensation committee
set his salary at $360,000 (a 2.9% increase from his previous salary), his cash
bonus was $150,000 and his stock option grant was 65,000 shares. Similar factors
accounted for the increase in base salaries, cash bonuses and stock option
grants for Dr. Bird, Dr. Bischofberger, Dr. Jaffe and Mr. Perry. The
compensation committee is next scheduled to meet in July 1999 to determine
compensation for the named executive officers.
Gordon E. Moore, Chairman
Paul Berg
James M. Denny, Sr.
Donald H. Rumsfeld
102
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph compares total stockholder returns of Gilead since its
initial public offering of common stock on January 22, 1992 to two indices: the
Nasdaq CRSP Total Return Index for the Nasdaq Stock Market (U.S. companies), the
Nasdaq-US, and the Nasdaq Pharmaceutical Index, the Nasdaq-Pharmaceutical. The
total return for Gilead's stock and for each index assumes the reinvestment of
dividends, although dividends have never been declared on Gilead's stock, and is
based on the returns of the component companies weighted according to their
capitalizations as of the end of each monthly period. The Nasdaq-US tracks the
aggregate price performance of equity securities of U.S. companies traded on the
Nasdaq Market. The Nasdaq-Pharmaceutical tracks the aggregate price performance
of equity securities of pharmaceutical companies traded on the Nasdaq National
Market. Gilead common stock is traded on the Nasdaq National Market and is a
component of both the Nasdaq-US and the Nasdaq-Pharmaceutical.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT SINCE
GILEAD'S INITIAL PUBLIC OFFERING ON JANUARY 22, 1992(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ US NASDAQ PHARMACEUTICAL GILEAD
<S> <C> <C> <C>
1/22/92 100.000 100 100
6/30/92 93.104 69 82
12/31/92 112.774 79 128
6/30/93 117.083 60 109
12/31/93 129.447 71 80
6/30/94 118.209 50 57
12/31/94 126.537 53 63
6/30/95 157.810 67 118
12/29/95 178.968 98 213
6/28/96 202.595 99 168
12/31/96 220.079 98 167
6/30/97 246.293 100 184
12/31/97 269.637 101 255
6/30/98 324.320 103 214
12/31/98 379.953 129 274
</TABLE>
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of Gilead under
the Securities Act or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language in any
such filing.
(2) Shows the cumulative total return on investment assuming an investment of
$100 in each of Gilead, the Nasdaq-US and the Nasdaq-Pharmaceutical on
January 22, 1992. The cumulative total return on Gilead common stock has
been computed based on an initial price of $15.00 per share, the price at
which Gilead's shares were sold in its initial public offering on January
22, 1992.
103
<PAGE>
CERTAIN TRANSACTIONS
In November 1990, Gilead entered into a relocation loan agreement with John
C. Martin, currently Gilead's President and Chief Executive Officer. The
principal amount of the loan is $100,000 with a term of ten years. The loan is
non-interest bearing and 100% of the principal amount will be forgiven on a pro
rata basis over years six through ten as long as Dr. Martin is still employed by
Gilead. In the event Dr. Martin ceases to be employed by Gilead, the loan
becomes interest-bearing and due within ninety days. The loan is secured by a
deed of trust on Dr. Martin's residence. As of December 31, 1998, $40,000 was
outstanding.
In October 1994, Gilead entered into a loan agreement with Mark L. Perry,
currently Gilead's Senior Vice President, Chief Financial Officer and General
Counsel. The principal amount of the loan is $100,000 with a term of ten years.
The loan is non-interest bearing and 50% of the principal amount will be
forgiven on a pro rata basis over years six through ten as long as Mr. Perry is
still employed by Gilead. In the event Mr. Perry ceases to be employed by
Gilead, the loan becomes interest-bearing and due within sixty days. The loan is
secured by a deed of trust on Mr. Perry's residence. As of December 31, 1998,
the entire loan amount was outstanding.
During 1998, Gilead paid an aggregate of $2,551,134 to Pharma Research
Corporation, a contract research organization. James M. Denny, a member of
Gilead's board of directors, is a managing director of William Blair Capital,
LLC, which manages William Blair Capital Fund V, which owns a controlling
interest (45% of the voting stock) in Pharma Research Corporation. Mr. Denny is
not involved in the supervision of the operations of Pharma Research
Corporation. Pharma Research Corporation provided services to Gilead prior to
William Blair Capital's investment.
Gilead has entered into indemnity agreements with all of its officers
(including the named executive officers) and directors which provide, among
other things, that Gilead will indemnify such officer or director, under the
circumstances and to the extent provided for therein, for expenses, damages,
judgments, fines and settlements he may be required to pay in actions or
proceedings which he is or may be made a party by reason of his position as a
director, officer or other agent of Gilead, and otherwise to the full extent
permitted under Delaware law and Gilead's by-laws.
OTHER MATTERS
The Gilead board of directors knows of no other matters that will be
presented for consideration at the Gilead annual meeting. If any other matters
are properly brought before the meeting, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
best judgment.
A COPY OF GILEAD'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K/A FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS, GILEAD SCIENCES,
INC., 333 LAKESIDE DRIVE, FOSTER CITY, CALIFORNIA 94404.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Gilead Sciences,
Inc. consolidated financial statements included in the Gilead Annual Report on
Form 10-K/A for the year ended December 31, 1998, as set forth in their report,
which is incorporated by reference in this joint proxy statement/prospectus of
Gilead and NeXstar Pharmaceuticals, Inc. and elsewhere in the registration
statement of Gilead. These financial statements 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 the NeXstar
Pharmaceuticals, Inc. consolidated financial statements (and schedule) included
in the NeXstar Annual Report on Form 10-K/A for the year ended December 31,
1998, as set forth in their report, which is incorporated by reference in this
joint proxy statement/prospectus of Gilead Sciences, Inc. and NeXstar and
elsewhere in the registration statement of Gilead, and which, as to the year
ended December 31, 1998, is based in part on
104
<PAGE>
the report of PricewaterhouseCoopers LLP, independent accountants of Proligo
LLC. The financial statements (and schedule) referred to above are incorporated
by reference in reliance upon such reports given on the authority of Ernst &
Young LLP as experts in accounting and auditing.
The audited financial statements of Proligo LLC, not separately presented in
this registration statement, have been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report thereon has been incorporated herein by
reference. Such financial statements, to the extent they have been included in
the financial statements of NeXstar Pharmaceuticals, Inc., have been so included
in reliance on the report of such independent accountants given on the authority
of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of Gilead common stock offered hereby and other
legal matters, including the federal income tax consequences of the merger, will
be passed upon for Gilead by Cooley Godward LLP, Palo Alto, California. Cooley
Godward LLP and certain members and associates in such firm own an aggregate of
approximately 790 shares of Gilead common stock.
Certain legal matters in connection with the merger, including the federal
income tax consequences, will be passed upon for NeXstar by Willkie Farr &
Gallagher, New York, New York. Certain members and associates in Willkie Farr &
Gallagher own an aggregate of approximately 2,440 shares of NeXstar common
stock.
WHERE YOU CAN FIND MORE INFORMATION
Gilead and NeXstar each file annual, quarterly and special reports, proxy
statements and other information with the United States Securities and Exchange
Commission. You may read and copy any document filed by Gilead or NeXstar at the
SEC's public reference facilities. Please call the SEC at 1-800-SEC-0330 for
further information about its public reference facilities. These SEC filings are
also available to the public at the SEC's web site at "http://www.sec.gov".
Reports, proxy statements and other information concerning Gilead and NeXstar
can also be inspected at the Nasdaq National Market, Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
This proxy statement/prospectus incorporates certain documents by reference.
You can obtain copies of the documents relating to Gilead, without charge, by
contacting the Gilead Investor Relations department at:
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, California 94404
(650) 574-3000
You can obtain copies of the documents relating to NeXstar, without charge,
by contacting the NeXstar Investor Relations department at:
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
(303) 444-5893
In order to ensure timely delivery of the documents, any requests should be
made by July 15, 1999.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us (Gilead and NeXstar) to "incorporate by reference" the
information we file with the SEC which means that we can disclose important
information to you by referring you to documents that we have previously filed
with the SEC. The information incorporated by reference is considered to be a
part of this proxy statement/prospectus. Any later information that we file with
the SEC will automatically update and supersede this information.
105
<PAGE>
We incorporate by reference the documents listed below, and any further
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the offering of the securities is
terminated. This proxy statement/prospectus is part of a registration statement
on Form S-4 filed by Gilead with the SEC (Registration No. 333-81415).
The Gilead documents we incorporate by reference are its:
- Annual Report on Form 10-K/A
for the fiscal year ended
December 31, 1998
- Quarterly Report on Form 10-Q
for the quarter ended
March 31, 1999
- Current Report on Form 8-K filed
with the SEC on March 9, 1999
- Current report on Form 8-K filed
with the SEC on November 21, 1994
- The description of Gilead common
stock in the Final Prospectus filed
under the Securities Act of 1933, as
amended, by the Registrant with the
SEC on December 22, 1992.
The NeXstar documents we incorporate by reference are its:
- Annual Report on Form 10-K/A
for the fiscal year ended
December 31, 1998
- Quarterly Report on Form 10-Q, as amended,
for the quarter ended
March 31, 1999
- Current Report on Form 8-K
filed with the SEC on March 9, 1999
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains and incorporates by reference
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include all statements regarding the intent, belief or current
expectations regarding the matters discussed or incorporated by reference in
this joint proxy statement/ prospectus, including statements as to beliefs,
expectations, anticipations, intentions or similar words, and all statements
which are not statements of historical fact. Such statements are subject to
risks, uncertainties and assumptions, including, but not limited to:
- risks related to the realization of anticipated revenues, profitability
and cost synergies of the combined company;
- risks related to the business and operations of Gilead and NeXstar,
including trends affecting their continued growth, the development and
regulatory approval of products;
- other risks and uncertainties described in "Risk Factors" or in the other
SEC filings of NeXstar and Gilead. Should one or more of these risks or
uncertainties affect the business of the companies or should underlying
assumptions prove incorrect, Gilead's or NeXstar's actual results,
106
<PAGE>
performance or achievements in 1999 and beyond could differ materially
from those expressed in, or implied by, such forward-looking statements;
- risks associated with the exchange ratio;
- risks relating to the respective businesses of Gilead and NeXstar;
- risks related to the integration of Gilead and NeXstar; and
- other risks and uncertainties discussed under "Risk Factors" and elsewhere
in this document and in the documents NeXstar and Gilead incorporate by
reference.
The Gilead common stock and the NeXstar common stock are each quoted on the
Nasdaq National Market. The trading symbol for Gilead is "GILD." The trading
symbol for NeXstar is "NXTR." You may inspect reports and other information
concerning Gilead and NeXstar at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT/PROSPECTUS. WE HAVE AUTHORIZED NO ONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT COVER OF THIS DOCUMENT.
This joint proxy statement/prospectus contains separate trademarks of Gilead
and NeXstar as well as trademarks of other companies.
TRADEMARKS
Gilead, VISTIDE and PREVEON are registered trademarks of Gilead. NeXstar,
AmBisome and DaunoXome are registered trademarks of NeXstar, and the NeXstar
logo is a trademark of NeXstar. This joint proxy statement/prospectus also
includes the trademarks of other companies.
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<PAGE>
GILEAD SCIENCES, INC. AND NEXSTAR PHARMACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed combined financial statements
give effect to the merger using the pooling-of-interests method of accounting,
after giving effect to the pro forma adjustments described in the accompanying
notes. These unaudited pro forma condensed combined financial statements have
been prepared from, and should be read in conjunction with, the historical
financial statements and notes thereto of Gilead and NeXstar, which are included
in Gilead's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and
NeXstar's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q which
are incorporated by reference in this proxy statement/prospectus. See "Where You
Can Find More Information" on page 105.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred had the merger been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or
financial position of the merged companies.
PERIODS PRESENTED
The unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the
merger as if it had occurred on March 31, 1999 and combines the unaudited
balance sheets of Gilead and NeXstar at March 31, 1999. The unaudited Pro Forma
Condensed Combined Statements of Operations give effect to the merger as if it
had occurred at the beginning of the earliest period presented, combining the
results of Gilead and NeXstar for the three-month periods ended March 31, 1999
and 1998 and for each year in the three-year period ended December 31, 1998.
MERGER-RELATED EXPENSES
As a result of the merger, Gilead anticipates that a pre-tax charge of
approximately $13 million for direct merger-related transaction costs,
consisting primarily of professional and registration fees, will be incurred.
Gilead and NeXstar will each record its share of such costs as an expense when
incurred. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect
to these expenses as if they had been incurred at March 31, 1999. These charges
are not reflected in the pro forma condensed combined statements of operations
data.
In addition, the merged companies are expected to incur certain costs in
connection with integrating the operations of Gilead and NeXstar. Integration
plans will not be completed until after the merger is consummated. However,
Gilead expects to recognize, in accordance with EITF 94-3, a pre-tax charge
currently estimated to be in the range of $5 million to $10 million in the
quarter in which the merger is consummated. The estimate takes into effect: 1)
contractually obligated retention bonuses and severance packages which are
required to be paid to certain executives upon change of control, 2) potential
redundancy in staffing that may exist between the two organizations and 3) the
net book value of duplicate major business systems. No provisions were included
in these costs for the writing down of any of the combined company's other
assets.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILEAD NEXSTAR NOTES) COMBINED
----------- ----------- -------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 58,448 $ 70,961 $ $ 129,409
Marketable securities............................. 205,482 6,004 211,486
Accounts receivable, net.......................... (342) 42,564 42,222
Inventories....................................... 5,246 11,521 16,767
Prepaid expenses and other........................ 3,209 6,709 9,918
----------- ----------- -------- -----------
Total current assets................................ 272,043 137,759 -- 409,802
Property, plant and equipment, net.................. 12,132 39,631 51,763
Investment in unconsolidated affiliate.............. -- 8,648 8,648
Patent and trademark costs, net..................... -- 5,196 5,196
Other noncurrent assets, net........................ 4,444 2,700 7,144
----------- ----------- -------- -----------
Total assets........................................ $ 288,619 $ 193,934 $ -- $ 482,553
----------- ----------- -------- -----------
----------- ----------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,459 $ 4,415 $ $ 7,874
Accrued clinical and preclinical expenses......... 10,710 840 11,550
Accrued compensation and employee benefits........ 3,311 6,627 9,938
Accrued litigation settlement and related expenses
due within one year............................. -- 2,411 2,411
Accrued interest payable.......................... -- 833 833
Other accrued expenses............................ 5,841 5,716 13,000(4) 24,557
Deferred revenue.................................. 5,219 -- 5,219
Long-term obligations due within one year......... 768 4,024 4,792
----------- ----------- -------- -----------
Total current liabilities........................... 29,308 24,866 13,000(4) 67,174
Accrued litigation settlement expenses due after one
year.............................................. -- 7,607 7,607
Long-term obligations due after one year............ 375 7,414 7,789
Convertible subordinated debentures................. -- 80,000 80,000
Stockholders' equity:
Preferred stock................................... 1 -- 1
Common stock and additional paid-in capital....... 493,885 233,117 727,002
Deferred compensation ............................ (126) (54) (180)
Accumulated other comprehensive loss.............. (483) (361) (844)
Accumulated deficit............................... (234,341) (158,655) (13,000)(4) (405,996)
----------- ----------- -------- -----------
Total stockholders' equity.......................... 258,936 74,047 (13,000)(4) 319,983
----------- ----------- -------- -----------
Total liabilities and stockholders' equity.......... $ 288,619 $ 193,934 $ -- $ 482,553
----------- ----------- -------- -----------
----------- ----------- -------- -----------
</TABLE>
See accompanying notes
109
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILEAD NEXSTAR NOTES) COMBINED
----------- ----------- -------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales, net.................................... $ 1,445 $ 30,603 $ 32,048
Contract revenue...................................... 2,941 1,199 4,140
Royalty revenue, net.................................. 551 1,537 2,088
----------- ----------- -------- -----------
Total revenues.......................................... 4,937 33,339 -- 38,276
----------- ----------- -------- -----------
COSTS AND EXPENSES:
Cost of product sales................................. 134 6,528 6,662
Research and development.............................. 15,786 9,812 25,598
Selling, general and administrative................... 7,778 12,925 20,703
Merger related expenses............................... 589 906 1,495
Litigation settlement and related expenses............ -- 479 479
----------- ----------- -------- -----------
Total costs and expenses................................ 24,287 30,650 -- 54,937
----------- ----------- -------- -----------
Income (loss) from operations........................... (19,350) 2,689 -- (16,661)
Interest income......................................... 3,590 851 4,441
Interest expense........................................ (27) (1,543) (1,570)
----------- ----------- -------- -----------
Income (loss) before provision for income taxes and
equity in loss of unconsolidated affiliate............ (15,787) 1,997 -- (13,790)
Provision for income taxes.............................. -- 73 73
Equity in loss of unconsolidated affiliate.............. -- (1,613) (1,613)
----------- ----------- -------- -----------
Net income (loss)....................................... $ (15,787) $ 311 -- $ (15,476)
----------- ----------- -------- -----------
----------- ----------- -------- -----------
Per share exchange ratio of 0.3786
Net income (loss) per share:
Basic............................................... $ (0.51) $ 0.01 $ (0.37)
Diluted............................................. $ (0.51) $ 0.01 $ (0.37)
Shares used in computing net income (loss) per share:
Basic............................................... 30,864 28,768 (17,876)(3) 41,756
Diluted............................................. 30,864 29,243 (18,351)(3) 41,756
Per share exchange ratio of 0.4250
Net income (loss) per share:
Basic............................................... $ (0.51) $ 0.01 $ (0.36)
Diluted............................................. $ (0.51) $ 0.01 $ (0.36)
Shares used in computing net income (loss) per share:
Basic............................................... 30,864 28,768 (16,542)(3) 43,090
Diluted............................................. 30,864 29,243 (17,017)(3) 43,090
Per share exchange ratio of 0.5000
Net income (loss) per share:
Basic............................................... $ (0.51) $ 0.01 $ (0.34)
Diluted............................................. $ (0.51) $ 0.01 $ (0.34)
Shares used in computing net income (loss) per share:
Basic............................................... 30,864 28,768 (14,384)(3) 45,248
Diluted............................................. 30,864 29,243 (14,859)(3) 45,248
</TABLE>
See accompanying notes
110
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILEAD NEXSTAR NOTES) COMBINED
----------- ----------- -------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales, net.................................... $ 1,795 $ 23,517 $ 25,312
Contract revenue...................................... 11,407 3,750 15,157
Royalty revenue, net.................................. 358 686 1,044
----------- ----------- -------- -----------
Total revenues.......................................... 13,560 27,953 -- 41,513
----------- ----------- -------- -----------
COSTS AND EXPENSES:
Cost of product sales................................. 230 4,840 5,070
Research and development.............................. 18,930 13,310 32,240
Selling, general and administrative................... 6,742 10,760 17,502
Litigation settlement and related expenses............ -- 396 396
----------- ----------- -------- -----------
Total costs and expenses................................ 25,902 29,306 -- 55,208
----------- ----------- -----------
Loss from operations.................................... (12,342) (1,353) -- (13,695)
Interest income......................................... 5,032 730 5,762
Interest expense........................................ (74) (1,695) (1,769)
----------- ----------- -------- -----------
Loss before provision for income taxes and equity in
loss of unconsolidated affiliate...................... (7,384) (2,318) -- (9,702)
Provision for income taxes.............................. -- 263 263
----------- ----------- -------- -----------
Net loss................................................ $ (7,384) $ (2,581) -- $ (9,965)
----------- ----------- -------- -----------
----------- ----------- -------- -----------
Per share exchange ratio of 0.3786
Net loss per basic and diluted share.................. $ (0.25) $ (0.09) $ (0.25)
Shares used in computing net loss per basic and
diluted share....................................... 30,103 27,467 (17,068)(3) 40,502
Per share exchange ratio of 0.4250
Net loss per basic and diluted share.................. $ (0.25) $ (0.09) $ (0.24)
Shares used in computing net loss per basic and
diluted share....................................... 30,103 27,467 (15,794)(3) 41,776
Per share exchange ratio of 0.5000
Net loss per basic and diluted share.................. $ (0.25) $ (0.09) $ (0.23)
Shares used in computing net loss per basic and
diluted share....................................... 30,103 27,467 (13,733)(3) 43,837
</TABLE>
See accompanying notes
111
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILEAD NEXSTAR NOTES) COMBINED
----------- ----------- --------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales, net.................................... $ 6,074 $ 108,102 $ 114,176
Contract revenue...................................... 24,198 5,440 29,638
Royalty revenue, net.................................. 2,298 5,007 7,305
----------- ----------- ------- -----------
Total revenues.......................................... 32,570 118,549 151,119
----------- ----------- ------- -----------
COSTS AND EXPENSES:
Cost of product sales................................. 594 21,331 21,925
Research and development.............................. 75,298 52,475 127,773
Selling, general and administrative................... 31,003 49,460 80,463
Litigation settlement and related expenses............ -- 1,267 1,267
----------- ----------- ------- -----------
Total costs and expenses................................ 106,895 124,533 231,428
----------- ----------- -----------
Loss from operations.................................... (74,325) (5,984) (80,309)
Gain on sale of a majority interest in a subsidiary..... -- 22,132 22,132
Interest income......................................... 18,442 3,323 21,765
Interest expense........................................ (192) (6,591) (6,783)
----------- ----------- ------- -----------
Income (loss) before provision for income taxes and
equity in loss of unconsolidated affiliate............ (56,075) 12,880 (43,195)
Provision for income taxes.............................. -- 859 859
Equity in loss of unconsolidated affiliate.............. -- (1,101) (1,101)
----------- ----------- ------- -----------
Net income (loss)....................................... $ (56,075) $ 10,920 $ (45,155)
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Per share exchange ratio of 0.3786
Net income (loss) per share:
Basic............................................... $ (1.85) $ 0.39 $ (1.10)
Diluted............................................. $ (1.85) $ 0.38 $ (1.10)
Shares used in computing net income (loss) per share:
Basic............................................... 30,363 28,135 (17,483)(3) 41,015
Diluted............................................. 30,363 28,403 (17,751)(3) 41,015
Per share exchange ratio of 0.4250
Net income (loss) per share:
Basic............................................... $ (1.85) $ 0.39 $ (1.07)
Diluted............................................. $ (1.85) $ 0.38 $ (1.07)
Shares used in computing net income (loss) per share:
Basic............................................... 30,363 28,135 (16,178)(3) 42,320
Diluted............................................. 30,363 28,403 (16,446)(3) 42,320
Per share exchange ratio of 0.5000
Net income (loss) per share:
Basic............................................... $ (1.85) $ 0.39 $ (1.02)
Diluted............................................. $ (1.85) $ 0.38 $ (1.02)
Shares used in computing net income (loss) per share:
Basic............................................... 30,363 28,135 (14,067)(3) 44,431
Diluted............................................. 30,363 28,403 (14,335)(3) 44,431
</TABLE>
See accompanying notes
112
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILEAD NEXSTAR NOTES) COMBINED
---------- ---------- -------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales, net................................... $ 11,735 $ 89,152 $ 100,887
Contract revenue..................................... 27,413 2,398 29,811
Royalty revenue, net................................. 889 671 1,560
---------- ---------- -------- -----------
Total revenues......................................... 40,037 92,221 132,258
---------- ---------- -------- -----------
COSTS AND EXPENSES:
Cost of product sales................................ 1,167 19,787 20,954
Research and development............................. 59,162 53,015 112,177
Selling, general and administrative.................. 25,472 45,033 70,505
Litigation settlement and related expenses........... -- 16,031 16,031
---------- ---------- -------- -----------
Total costs and expenses............................... 85,801 133,866 219,667
---------- ---------- -------- -----------
Loss from operations................................... (45,764) (41,645) (87,409)
Interest income........................................ 18,260 2,446 20,706
Interest expense....................................... (489) (4,389) (4,878)
---------- ---------- -------- -----------
Loss before provision for income taxes................. (27,993) (43,588) (71,581)
Provision for income taxes............................. -- 322 322
---------- ---------- -------- -----------
Net loss............................................... $ (27,993) $ (43,910) $ (71,903)
---------- ---------- -------- -----------
---------- ---------- -------- -----------
Per share exchange ratio of 0.3786
Net loss per basic and diluted share................. $ (0.95) $ (1.65) $ (1.82)
Shares used in computing net loss per share.......... 29,326 26,692 (16,586)(3) 39,432
Per share exchange ratio of 0.4250
Net loss per basic and diluted share................. $ (0.95) $ (1.65) $ (1.77)
Shares used in computing net loss per share.......... 29,326 26,692 (15,348)(3) 40,670
Per share exchange ratio of 0.5000
Net loss per basic and diluted share................. $ (0.95) $ (1.65) $ (1.69)
Shares used in computing net loss per share.......... 29,326 26,692 (13,346)(3) 42,672
</TABLE>
See accompanying notes
113
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL HISTORICAL (SEE DESIGNATED PRO FORMA
GILDEAD NEXSTAR NOTES) COMBINED
---------- ---------- -------------------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales, net................................... $ 8,477 $ 80,153 $ 88,630
Contract revenue..................................... 24,910 8,548 33,458
Royalty revenue, net................................. 33 -- 33
---------- ---------- -------- -----------
Total revenues......................................... 33,420 88,701 122,121
---------- ---------- -------- -----------
COSTS AND EXPENSES:
Cost of goods sold................................... 910 18,320 19,230
Research and development............................. 41,881 47,760 89,641
Selling, general and administrative.................. 26,692 42,933 69,625
Litigation settlement and related expenses........... -- 2,006 2,006
---------- ---------- -------- -----------
Total costs and expenses............................... 69,483 111,019 180,502
---------- ---------- -------- -----------
Loss from operations................................... (36,063) (22,318) (58,381)
Interest income........................................ 15,042 1,821 16,863
Interest expense....................................... (711) (1,558) (2,269)
---------- ---------- -------- -----------
Loss before provision for income taxes................. (21,732) (22,055) (43,787)
Provision for income taxes............................. -- 926 926
---------- ---------- -------- -----------
Net loss............................................... $ (21,732) $ (22,981) $ (44,713)
---------- ---------- -------- -----------
---------- ---------- -------- -----------
Per share exchange ratio of 0.3786
Net loss per basic and diluted share................. $ (0.78) $ (0.88) $ (1.19)
Shares used in computing net loss per share.......... 27,786 26,029 (16,174)(3) 37,641
Per share exchange ratio of 0.4250
Net loss per basic and diluted share................. $ (0.78) $ (0.88) $ (1.15)
Shares used in computing net loss per share.......... 27,786 26,029 (14,967)(3) 38,848
Per share exchange ratio of 0.5000
Net loss per basic and diluted share................. $ (0.78) $ (0.88) $ (1.10)
Shares used in computing net loss per share.......... 27,786 26,029 (13,014)(3) 40,801
</TABLE>
See accompanying notes
114
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1.
On a combined basis, there were no transactions between Gilead and NeXstar
during any period presented.
There are no material differences between the accounting policies of Gilead
and NeXstar.
The pro forma combined provisions for income taxes do not represent the
amount that would have resulted had Gilead and NeXstar filed consolidated income
tax returns during the periods presented. Upon consummation of the merger, any
unrecognized future deductible temporary differences will be evaluated on a
quarterly basis based upon the income tax attributes of the Combined Company.
NOTE 2. PRO FORMA CONDENSED COMBINED BALANCE SHEET
The Pro Forma Condensed Combined Balance Sheet reflects a credit balance in
accounts receivable for Gilead. This balance of $(0.3) million primarily
represents the remaining balance of $(0.5) million from a year-end provision for
product returns of $(0.6) million recorded in accordance with the Company's
sales return policy. This $(0.5) million remaining allowance for product
returns, along with previously recorded reserves for cash discounts, government
discounts and rebates, and bad debts, exceeded gross outstanding accounts
receivable of $0.6 million as of March 31, 1999.
NOTE 3. PRO FORMA COMBINED EARNINGS (LOSS) PER SHARE
Under the merger agreement, NeXstar stockholders will receive between 0.3786
and 0.5000 of a share of Gilead stock for each outstanding share of NeXstar
common stock. The exchange ratios used in computing share and per share amounts
in the accompanying unaudited pro forma condensed combined financial statements
were 0.3786, 0.4250 and 0.5000, which represent examples of the potential range
in the fraction of a share of Gilead common stock that each NeXstar stockholder
may receive for each share of NeXstar common stock they own.
NOTE 4. MERGER COSTS
The Pro Forma Condensed Combined Balance Sheet at March 31, 1999 reflects an
adjustment of $13 million for direct merger-related transaction costs, primarily
consisting of professional and registration fees.
NOTE 5. 1998 NONRECURRING ITEMS
The Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1998 includes a $22.1 million gain (or pro forma $0.52 per basic
and diluted share based upon an exchange ratio of 0.4250) NeXstar realized on
the sale of its 51% interest in its newly established subsidiary, Proligo
L.L.C., to SKW Americas, Inc. The pro forma net loss exluding this gain would
have been $67.5 million (or pro forma $1.59 per basic and diluted share based
upon an exchange ratio of 0.4250).
NOTE 6. LITIGATION SETTLEMENT AND RELATED EXPENSES
The Pro Forma Condensed Combined Statements of Operations for the
three-month periods ended March 31, 1999 and March 31, 1998 and the years ended
December 31, 1998, 1997 and 1996 include litigation settlement and related
expenses of $0.5 million, $0.4 million, $1.3 million, $16 million and $2
million, respectively. The amount for 1997 was primarily related to the August
1997 settlement between NeXstar and The Liposome Company, Inc. ("TLC") in which
the two companies agreed to dismiss all legal proceedings in connection with two
U.S. patents and their international counterparts
115
<PAGE>
held by TLC (the "Patent Litigation"). Under the terms of the settlement
agreement, NeXstar made an initial payment to TLC of $1.75 million and is
required to make payments which began in 1998 based on AmBisome sales over the
next several years. Because the payments are subject to certain minimum and
maximum amounts, NeXstar recorded accounting charges in 1997 of $11.8 million,
of which $10 million represented the net present value of all future minimum
payments it is required to make (utilizing an 8.5% discount rate) and $1.75
million represented the initial cash payment. Beginning in 1998, NeXstar is
recording an expense each quarter related to the difference between all future
minimum payments and the expense recorded in 1997 and is expensing the
difference between the minimum and maximum payments, if any. In the three-month
periods ended March 31, 1999 and 1998 and for the year ended December 31, 1998,
these combined expenses totaled $0.5 million, $0.3 million and $1.3 million,
respectively. NeXstar does not expect the difference between its future minimum
and maximum payments to TLC to be material. During 1997 and 1996, NeXstar had
$4.2 million and $2 million in additional expenses related to the Patent
Litigation, respectively.
116
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GILEAD SCIENCES, INC.,
GAZELLE ACQUISITION SUB, INC.
AND
NEXSTAR PHARMACEUTICALS, INC.
DATED AS OF FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I. THE MERGER
SECTION 1.1. The Merger................................................................................ A-1
SECTION 1.2. Effective Time of the Merger.............................................................. A-1
SECTION 1.3. Effects of the Merger..................................................................... A-1
SECTION 1.4. Certificate of Incorporation of the Surviving Corporation................................. A-2
SECTION 1.5. By-Laws of the Surviving Corporation...................................................... A-2
SECTION 1.6. Directors and Officers of the Surviving Corporation....................................... A-2
ARTICLE II. CONVERSION OF SHARES
SECTION 2.1. Conversion of Shares...................................................................... A-2
(a) Capital Stock of Sub...................................................................... A-2
(b) Cancellation of Treasury Stock............................................................ A-2
(c) Exchange Ratio for Company Common Stock................................................... A-2
(d) Rights of Former Holders of Company Common Stock.......................................... A-2
SECTION 2.2. Surrender of Certificates................................................................. A-3
SECTION 2.3. Fractional Shares......................................................................... A-4
SECTION 2.4. Closing................................................................................... A-4
SECTION 2.5. Stock Option Plans........................................................................ A-5
SECTION 2.6. Employee Stock Purchase Plan.............................................................. A-5
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company............................................. A-5
(a) Due Organization, Good Standing and Power................................................. A-5
(b) Authorization and Validity of Agreement................................................... A-6
(c) Capitalization............................................................................ A-6
(d) Consents and Approvals; No Violations..................................................... A-8
(e) Company Reports and Financial Statements; Accounting Records.............................. A-8
(f) Absence of Certain Changes................................................................ A-9
(g) Regulatory Compliance..................................................................... A-10
(h) Compliance with Laws...................................................................... A-11
(i) Litigation................................................................................ A-12
(j) Employee Benefit Plans.................................................................... A-13
(k) Employment Agreements..................................................................... A-14
(l) Taxes..................................................................................... A-14
(m) Absence of Undisclosed Liabilities........................................................ A-16
(n) Patents, Trademarks, Etc.................................................................. A-16
(o) Transactions with Directors, Officers and Affiliates...................................... A-16
(p) Broker's or Finder's Fee.................................................................. A-16
(q) Opinion of Financial Advisor.............................................................. A-17
(r) Vote Required............................................................................. A-17
(s) Material Contracts........................................................................ A-17
(t) Accounting Matters........................................................................ A-18
(u) Tax Treatment............................................................................. A-18
(v) Certain Business Practices................................................................ A-18
(w) Governmental Authorizations............................................................... A-18
(x) Insurance................................................................................. A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
(y) Y2K Compliance............................................................................ A-19
(z) Supply.................................................................................... A-19
(aa) Receivables............................................................................... A-19
SECTION 3.2. Representations and Warranties of Parent and Sub.......................................... A-20
(a) Due Organization, Good Standing and Power................................................. A-20
(b) Authorization and Validity of Agreement................................................... A-20
(c) Capitalization............................................................................ A-20
(d) Consents and Approvals; No Violations..................................................... A-21
(e) Parent Reports and Financial Statements; Accounting Records............................... A-22
(f) Absence of Certain Changes................................................................ A-22
(g) Compliance with Laws...................................................................... A-23
(h) Litigation................................................................................ A-23
(i) Taxes..................................................................................... A-24
(j) Parent Employee Benefit Plans............................................................. A-24
(k) Patents, Trademarks, Etc.................................................................. A-26
(l) Broker's or Finder's Fee.................................................................. A-26
(m) Accounting Matters........................................................................ A-26
(n) Tax Treatment............................................................................. A-26
(o) Operations of Sub......................................................................... A-26
(p) Absence of Undisclosed Liabilities........................................................ A-26
(q) Regulatory Compliance..................................................................... A-26
(r) Certain Business Practices................................................................ A-27
(s) Governmental Authorizations............................................................... A-28
(t) Y2K Compliance............................................................................ A-28
ARTICLE IV. CONDUCT OF BUSINESS; TRANSACTIONS PRIOR
TO CLOSING DATE; ADDITIONAL AGREEMENTS
SECTION 4.1. Conduct of Business of the Company........................................................ A-28
SECTION 4.2. Conduct of Business of Parent............................................................. A-30
SECTION 4.3. Access to Information Concerning Business and Records..................................... A-30
SECTION 4.4. Confidentiality........................................................................... A-30
SECTION 4.5. Registration Statement/Joint Proxy Statement; Quotation on Nasdaq National Market......... A-30
SECTION 4.6. Employee Benefits......................................................................... A-32
SECTION 4.7. Stockholder Approvals; Recommendations.................................................... A-32
SECTION 4.8. Stock Options............................................................................. A-33
SECTION 4.9. Letters of the Company's Accountants...................................................... A-33
SECTION 4.10. Letters of Parent's Accountants........................................................... A-33
SECTION 4.11. Notices of Certain Events................................................................. A-33
SECTION 4.12. HSR Act................................................................................... A-34
SECTION 4.13. Indemnification; Officers' and Directors' Insurance....................................... A-34
SECTION 4.14. Efforts................................................................................... A-34
SECTION 4.15. Rule 145.................................................................................. A-34
SECTION 4.16. No Solicitation........................................................................... A-35
SECTION 4.17. Tax Reorganization........................................................................ A-37
SECTION 4.18. Convertible Debentures.................................................................... A-37
SECTION 4.19. Warrants.................................................................................. A-37
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
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---------
<S> <C> <C>
ARTICLE V. CONDITIONS PRECEDENT TO MERGER
SECTION 5.1. Conditions Precedent to Obligations of Parent, Sub and the Company........................ A-37
(a) Approval of Stockholders.................................................................. A-37
(b) HSR Act................................................................................... A-37
(c) No Restraints............................................................................. A-37
(d) Statutes.................................................................................. A-37
(e) Nasdaq National Market Quotation.......................................................... A-37
(f) Effectiveness of Registration Statement................................................... A-37
(g) Market Events............................................................................. A-37
(h) Accounting Treatment...................................................................... A-38
SECTION 5.2. Conditions Precedent to Obligations of Parent and Sub..................................... A-38
(a) Accuracy of Representations and Warranties................................................ A-38
(b) Performance by Company.................................................................... A-38
(c) Affiliate Agreements...................................................................... A-38
(d) Tax Opinion............................................................................... A-38
(e) Accountants' Letters...................................................................... A-38
(f) Consents.................................................................................. A-38
(g) No Governmental Litigation................................................................ A-38
SECTION 5.3. Conditions Precedent to Obligation of the Company......................................... A-39
(a) Accuracy of Representations and Warranties................................................ A-39
(b) Performance by Parent and Sub............................................................. A-39
(c) Tax Opinion............................................................................... A-39
(d) Registration Rights Agreement............................................................. A-39
(e) Undertakings.............................................................................. A-39
ARTICLE VI. TERMINATION AND ABANDONMENT
SECTION 6.1. Termination............................................................................... A-39
SECTION 6.2. Effect of Termination..................................................................... A-41
ARTICLE VII. MISCELLANEOUS
SECTION 7.1. Fees and Expenses......................................................................... A-41
SECTION 7.2. Representations, Warranties and Agreements................................................ A-41
SECTION 7.3. Extension; Waiver......................................................................... A-42
SECTION 7.4. Public Announcements...................................................................... A-42
SECTION 7.5. Notices................................................................................... A-42
SECTION 7.6. Entire Agreement.......................................................................... A-43
SECTION 7.7. Binding Effect; Benefit; Assignment....................................................... A-43
SECTION 7.8. Amendment and Modification................................................................ A-43
SECTION 7.9. Further Actions........................................................................... A-43
SECTION 7.10. Headings.................................................................................. A-43
SECTION 7.11. Counterparts.............................................................................. A-43
SECTION 7.12. Applicable Law............................................................................ A-44
SECTION 7.13. Severability.............................................................................. A-44
SECTION 7.14. Enforcement of Agreement.................................................................. A-44
SECTION 7.15. "Person" Defined.......................................................................... A-44
SECTION 7.16. Submission to Jurisdiction................................................................ A-44
SECTION 7.17. Subsidiaries.............................................................................. A-44
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
EXHIBITS
Exhibit A Form of Affiliate Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Undertaking
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 28, 1999 (the
"Agreement"), by and among GILEAD SCIENCES, INC., a Delaware corporation
("Parent"), GAZELLE ACQUISITION SUB, INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and NEXSTAR PHARMACEUTICALS, INC., a
Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of the Company and Parent have
each determined that it is in the best interests of their respective companies
and stockholders that Parent acquire the business of the Company pursuant to the
terms and conditions set forth in this Agreement;
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company,
and Parent acting as the sole stockholder of Sub, have approved the merger of
Sub into the Company (the "Merger"), pursuant and subject to the terms and
conditions of this Agreement, whereby each issued and outstanding share of
common stock, par value $.01 per share, of the Company ("Company Common Stock")
will be converted into the right to receive shares of common stock, par value
$.001 per share, of Parent ("Parent Shares") in accordance with Section 2.1 of
this Agreement;
WHEREAS, the respective Boards of Directors of the Company and Parent have
each determined that the Merger is fair to, and in the best interests of, their
respective companies and stockholders and have approved the Merger, and the
Board of Directors of the Company has recommended the approval and adoption of
this Agreement by the Company's stockholders;
WHEREAS, in order to induce Parent to enter into this Agreement and to
consummate the Merger, the Company and Parent are entering into a Stock Option
Agreement of even date herewith (the "Share Option Agreement") pursuant to which
the Company is granting to Parent an option to purchase certain shares of
Company Common Stock from the Company under the circumstances specified in the
Share Option Agreement;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests under United States generally accepted
accounting principles ("US GAAP");
NOW, THEREFORE, in consideration of the promises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. THE MERGER. Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 2.4 hereof), a
certificate of merger (the "Certificate of Merger") effecting the merger of Sub
with and into the Company, shall be duly executed by the Company in accordance
with the Delaware General Corporation Law (the "DGCL") and shall be filed on the
Closing Date (as defined in Section 2.4 hereof). The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware or at such time thereafter as is provided in the
Certificate of Merger in accordance with the provisions and requirements of the
DGCL. The date and time when the Merger shall become effective is hereinafter
referred to as the "Effective Time."
SECTION 1.2. EFFECTIVE TIME OF MERGER. At the Effective Time, Sub shall be
merged with and into the Company and the separate corporate existence of Sub
shall cease, and the Company shall continue as the surviving corporation under
the laws of the State of Delaware (the "Surviving Corporation").
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SECTION 1.3. EFFECTS OF THE MERGER. From and after the Effective Time, the
Merger shall have the effects set forth in Section 259(a) of the DGCL.
SECTION 1.4. CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time, and thereafter may be amended in accordance with its terms and as provided
by law and this Agreement.
SECTION 1.5. BY-LAWS OF THE SURVIVING CORPORATION. The By-Laws of Sub, as
in effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation.
SECTION 1.6. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors of Sub immediately prior to the Effective Time shall be the directors
of the Surviving Corporation, and the officers of the Company immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected and qualified.
ARTICLE II.
CONVERSION OF SHARES
SECTION 2.1. CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any holder of capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each share of capital stock of Sub then
issued and outstanding shall become one fully paid and nonassessable share
of common stock, $0.01 par value per share, of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK. All shares of Company Common Stock
that are owned by the Company as treasury stock shall be canceled and
retired and shall cease to exist and no Parent Shares or other consideration
shall be delivered in exchange therefor.
(c) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Each issued and
outstanding share of Company Common Stock (other than shares to be canceled
in accordance with Section 2.1(b)) shall be converted into the right to
receive that number of Parent Shares equal to the Exchange Ratio (the Parent
Shares issuable upon exchange of shares of Company Common Stock are referred
to as the "Merger Consideration"). For purposes of this Agreement: (i)
"Exchange Ratio" means a fraction equal to 0.4250, PROVIDED, HOWEVER, that
(A) if the Parent Share Value is less than $36.47, then the Exchange Ratio
shall be equal to the lesser of 0.5000 or a fraction having a numerator
equal to $15.50 and having a denominator equal to the Parent Share Value,
and (B) if the Parent Share Value is greater than $45.88, then the Exchange
Ratio shall be equal to the greater of 0.3786 or a fraction having a
numerator equal to $19.50 and having a denominator equal to the Parent Share
Value; and (ii) "Parent Share Value" means the average of the closing prices
of the Parent Shares as reported on the Nasdaq National Market for the 20
consecutive trading days ending on the third trading day preceding the date
on which the stockholders of the Company vote on the Merger at the Special
Meeting (as defined in Section 4.7 hereof). If between the date of this
Agreement and the Effective Time the outstanding Parent Shares or the
outstanding Company Common Stock shall be changed into a different number of
shares by reason of any stock dividend, subdivision, reclassification,
split-up, combination or the like, the Exchange Ratio shall be appropriately
adjusted.
(d) RIGHTS OF FORMER HOLDERS OF COMPANY COMMON STOCK. All shares of
Company Common Stock converted into the right to receive Merger
Consideration pursuant to this Section 2.1 shall no longer be outstanding,
and each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive Merger
Consideration to be
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issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.2, without interest.
SECTION 2.2. SURRENDER OF CERTIFICATES. (a) Concurrently with or prior to
the Effective Time, the parties hereto shall designate ChaseMellon Shareholder
Services to act as agent (the "Exchange Agent") for purposes of exchanging
certificates representing shares of Company Common Stock as provided in Section
2.1. As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail or make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive Merger Consideration pursuant to Section 2.1
a notice and letter of transmittal advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the Exchange Agent such
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock in exchange for Merger
Consideration deliverable in respect thereof pursuant to this Article II.
(b) Each holder of shares of Company Common Stock that has been converted
into a right to receive Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates representing such Company Common Stock,
together with a properly completed letter of transmittal covering such shares of
Company Common Stock and such other documents as may reasonably be required by
the Exchange Agent or Parent, will be entitled to receive Merger Consideration
in respect of each share of Company Common Stock surrendered. Until so
surrendered, each share of Company Common Stock shall, after the Effective Time,
represent for all purposes, only the right to receive Merger Consideration. Such
letter of transmittal shall be in customary form and contain such provisions as
Parent may reasonably specify (including a provision confirming that delivery of
the certificates which immediately prior to the Effective Time represented
shares of Company Common Stock shall be effected, and risk of loss and title to
such certificates shall pass, only upon delivery of such certificates to the
Exchange Agent).
(c) If any Merger Consideration is to be issued to a Person (as defined in
Section 7.15 hereof) other than the registered holder of the Company Common
Stock represented by the certificate or certificates surrendered with respect
thereto, it shall be a condition to such issuance that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such delivery shall pay to the
Exchange Agent any transfer or other taxes required as a result of such issuance
to a Person other than the registered holder of such Company Common Stock or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable. If any certificate which immediately prior to the Effective
Time represented shares of Company Common Stock shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Shares, require the owner of
such lost, stolen or destroyed certificate to provide an appropriate affidavit
and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent, Parent or the
Surviving Corporation with respect to such certificate.
(d) As of the Effective Time, there shall be no further registration of
transfers of shares of Company Common Stock that were outstanding prior to the
Merger. After the Effective Time, certificates representing shares of Company
Common Stock presented to the Surviving Corporation for transfer shall be
canceled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article II.
(e) At the close of business on the Effective Time, the stock ledger of the
Company with respect to the issuance of Company Common Stock shall be closed.
Six months after the Effective Time, any Merger Consideration made available to
the Exchange Agent and any portion of the Common Stock Trust (as defined in
Section 2.3) that remains unclaimed by the holders of shares of Company Common
Stock shall be returned to Parent upon demand. Any such holder who has not
delivered his certificates
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which immediately prior to the Effective Time represented shares of Company
Common Stock to the Exchange Agent in accordance with Section 2.2 prior to that
time shall thereafter look only to Parent and the Surviving Corporation for
issuance of Parent Shares in respect of shares of Company Common Stock.
Notwithstanding the foregoing, neither Parent nor the Surviving Corporation
shall be liable to any holder or former holder of shares of Company Common Stock
for any securities delivered or any amount paid to a public official pursuant to
applicable abandoned property laws. Any Parent Shares remaining unclaimed by
holders of shares of Company Common Stock three years after the Effective Time
(or such earlier date immediately prior to such time as such securities would
otherwise escheat to or become property of any governmental entity or as is
otherwise provided by applicable law) shall, to the extent permitted by
applicable law, be free and clear of any claims or interest of any Person
previously entitled thereto.
(f) No dividends, interest or other distributions with respect to securities
of Parent or the Surviving Corporation issuable with respect to Merger
Consideration shall be paid to the holder of any unsurrendered certificates
which formerly represented Company Common Stock until such certificates are
surrendered as provided in this Section. Upon such surrender, there shall be
paid, without interest, to the Person in whose name the Parent Shares
representing such securities are registered, all dividends and other
distributions payable in respect of such securities on a date subsequent to, and
in respect of a record date after, the Effective Time, subject to the effect of
applicable abandoned property laws.
SECTION 2.3. FRACTIONAL SHARES. No fraction of a Parent Share will be
issued, and such fractional interest shall not entitle the owner thereof to vote
or to any rights as a security holder of Parent. In lieu of any such fractional
interest, each holder of certificates which immediately prior to the Effective
Time represented shares of Company Common Stock otherwise entitled to a fraction
of a Parent Share (after aggregating all fractional Parent Shares issuable to
such holder) will be entitled to receive at the time such holder receives Parent
Shares pursuant to Section 2.2(b) hereof and in accordance with the provisions
of this Section 2.3 from the Exchange Agent a cash payment representing such
holder's proportionate interest in the net proceeds (determined after deducting
all commissions, transfer taxes and other transaction costs) from the sale by
the Exchange Agent on behalf of all such holders of the aggregate of the
fractions of Parent Shares which would otherwise be issued (the "Excess Parent
Shares"). The sale of the Excess Parent Shares by the Exchange Agent shall be
executed on the Nasdaq National Market through one or more market makers in the
Parent Shares and shall be executed in round lots to the extent practicable.
Until the net proceeds of such sale or sales have been distributed to the former
holders of shares of the Company Common Stock, the Exchange Agent will, subject
to Section 2.2(e), hold such proceeds in trust for the former holders of shares
of Company Common Stock (the "Common Stock Trust"). Parent shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation, of the Exchange Agent incurred in connection with
such sale of the Excess Parent Shares. The Exchange Agent shall determine the
portion of the Common Stock Trust to which each former holder of shares of
Company Common Stock shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Common Stock Trust by a fraction the
numerator of which is the amount of the fractional Parent Share interest to
which such former holder of shares of Company Common Stock is entitled and the
denominator of which is the aggregate amount of fractional Parent Shares to
which all former holders of shares of Company Common Stock are entitled. As soon
as practicable after the determination of the amount of cash, if any, to be paid
to former holders of shares of Company Common Stock in lieu of any fractional
Parent Shares, the Exchange Agent shall make available such amounts to such
former holders of shares of the Company Common Stock without interest.
SECTION 2.4. CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York 10019, as soon as practicable after the last of the conditions set
forth in Article V hereof is fulfilled or waived (subject to applicable
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law) but in no event later than the fifth business day thereafter, or at such
other time and place and on such other date as Parent and the Company shall
mutually agree (the "Closing Date").
SECTION 2.5. STOCK OPTION PLANS. (a) Prior to the Effective Time, but
subject to the consummation of the Merger, the Board of Directors of the Company
and the committee appointed by the Board to administer the Company's stock
option plans shall use its best efforts to take all action reasonably necessary
or appropriate to provide that each option outstanding under the Company's 1988
Stock Option Plan, 1993 Incentive Stock Plan, as amended, and 1995 Director
Option Plan, as amended (collectively, the "Stock Option Plans"), shall be
converted into and become rights with respect to Parent Shares, and Parent shall
assume each such option in accordance with the terms (as in effect as of the
date of this Agreement) of the Stock Option Plan under which it was issued and
the stock option agreement by which it is evidenced. From and after the
Effective Time, (i) each option assumed by Parent in accordance with this
Section 2.5(a) may be exercised solely for Parent Shares, (ii) the number of
Parent Shares subject to each such option shall be equal to the number of shares
of Company Common Stock subject to such option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounding down to the nearest
whole share (with cash, less the applicable exercise price, being payable for
any fraction of a share), (iii) the per share exercise price under each such
option shall be adjusted by dividing the per share exercise price under such
option by the Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such option shall continue in full force and
effect and the term, exercisability, vesting schedule and other provisions of
such option shall otherwise remain unchanged; PROVIDED, HOWEVER, that each
option assumed by Parent in accordance with this Section 2.5(a) shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock dividend, subdivision, reclassification, split-up, combination
or the like subsequent to the Effective Time. Parent shall file with the
Commission, no later than 5 business days after the Effective Time, a
registration statement on Form S-8 relating to Parent Shares issuable with
respect to the options assumed by Parent in accordance with this Section 2.5(a).
(b) The Company shall take all action reasonably necessary (under the Stock
Option Plans and otherwise) to effectuate the provisions of this Section 2.5 and
to ensure that, from and after the Effective Time, holders of options have no
rights with respect thereto other than those specifically provided in this
Section 2.5.
SECTION 2.6. EMPLOYEE STOCK PURCHASE PLAN. Prior to the Effective Time,
but subject to the consummation of the Merger, the Board of Directors of the
Company shall take all action reasonably necessary or appropriate to use the
accumulated payroll deductions in accounts of participants in the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan") to purchase shares of
Company Common Stock and immediately thereafter terminate the Stock Purchase
Plan.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Parent and Sub as follows:
(a) DUE ORGANIZATION, GOOD STANDING AND POWER. Each of the Company and
its Subsidiaries (as that term is defined in Section 7.17 hereof) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and each such corporation has
all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing would not have a material
adverse effect on the business, properties, assets, liabilities,
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condition (financial or otherwise), operations or results of operations (the
"Condition") of the Company and its Subsidiaries taken as a whole.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company has full
corporate power and authority to execute and deliver this Agreement and the
Share Option Agreement, to perform its obligations hereunder and thereunder
and, subject, in the case of this Agreement, to obtaining any necessary
stockholder approval of the Merger, to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the Share Option Agreement by the Company, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of the
Company (including the authorization and approval of the Board of Directors
of the Company), subject (in the case of this Agreement) to the approval of
the Merger by the Company's stockholders in accordance with the DGCL. The
Board of Directors of the Company (at a meeting duly called and held) has
(a) determined that the Merger is advisable and fair and in the best
interests of the Company and its stockholders, and (b) recommended the
approval and adoption of this Agreement and approval of the Merger by the
holders of Company Common Stock and directed that this Agreement and the
Merger be submitted for consideration by the Company's stockholders at the
Special Meeting. The Board of Directors of the Company has taken all action
necessary to render inapplicable, as it relates to Parent, the provisions of
Section 203 of the DGCL. No other corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance of
this Agreement and the Share Option Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby (other
than, in the case of this Agreement, the approval of the Merger by the
holders of at least a majority of the outstanding Company Common Stock). To
the Company's knowledge, no other state takeover statute or similar statute
or regulation applies or purports to apply to the Merger, this Agreement,
the Share Option Agreement or the transactions contemplated hereby and
thereby. This Agreement and the Share Option Agreement have been duly
executed and delivered by the Company and each is a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
(c) CAPITALIZATION. (i) The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock, $0.01 par value, and
5,000,000 shares of preferred stock, $1.00 par value (the "Preferred
Stock"). As of January 31, 1999, (1) 28,670,645 shares of Company Common
Stock were issued and outstanding, (2) 3,169,785 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding options
granted under the Stock Option Plans, (3) 256,286 shares of Company Common
Stock were reserved for issuance upon exercise of outstanding warrants, (4)
4,740,740 shares of Company Common Stock were reserved for issuance upon the
conversion of the Company's 6 1/4% Convertible Subordinated Debentures Due
2004 (the "Convertible Debentures"), (5) no shares of Preferred Stock were
issued and outstanding, and (6) no shares of Company Common Stock were held
in the Company's treasury. All issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued in compliance with
all applicable securities laws and are fully paid and nonassessable, and
none of such shares are subject to, nor were they issued in violation of,
any preemptive rights. None of the outstanding shares of Company Common
Stock is subject to any right of first refusal or similar right of the
Company or any of its Subsidiaries, and, except as set forth in Schedule
3.1(c)(i) delivered to Parent by the Company prior to the execution of this
Agreement, there is no contract or arrangement relating to the voting or
registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or granting any option or similar right
with respect to), any shares of Company Common Stock. Except as set forth in
this Section 3.1(c) or on Schedule 3.1(c)(i) delivered to Parent by the
Company prior to the execution of this Agreement
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and except for purchases pursuant to the Company's Stock Purchase Plan, and
except for changes since January 31, 1999 resulting from the exercise of
employee or director stock options or warrants, or conversion of Convertible
Debentures outstanding on such date, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are
not as of the date hereof, and at the Effective Time there will not be, any
outstanding options, warrants, rights, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable securities
or other commitments, contingent or otherwise, relating to Company Common
Stock or any other shares of capital stock of the Company, pursuant to which
the Company is or may become obligated to issue, sell, grant or purchase,
redeem or otherwise acquire shares of Company Common Stock, any other shares
of its capital stock or any securities convertible into, exchangeable for,
or evidencing the right to subscribe for, any shares of the capital stock of
the Company. Neither the Company nor any of its predecessors has ever
adopted any stockholder rights plan (or similar plan commonly referred to as
a "poison pill").
(ii) Schedule 3.1(c)(ii) delivered to Parent by the Company prior to the
execution of this Agreement sets forth the following information with
respect to each employee stock option and director stock option of the
Company outstanding as of February 26, 1999: (a) the particular Stock Option
Plan (if any) pursuant to which such option was granted; (b) the name of the
optionee; (c) the number of shares of Company Common Stock subject to such
option; (d) the exercise price of such option; (e) the date on which such
option was granted; (f) the extent to which such option is vested and
exercisable as of February 26, 1999; and (g) the date on which such option
expires. The Company has made available to Parent accurate and complete
copies of all stock option plans pursuant to which the Company or any of its
predecessor entities has ever granted stock options, and the forms of all
stock option agreements evidencing such options.
(iii) Schedule 3.1(c)(iii) delivered to Parent by the Company prior to
the execution of this Agreement sets forth the following information with
respect to each warrant to purchase shares of Company Common Stock of the
Company outstanding as of the date of this Agreement: (a) the name of the
holder of such warrant; (b) the number of shares of Company Common Stock
subject to such warrant; (c) the exercise price of such warrant; (d) the
date on which such warrant was granted; and (e) the date on which such
warrant expires. The Company has made available to Parent accurate and
complete copies of all warrants outstanding as of the date of this
Agreement, and all agreements relating thereto.
(iv) Schedule 3.1(c)(iv) delivered to Parent by the Company prior to the
execution of this Agreement lists all of the Company's Subsidiaries (except
for corporate Subsidiaries with no material assets or liabilities,
contingent or otherwise). Except as set forth on Schedule 3.1(c)(iv), all
issued and outstanding shares of capital stock of the Company's Subsidiaries
(other than director's qualifying shares) have been validly issued, are
fully paid and nonassessable, are not subject to, nor were they issued in
violation of, any preemptive rights, and are owned, of record and
beneficially, directly or indirectly, by the Company, free and clear of all
liens, encumbrances, options or claims whatsoever. No shares of capital
stock of any of the Company's Subsidiaries are reserved for issuance and
there are no outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations, convertible
or exchangeable securities, or other commitments, contingent or otherwise,
relating to the capital stock of any of the Company's Subsidiaries, pursuant
to which such Subsidiary, the Company or any other affiliate of such
Subsidiary is or may become obligated to issue, sell, grant or purchase or
otherwise acquire any shares of capital stock of such Subsidiary or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock of such Subsidiary. Except as set
forth in Schedule 3.1(c)(iv) or as provided by applicable law, there are no
restrictions of any kind which prevent the payment of dividends by any of
the Company's Subsidiaries. Except (A) for the Company's Subsidiaries listed
on Schedule 3(c)(iv), (B) as otherwise listed on Schedule 3.1(c)(iv), (C)
for
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ordinary course portfolio investments in marketable securities and cash
equivalents and (D) for corporate Subsidiaries of the Company with no
material assets or liabilities, contingent or otherwise, the Company does
not own, directly or indirectly, any capital stock or other equity interest
in any Person or have any direct or indirect equity or ownership interest in
any Person and neither the Company nor any of its Subsidiaries is subject to
any obligation or requirement to make any material loan, capital
contribution, investment or similar expenditure to or in any Person, except
for loans, capital contributions, investments or similar expenditures by the
Company or any of its Subsidiaries to any existing wholly owned Subsidiary
of the Company or to the Company.
(d) CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming, in the case of
this Agreement, that (i) the filings required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), are made and
the waiting period thereunder has been terminated or has expired; (ii) the
filing with the Securities and Exchange Commission (the "Commission") of a
definitive joint proxy statement (the "Joint Proxy Statement") relating to
the meetings of the Company's stockholders and Parent's stockholders to be
held in connection with the Merger is made; (iii) the Registration Statement
of Parent to be filed with the Commission on Form S-4 in connection with the
issuance of Parent Shares (the "Registration Statement") is declared
effective; (iv) the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by the laws of the State
of Delaware, is made; and (v) approval of the Merger by a majority of the
outstanding Company Common Stock is obtained, the execution and delivery of
this Agreement and the Share Option Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby will not: (1) violate any provision of the Certificate of
Incorporation, as amended, or By-Laws or other charter or organizational
documents of the Company or any of its Subsidiaries, or any resolution
adopted by the stockholders of the Company or the Board of Directors of the
Company or any of its Subsidiaries or any committee thereof; (2) to the
knowledge of the Company, violate any statute, ordinance, rule, regulation,
order or decree of any court or of any governmental or regulatory body,
agency or authority applicable to the Company or any of its Subsidiaries or
by which any of their respective properties or assets may be bound,
including without limitation, any consent decrees, court orders or
judgments; (3) require any filing with, or permit, consent or approval of,
or the giving of any notice to, any governmental or regulatory body, agency
or authority, domestic or foreign (a "Governmental Entity"), including
without limitation, any Governmental Entity regulating the pharmaceutical
business of the Company; or (4) except as set forth on Schedule 3.1(d)(4)
delivered to Parent by the Company prior to the execution of this Agreement,
result in a violation or breach of, conflict with, constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, payment or acceleration) under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement, lease or
other instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound or under which the Company or any
Subsidiary of the Company has or may acquire any rights, excluding from the
foregoing clauses (2), (3) and (4) filings, permits, consents, approvals and
notices the absence of which, and violations, breaches, conflicts, defaults
and liens which, in the aggregate, would not have a material adverse effect
on the Condition of the Company and its Subsidiaries taken as a whole.
(e) COMPANY REPORTS AND FINANCIAL STATEMENTS; ACCOUNTING RECORDS. (i)
Since January 1, 1996, the Company has filed all forms, reports and
documents with the Commission required to be filed by it pursuant to the
U.S. federal securities laws and the rules and regulations promulgated
thereunder, and, except for preliminary filings, all such forms, reports and
documents filed with the Commission have complied in all material respects
with all applicable requirements of the U.S. federal securities laws and the
Commission rules and regulations promulgated thereunder. The
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Company has heretofore made available to Parent true and complete copies of
all forms, reports, registration statements and other filings filed by the
Company with the Commission since January 1, 1996 (such forms, reports,
registration statements and other filings, together with any amendments
thereto, but excluding any preliminary filings, are sometimes collectively
referred to as the "Company Commission Filings"). As of their respective
dates, the Company Commission Filings did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) The audited consolidated financial statements and the unaudited
interim financial statements of the Company included in the Company
Commission Filings comply as to form in all material respects with
applicable accounting requirements and with the rules and regulations of the
Commission with respect thereto, were prepared in accordance with US GAAP
(as in effect from time to time) applied on a consistent basis (except as
may be indicated therein or in the notes or schedules thereto) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
results of their operations and cash flows and changes in stockholders'
equity, as the case may be, for the periods then ended subject, in the case
of the unaudited interim financial statements, to normal and recurring
year-end audit adjustments, any other adjustments described therein and the
fact that certain information and notes have been condensed or omitted in
accordance with the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules promulgated thereunder.
(iii) The unaudited consolidated financial statements of the Company as
of and for the year ended December 31, 1998 delivered to Parent by the
Company prior to the execution of this Agreement comply as to form in all
material respects with applicable accounting requirements, were prepared in
accordance with US GAAP (applied on a basis consistent with the basis on
which the financial statements referred to in Section 3.1(e)(ii) were
prepared) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of
December 31, 1998, and the results of their operations for the year ended
December 31, 1998, except that such financial statements do not include a
consolidated statement of cash flows or stockholders' equity or notes.
(iv) The Company and its Subsidiaries keep proper accounting records in
which all material assets and liabilities, and all material transactions, of
the Company and its Subsidiaries are recorded in conformity with applicable
accounting principles. Except as described on Schedule 3.1(e)(iv) delivered
by the Company to Parent prior to the execution of this Agreement, no part
of the Company's or any Subsidiary's accounting system or records, or access
thereto, is under the control of a Person who is not an employee of the
Company or such Subsidiary.
(f) ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 3.1(f)
delivered to Parent by the Company prior to the execution of this Agreement,
since September 30, 1998 (i) there has not been any material adverse change
in the Condition of the Company and its Subsidiaries taken as a whole; (ii)
the businesses of the Company and its Subsidiaries have been conducted in
all material respects only in the ordinary course; (iii) the Company and its
Subsidiaries have not, other than in the ordinary course of business,
increased the compensation of any officer or granted any general salary or
benefits increase to their employees; and (iv) neither the Company nor any
of its Subsidiaries has taken, approved, authorized or agreed or committed
to take any action referred to in Section 4.1 hereof except as expressly
permitted or required thereby.
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(g) REGULATORY COMPLIANCE. (i) As to each product subject to the
jurisdiction of the U.S. Food and Drug Administration ("FDA") under the
Federal Food, Drug and Cosmetic Act and the regulations thereunder ("FDCA")
(each such product, a "Pharmaceutical Product") that is manufactured,
tested, distributed and/or marketed by the Company or any of its
Subsidiaries, such Pharmaceutical Product is being manufactured, tested,
distributed and/or marketed in substantial compliance with all applicable
requirements under FDCA and similar state and foreign laws and regulations,
including but not limited to those relating to investigational use,
premarket clearance, good manufacturing practices, labeling, advertising,
record keeping, filing of reports and security.
(ii) Schedule 3.1(g)(ii) delivered by the Company to Parent prior to the
execution of this Agreement sets forth a list of each Pharmaceutical Product
manufactured, marketed, sold or licensed by the Company or any Subsidiary as
of the date hereof.
(iii) No Pharmaceutical Products have been recalled, withdrawn, suspended
or discontinued by the Company or any of its Subsidiaries in the United
States and outside the United States (whether voluntarily or otherwise)
during the period commencing January 1, 1996 and ending on the date hereof.
No proceedings in the United States and outside of the United States of
which the Company has knowledge (whether completed or pending) seeking the
recall, withdrawal, suspension or seizure of any Pharmaceutical Product are
pending against the Company or any of its Subsidiaries, nor have any such
proceedings been pending at any time during the period commencing January 1,
1996 and ending on the date hereof.
(iv) Schedule 3.1(g)(iv) delivered by the Company to Parent prior to the
execution of this Agreement sets forth a list of each of the Company's and
its Subsidiaries' pending and approved New Drug Applications ("NDAs"),
Investigational New Drug applications ("INDs") and similar state or foreign
regulatory filings, as of the date hereof. True and complete copies of such
NDAs and INDs, including all supplements, amendments, and annual reports,
have heretofore been made available to Parent. Copies of correspondence from
the FDA, and similar state or foreign regulatory authorities, and the
Company's and its Subsidiaries' responses have heretofore been made
available to Parent. As to each drug for which such an application has been
approved, the Company and its Subsidiaries are in substantial compliance
with 21 U.S.C. SectionSection 355 or 21 C.F.R. Parts 312, 314 or 430 ET
SEQ., respectively, and similar state and foreign laws and regulations and
all terms and conditions of such applications. As to each such drug, the
Company and any relevant Subsidiary, and the officers, employees or agents
of the Company or such Subsidiary have included in the application for such
drug, where required, the certification described in 21 U.S.C. Section
335a(k)(1) or any similar state or foreign law or regulation and the list
described in 21 U.S.C. Section 335a(k)(2) or any similar state or foreign
law or regulation, and such certification and such list was in each case
true and accurate when made and remained true and accurate thereafter. In
addition, the Company and its Subsidiaries are in substantial compliance
with all applicable registration and listing requirements set forth in 21
U.S.C. Section 360 and 21. C.F.R. Part 207 and all similar state and foreign
laws and regulations.
(v) Each article of drug manufactured and/or distributed by the Company
or any of its Subsidiaries is not adulterated within the meaning of 21
U.S.C. Section 351 (or similar state or foreign laws or regulations) or
misbranded within the meaning of 21 U.S.C. Section 352 (or similar state or
foreign laws or regulations), and is not a product that is in violation of
21 U.S.C. Section 355 (or similar state or foreign laws or regulations).
(vi) Schedule 3.1(g)(vi) delivered by the Company to Parent prior to the
execution of this Agreement sets forth a list of (A) Form 483s, (B) Notices
of Adverse Findings and (C) warning letters or other correspondence from the
FDA or state or foreign regulatory authorities in which the FDA or any such
authority asserted that the operations of the Company or any Subsidiary may
not be in compliance with applicable laws, regulations, orders, judgments or
decrees, in each case received by the Company or such Subsidiary from the
FDA or any such authority since January 1,
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1996 to the date hereof and the response of the Company or such Subsidiary
to the FDA or any such authority to such notices from the FDA or any such
authority. True and complete copies of such Form 483s, Notices of Adverse
Findings, letters and other correspondence and the Company's or Subsidiary's
responses have heretofore been made available to Parent. Except as set forth
in Schedule 3.1(g)(vi), all manufacturing operations of the Company and its
Subsidiaries have been and are being conducted in substantial compliance
with the good manufacturing practice regulations set forth in 21 C.F.R.
Parts 210 and 211 and similar state or foreign regulations.
(vii) Schedule 3.1(g)(vii) delivered by the Company to Parent prior to
the execution of this Agreement sets forth Adverse Reaction Reports filed by
the Company and its Subsidiaries with the FDA or state or foreign regulatory
authorities during the period commencing January 1, 1996 and ending on the
date hereof.
(viii) Neither the Company, nor any Subsidiary, nor any officer, employee
or agent of either the Company or any Subsidiary has made an untrue
statement of a material fact or fraudulent statement to the FDA or any state
or foreign regulatory authority, failed to disclose a material fact required
to be disclosed to the FDA or any state or foreign regulatory authority, or
committed an act, made a statement, or failed to make a statement that, at
the time such disclosure was made, could reasonably be expected to provide a
basis for the FDA or any state or foreign regulatory authority to invoke its
policy respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities", set forth in 56 Fed. Reg. 46191 (September 10, 1991) or
any similar policy. Neither the Company nor any Subsidiary, nor any officer,
employee or agent of either the Company or any Subsidiary, has been
convicted of any crime or engaged in any conduct for which debarment is
mandated by 21 U.S.C. Section 335a(a) or any similar state or foreign law or
regulation or authorized by 21 U.S.C. Section 335a(b) or any similar state
or foreign law or regulation. Schedule 3.1(g)(viii) delivered by the Company
to Parent prior to the execution of this Agreement is an accurate
representation of certain efficacy and safety data from the AmBisome and
Abelcet comparative clinical trial conducted by Fujisawa Healthcare, Inc.
(Study No. 034)
(ix) Except as disclosed in the Company Commission Filings filed with
the Commission prior to the date hereof, neither the Company nor any
Subsidiary has received any written notice that the FDA or any state or
foreign regulatory authority has commenced, or threatened to initiate, any
action to withdraw its approval or request the recall of any product of the
Company or any Subsidiary, or commenced, or overtly threatened to initiate,
any action to enjoin production at any facility of the Company or any
Subsidiary.
(x) The Company and its Subsidiaries are, and have at all times since
January 1, 1996 been, in substantial compliance with the Medicare
Anti-kickback Statute, 42 U.S.C. Section 1320a-7b(b), and implementing
regulations codified at 42 C.F.R. Section 1001 and with all similar state or
foreign laws and regulations.
(h) COMPLIANCE WITH LAWS. (i) GENERAL. Except with respect to
FDA-related regulatory matters (which are covered by Section 3.1(g) hereof)
and environmental matters (which are covered by Section 3.1(h)(ii) below),
the Company and its Subsidiaries are and at all times since January 1, 1996
have been in compliance with all applicable laws, regulations, orders,
judgments and decrees, except where the failure to so comply would not have
a material adverse effect on the Condition of the Company and its
Subsidiaries taken as a whole. Since January 1, 1996, neither the Company
nor any of its Subsidiaries has received any written notice from any
Governmental Entity regarding any actual or possible material violation of,
or material failure to comply with, any law, regulation, order, judgment or
decree.
(ii) ENVIRONMENTAL MATTERS. Except to the extent that the inaccuracy
of any of the following (or the circumstances giving rise to such
inaccuracy), individually and in the aggregate, would not reasonably be
expected to have a material adverse effect on the Condition of the Company
and its
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Subsidiaries taken as a whole (after taking into account any reserves
therefor reflected in the consolidated balance sheet of the Company as of
September 30, 1998 contained in its most recently filed Report on Form 10-Q
(the "Company Balance Sheet")) or as set forth on Schedule 3.1(h)(ii)
delivered to Parent by the Company prior to the execution of this Agreement
(none of which scheduled items is expected to have a material adverse effect
on the Condition of the Company and its Subsidiaries taken as a whole):
(A) the Company, its predecessor entities and its Subsidiaries are
and have been at all relevant times in compliance with all applicable
Environmental Laws and any permits, authorizations, licenses and
certificates issued by any governmental regulatory authority or entity
pursuant to Environmental Laws;
(B) the Company and its Subsidiaries have obtained, or made timely
application for, all permits required for their operations under
Environmental Laws;
(C) there have been no Releases of any Hazardous Materials for which
the Company or any of its Subsidiaries is liable or, to the Company's or
any of its Subsidiaries' knowledge, may be held liable, at any location,
and there are no uncontrolled Hazardous Materials present in the
environment or, to the Company's or any of its Subsidiaries' knowledge,
imminent threatened Releases of Hazardous Materials into the environment
at any of the Company's or its Subsidiaries' facilities; and
(D) neither the Company nor its Subsidiaries have received any
written notice that it is or may be liable for cleanup or other costs
relating to environmental matters as a result of (1) any Hazardous
Materials in the environment at any facility owned or operated by the
Company or its Subsidiaries or (2) the off-site disposal of Hazardous
Materials generated by the Company or its Subsidiaries at any of its
facilities.
For purposes of this Agreement, the following terms shall have the following
meanings:
"Environmental Laws" means all applicable federal, state, local and
foreign statutes, rules, regulations, ordinances, orders, decrees and the
common law relating in any manner to the contamination, pollution or
protection of human health and safety or the environment including
without limitation the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), the Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Clean Water Act,
the Toxic Substance Control Act, the Occupational Safety and Health Act
and similar state laws.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants, which are
regulated pursuant to any applicable Environmental Law and such other
materials and substances as are regulated pursuant to any applicable
Environmental Laws.
"Release" shall have the meaning set forth in CERCLA, Section
9601(22).
(i) LITIGATION. Except as disclosed in the Company Commission Filings
filed with the Commission prior to the date hereof or as set forth on
Schedule 3.1(i) delivered to Parent by the Company prior to the execution of
this Agreement, there is no action, suit, proceeding at law or in equity, or
any arbitration or any administrative or other proceeding by or before (or
to the knowledge of the Company any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of the
Company, threatened, against or affecting the Company or any of its
Subsidiaries, or any of their properties or rights which if adversely
determined would be reasonably likely to have a material adverse effect on
the Condition of the Company and its Subsidiaries taken as a whole. Except
as disclosed in the Company Commission Filings filed with the Commission
prior to the date hereof, neither the Company nor any of its Subsidiaries is
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subject to any judgment, order or decree entered in any lawsuit, proceeding
or arbitration which is reasonably likely to have a material adverse effect
on the Condition of the Company and its Subsidiaries taken as a whole or on
the ability of the Company or any Subsidiary of the Company to conduct its
business as presently conducted.
(j) EMPLOYEE BENEFIT PLANS. (i) Schedule 3.1(j) delivered by the
Company to Parent prior to the execution of this Agreement sets forth: (x)
all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
employee benefit programs and arrangements, including, without limitation,
severance pay, salary continuation for disability, retirement, deferred or
other executive compensation, bonus, stock purchase, hospitalization,
medical insurance, and life insurance, maintained by the Company or any of
its Subsidiaries or to which the Company or any such Subsidiary is obligated
to contribute for current or former employees of the Company or any such
Subsidiary in each case (the "Employee Benefit Plans"). The Company has made
available to Parent true and complete copies of all Employee Benefit Plans,
as in effect, together with all amendments thereto which will become
effective at a later date, as well as the latest Internal Revenue Service
("IRS") determination letters obtained with respect to any Employee Benefit
Plan intended to be qualified under Section 401(a) of the Code. True and
complete copies of the (i) most recent annual actuarial valuation report, if
any, (ii) last filed Form 5500 together with all applicable schedules, (iii)
summary plan description (as defined in ERISA), if any, and all
modifications thereto communicated to employees, (iv) most recent annual and
periodic accounting of related plan assets, if any, and (v) such other
materials with respect to the Employee Benefit Plans reasonably requested by
Parent in each case, relating to the Employee Benefit Plans, have been made
available to Parent and are correct in all material respects.
(ii) Except to the extent that any of the following, alone and in the
aggregate, would not reasonably be expected to have a material adverse
effect on the Condition of the Company and its Subsidiaries taken as a
whole: (i) neither the Company nor any of its Subsidiaries nor, to the
Company's knowledge, any of its or its Subsidiaries' directors, officers,
employees or agents has, with respect to any Employee Benefit Plan, engaged
in or been a party to any "prohibited transaction", as such term is defined
in Section 4975 of the Code or Section 406 of ERISA, which could result in
the imposition of either a penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code, in each case applicable
to the Company or any of its Subsidiaries, or any Employee Benefit Plan;
(ii) all Employee Benefit Plans are and have been at all times in compliance
in all respects with the applicable requirements prescribed by all statutes,
orders, or governmental rules or regulations with respect to such Employee
Benefit Plans, including, but not limited to, ERISA and the Code (except for
such requirements that are not required to be adopted as of the effective
date of the applicable requirement) and, to the knowledge of the Company,
there are no pending or threatened claims, lawsuits or arbitrations (other
than routine claims for benefits), relating to any of the Employee Benefit
Plans, which have been asserted or instituted against the Company or any of
its Subsidiaries, any Employee Benefit Plan or the assets of any trust or
group annuity contract for any Employee Benefit Plan; (iii) each Employee
Benefit Plan intended to be qualified under Section 401(a) of the Code has
heretofore been determined by the IRS to be so qualified whether by
determination letter or otherwise; (iv) neither the Company nor any of its
Subsidiaries nor any trade or business which, together with the Company and
its Subsidiaries, is treated as a single employer under Section 414(t) of
the Code (an "ERISA Affiliate") has, or at any time in the last six years
has had, an obligation to contribute to a "defined benefit plan" as defined
in Section 3(35) of ERISA, a pension plan subject to the funding standards
of Section 302 of ERISA or Section 412 of the Code, a "multiemployer plan"
within the meaning of Section 3(37) or 4001(a)(13) of ERISA or Section
414(f) of the Code or a "multiple employer plan" within the meaning of
Section 210(a) of ERISA or Section 413(c) of the Code; (v) all (A) insurance
premiums required to be paid with respect to, (B) benefits, expenses, and
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other amounts due and payable under and (C) contributions, transfers, or
payments required to be made to, any Employee Benefit Plan prior to the
Effective Time will have been paid, made or accrued on or before the
Effective Time; (vi) no Employee Benefit Plan provides benefits, including,
without limitation, death or medical benefits, beyond termination of service
or retirement other than (A) coverage mandated by law, (B) death or
retirement benefits under any qualified Employee Benefit Plan, (C) deferred
compensation benefits reflected on the books of the Company or (D)
arrangements listed on Schedule 3.1(j); (vii) except as disclosed in
Schedule 3.1(j), the execution and performance of this Agreement will not
(A) constitute a stated triggering event under any Employee Benefit Plan
that will result in any payment (whether of severance pay or otherwise)
becoming due from the Company or any of the Company's Subsidiaries to any
officer, employee, or former employee (or dependents of such employee or
former employee), or (B) accelerate the time of payment to or vesting of, or
increase the amount of, compensation due to any employee, officer or
director of the Company or any Subsidiary of the Company; and (viii) except
as disclosed in Schedule 3.1(j), any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of the Company or any Subsidiary of the Company or any of their
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or
Employee Benefit Plan currently in effect would not be characterized as an
"excess parachute payment" (as such term is defined in Section 280G(b)(1) of
the Code).
(k) EMPLOYMENT AGREEMENTS. Except as set forth on Schedule 3.1(k)
delivered to Parent by the Company prior to the execution of this Agreement,
there exists (i) no union, guild or collective bargaining agreement to which
the Company or any Subsidiary is a party, (ii) no employment, consulting or
severance agreement between the Company or any Subsidiary of the Company and
any Person (except for consulting agreements that individually, and in the
aggregate, are not material to the Company), and (iii) no employment,
consulting, severance or indemnification agreement or other agreement or
plan to which the Company or any Subsidiary is a party that would be altered
or result in any bonus, golden parachute, severance or other payment or
obligation to any Person, or result in any acceleration of the time of
payment or in the provision or vesting of any benefits, as a result of the
execution or performance of this Agreement or as a result of the Merger or
the other transactions contemplated hereby.
(l) TAXES.
(i) Each material Tax Return required to be filed by or on behalf of the
Company and each material Tax Return required to be filed by or on behalf of
the Company's Subsidiaries or any predecessor entities with any Governmental
Entity with respect to any taxable period ending on or before the Closing
Date (the "Company Returns") (i) has been or will be filed on or before the
applicable due date, and (ii) has been, or will be when filed, prepared in
all material respects in compliance with all applicable laws, regulations,
orders, judgments and decrees. All amounts shown on the Company Returns to
be due on or before the Closing Date have been or will be paid on or before
the Closing Date.
(ii) The Company Balance Sheet fully accrues all actual and contingent
liabilities for Taxes with respect to all periods through the date of the
Company Balance Sheet in accordance with US GAAP. The Company and its
Subsidiaries will establish, in the ordinary course of business and
consistent with their past practices, reserves adequate for the payment of
all Taxes that accrue during the period from September 30, 1998 through the
Closing Date. Since the date of the Company Balance Sheet, neither the
Company nor any of its Subsidiaries has incurred any material liability
(accrued, unaccrued, matured, unmatured, contingent or otherwise) for any
Tax other than in the ordinary course of its business.
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(iii) Except as set forth on Schedule 3.1(l)(iii) delivered to Parent by
the Company prior to the execution of this Agreement, no Company Return has
ever been examined or audited by any Governmental Entity. No extension or
waiver of the limitation period applicable to any Company Returns has been
granted (by the Company, any Subsidiary of the Company or any other Person),
and no such extension or waiver has been requested from the Company or any
Subsidiary of the Company.
(iv) No claim or action, suit, proceeding or arbitration is pending or,
to the knowledge of the Company, has been threatened against or with respect
to the Company or any Subsidiary of the Company in respect of any material
Tax. No claim has ever been made by an authority in a jurisdiction where the
Company or any of its Subsidiaries does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no unsatisfied
liabilities for material Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document received by the Company or any
Subsidiary of the Company with respect to any material Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by the Company or
any Subsidiary of the Company and with respect to which adequate reserves
for payment have been established on the Company Balance Sheet). There are
no liens or other security interests for material Taxes upon any of the
assets of the Company or any Subsidiary of the Company except liens for
current Taxes not yet due and payable. Neither the Company nor any
Subsidiary of the Company has entered into or become bound by any agreement
or consent pursuant to Section 341(f) of the Code (or any comparable
provision of state or foreign Tax laws). Neither the Company nor any
Subsidiary of the Company has been, and neither the Company nor any
Subsidiary of the Company will be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section
481 or 263A of the Code (or any comparable provision under state or foreign
Tax laws) as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(v) There is no contract or arrangement covering any employee or
independent contractor or former employee or independent contractor of the
Company or any Subsidiary of the Company that, considered individually or
considered collectively with any other such contracts and arrangements,
could reasonably be expected to give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 162
of the Code (or any comparable provision under state or foreign Tax laws).
Neither the Company nor any Subsidiary of the Company is, or has ever been,
a party to or bound by any tax indemnity agreement, tax sharing agreement,
tax allocation agreement or similar contract or arrangement.
(vi) For purposes of this Agreement, the following terms shall have the
following meanings:
"Tax" means any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, estimated tax,
unemployment tax, national health insurance tax, excise tax, AD VALOREM
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty) or deficiency, and any related charge or
amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Entity.
"Tax Return" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification,
form, election, certificate or other document or information filed with
or submitted to, or required to be filed with or submitted to, any
Governmental Entity in connection with the determination, assessment,
collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any
applicable laws, regulations, orders, judgments and decrees relating to
any Tax.
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(m) ABSENCE OF UNDISCLOSED LIABILITIES. Except with respect to
environmental matters (which are covered in Section 3.1(h)(ii) hereof) and
FDA-related regulatory matters (which are covered in Section 3.1(g) hereof),
neither the Company nor any of its Subsidiaries has any indebtedness or
liability, absolute or contingent, accrued, unaccrued, matured or unmatured,
direct or indirect, except for: (a) liabilities identified as such in the
"liabilities" column on the Company Balance Sheet or in the notes thereto;
(b) liabilities described on Schedule 3.1(m) delivered to Parent by the
Company prior to the execution of this Agreement; (c) liabilities incurred
or accrued in the ordinary course of business (including liens of current
taxes and assessments not in default) since September 30, 1998; and (d)
liabilities that, individually and in the aggregate, are immaterial in
amount. Except as reserved on the Company Balance Sheet or shown in Schedule
3.1(m), neither the Company nor any of its Subsidiaries is directly or
indirectly liable upon or with respect to (by discount, repurchase
agreements or otherwise), or obligated in any other way to provide funds in
respect of, or to guarantee or assume, any material debt, obligation or
dividend of any Person, except endorsements in the ordinary course of
business in connection with the deposit of items for collection.
(n) PATENTS, TRADEMARKS, ETC. Except as referenced in Schedule 3.1(n)
delivered to Parent by the Company prior to the execution of this Agreement,
the Company and its Subsidiaries have obtained or applied for all material
patents, trademarks, trade names, service marks and copyrights, maintained
all material trade secrets and obtained all licenses and other proprietary
intellectual property rights and licenses as are necessary in connection
with the businesses of the Company and its Subsidiaries. Except as
referenced in Schedule 3.1(n), the Company does not have any knowledge of
any conflict with the intellectual property rights of the Company or any of
its Subsidiaries by others which, insofar as reasonably can be foreseen,
could have a material adverse effect on the Condition of the Company and its
Subsidiaries taken as a whole. Except as referenced in Schedule 3.1(n), the
Company does not have any knowledge of any conflict by the Company or any of
its Subsidiaries with the intellectual property rights of others which,
insofar as reasonably can be foreseen, could have a material adverse effect
on the Condition of the Company and its Subsidiaries taken as a whole.
(o) TRANSACTIONS WITH DIRECTORS, OFFICERS AND AFFILIATES. Except as
disclosed in Schedule 3.1(o) delivered by the Company to Parent prior to the
execution of this Agreement or in the Company Commission Filings filed with
the Commission prior to the date hereof, since January 1, 1996, there have
been no transactions between the Company or any of its Subsidiaries and any
director, officer, employee, stockholder or "Affiliate" (as defined in Rule
405 under the Securities Act of 1933, as amended (the "Securities Act")) of
the Company or any of its Subsidiaries, including, without limitation,
loans, guarantees or pledges to, by or for the Company or any of the
Company's Subsidiaries from, to, by or for any of such Persons. Except as
disclosed in such Schedule 3.1(o) or in the Company Commission Filings filed
with the Commission prior to the date hereof, since January 1, 1996, none of
the officers or directors of the Company or any of its Subsidiaries, and no
spouse or relative of any of such Persons, has been a director or officer
of, or has had any material direct or indirect interest in, any Person which
during such period has been a supplier, customer or sales agent of the
Company or any of its Subsidiaries or has competed with or been engaged in
any business of the kind being conducted by the Company or any of its
Subsidiaries. Schedule 3.1(o) identifies each Person who is or may be (in
the reasonable judgment of the Company) an Affiliate of the Company as of
the date of this Agreement.
(p) BROKER'S OR FINDER'S FEE. Except for Morgan Stanley & Co.
Incorporated (whose fees and expenses as financial advisors to the Company
will be paid by the Company in accordance with the Company's agreement with
such firm, a true and correct copy of which has been previously delivered to
Parent by the Company), no agent, broker, Person or firm acting on behalf of
the Company or any of its Subsidiaries is, or will be, entitled to any fee,
commission or broker's or
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finder's fees from any of the parties hereto, or from any Person
controlling, controlled by, or under common control with any of the parties
hereto, in connection with this Agreement or any of the transactions
contemplated hereby.
(q) OPINION OF FINANCIAL ADVISOR. The Company has received the opinion
of Morgan Stanley & Co. Incorporated, dated the date hereof, to the effect
that, as of such date, the Merger Consideration is fair from a financial
point of view to the holders of Company Common Stock.
(r) VOTE REQUIRED. The approval of the Merger by the affirmative vote
of a majority of the votes that holders of the outstanding shares of Company
Common Stock are entitled to cast is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve the
transactions contemplated hereby. Holders of Company Common Stock will not
have any appraisal rights or similar rights in connection with the Merger or
any of the other transactions contemplated hereby.
(s) MATERIAL CONTRACTS. Schedule 3.1(s) delivered to Parent by the
Company prior to the execution of this Agreement lists all material
contracts and agreements to which, as of the date hereof, the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or
under which the Company or any Subsidiary has or may acquire any rights,
which were not filed prior to the date hereof as exhibits to the Company
Commission Filings, which involve or relate to (i) obligations of the
Company or any Subsidiary for borrowed money or other indebtedness where the
amount of such obligations exceeds $100,000 individually, (ii) the lease by
the Company or any Subsidiary, as lessee or lessor, of real property for
rent of more than $100,000 per annum, (iii) the purchase or sale of goods
(other than raw material to be purchased by the Company on terms that are
customary and consistent with the past practice of the Company and in
amounts and at prices substantially consistent with past practices of the
Company) or services with an aggregate minimum purchase price of more than
$100,000 per annum, (iv) rights to manufacture and/or distribute any
Pharmaceutical Product which accounted for more than $100,000 of the
consolidated revenues of the Company and its Subsidiaries during the fiscal
year ended December 31, 1998 or under which the Company or any Subsidiary
received or paid license or other fees in excess of $100,000 during any
year, (v) the purchase or sale of assets or properties not in the ordinary
course of business having a purchase price in excess of $100,000, (vi) the
right (whether or not currently exercisable) to use, license (including any
"in-license" or "outlicense"), sublicense or otherwise exploit any
intellectual property right or other proprietary asset of the Company or of
any of Subsidiary of the Company or any other Person which, when considered
together with all such other rights, is material to the Company; (vii) any
material collaboration or joint venture or similar arrangement; (viii) the
restriction on the right or ability of the Company or any Subsidiary of the
Company (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, (C) to solicit, hire or
retain any Person as an employee, consultant or independent contractor, (D)
to develop, sell, supply, distribute, offer, support or service any product
or any technology or other asset to or for any other Person, (E) to perform
services for any other Person, or (F) to transact business or deal in any
other manner with any other Person; (ix) any currency hedging; or (x)
individual capital expenditures or commitments in excess of $100,000. All
such contracts and agreements are duly and validly executed by the Company
or such Subsidiary, and are in full force and effect. Neither the Company
nor any of its Subsidiaries has violated or breached, or committed any
default under, any contract or agreement, and, to the knowledge of the
Company, no other Person has violated or breached, or committed any default
under, any contract or agreement, which violation, breach or default (alone
or in combination with other violations, breaches or defaults under such
contract or agreement or under other contracts or agreements) has had or may
reasonably be expected to have a material adverse effect on the Company and
its Subsidiaries taken as a whole. No event has occurred which, after
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notice or the passage of time or both, would constitute a default by the
Company or any Subsidiary of the Company under any contract or agreement or
give any Person the right to (A) declare a default or exercise any remedy
under any contract or agreement, (B) receive or require a rebate,
chargeback, penalty or change in delivery schedule under any contract or
agreement, (C) accelerate the maturity or performance of any contract or
agreement, or (D) cancel, terminate or modify any contract or agreement, in
each case which, together with all other events of the types referred to in
clauses (A), (B), (C) and (D) of this sentence has had or may reasonably be
expected to have a material adverse effect on the Company or any of its
Subsidiaries taken as a whole. Except as disclosed on Schedule 3.1(s), all
such contracts and agreements will continue, after the Effective Time, to be
binding in accordance with their respective terms until their respective
expiration dates. As soon as practicable after the date hereof, the Company
shall provide Parent with a list of all leases for real property for rent of
more than $30,000 per annum which are not listed on Schedule 3.1(s).
(t) ACCOUNTING MATTERS. The Company knows of no reasons why the Merger
will not be capable of being treated as a pooling of interest transaction
under APB 16. Neither the Company nor any of its Subsidiaries nor (to the
Company's knowledge) any other Affiliate of the Company has taken any action
that will prevent the Merger from being recorded as a pooling of interest
transaction under APB 16.
(u) TAX TREATMENT. Neither the Company nor any of its Subsidiaries has
taken or agreed to take any action that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
(v) CERTAIN BUSINESS PRACTICES. Neither the Company nor any of its
Subsidiaries nor (to the knowledge of the Company) any director, officer,
agent or employee of the Company or any of its Subsidiaries has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
(w) GOVERNMENTAL AUTHORIZATIONS. The Company and its Subsidiaries hold
all permits, consents, approvals, variances, licenses, registrations and
other governmental authorizations necessary to enable them to conduct their
respective businesses in the manner in which such businesses are currently
being conducted, except where the failure to hold such permits, consents,
approvals, variances, licenses, registrations and other governmental
authorizations, when considered together with all such other failures, has
not had and would not reasonably be expected to have a material adverse
effect on the Condition of the Company and its Subsidiaries taken as a
whole. All such permits, consents, approvals, variances, licenses,
registrations and other governmental authorizations are valid and in full
force and effect except where the failure to be valid and in full force and
effect, when considered together with all other such failures, has not had
and would not reasonably be expected to have a material adverse effect on
the Company and its Subsidiaries taken as a whole. The Company and its
Subsidiaries are, and at all times since January 1, 1996 have been, in
substantial compliance with the terms and requirements of such permits,
consents, approvals, variances, licenses, registrations and other
governmental authorizations, except where the failure, when considered
together with all such other failures, to be in compliance with the terms
and requirements of such permits, consents, approvals, variances, licenses,
registrations and other governmental authorizations has not had and would
not reasonably be expected to have a material adverse effect on the
Condition of the Company and its Subsidiaries taken as a whole. Neither the
execution, delivery or performance of this Agreement or the Share Option
Agreement, nor the consummation of the Merger or any of the other
transactions contemplated by this Agreement and the Share Option Agreement
will (with or without notice or lapse of time) give any Governmental
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Entity or other Person the right to revoke, withdraw, suspend, cancel,
terminate or modify: (i) any material grant, incentive, subsidy, provided to
the Company or any of its Subsidiaries; or (ii) any material permit,
consent, approval, variance, license, registration or other governmental
authorization.
(x) INSURANCE. The Company has made available to Parent a summary of
all material insurance policies and all material self insurance programs and
arrangements relating to the business, assets and operations of the Company
and its Subsidiaries. Each of such insurance policies is in full force and
effect. Since January 1, 1996, neither the Company nor any of its
Subsidiaries has received any notice or other communication regarding any
actual or possible (i) cancellation or invalidation of any material
insurance policy, (ii) refusal of any coverage or rejection of any material
claim under any insurance policy, or (iii) material adjustment in the amount
of the premiums payable with respect to any insurance policy. Except as set
forth in Schedule 3.1(x) delivered to Parent by the Company prior to the
execution of this Agreement, there is no pending workers' compensation or
other claim under or based upon any insurance policy of the Company or any
of its Subsidiaries other than claims incurred in the ordinary cause of
business.
(y) Y2K COMPLIANCE. To the knowledge of the Company and its
Subsidiaries, except as set forth in Schedule 3.1(y) delivered to Parent by
the Company prior to the execution of this Agreement, each computer,
computer program and other item of software (whether installed on a computer
or on any other piece of equipment, including firmware) that is owned,
licensed or used by the Company or any of its Subsidiaries for its internal
business operations is Year 2000 Compliant. Except as set forth in Schedule
3.1(y) delivered to Parent by the Company prior to the execution of this
Agreement, the Company and each of its Subsidiaries has conducted sufficient
Year 2000 compliance testing for each computer, computer program and item of
software referred to in the preceding sentence to be able to determine
whether such computer, computer program or item of software is Year 2000
Compliant, and to the Company's knowledge, each of the Company's principal
suppliers' products or services provided by such suppliers to the Company
and its Subsidiaries is Year 2000 Compliant except, in each case where the
failure to be Year 2000 Compliant, when considered together with all such
other failures, would not reasonably be expected to have a material adverse
effect on the Company and its Subsidiaries taken as a whole. A computer,
computer program or other item of software will be deemed "Year 2000
Compliant" only if: (i) the functions, calculations, and other computing
processes of such computer, program or software (collectively, "Processes")
perform in a consistent and correct manner without interruption regardless
of the date on which the Processes are actually performed and regardless of
the date input to the applicable computer system (whether before, on, or
after January 1, 2000); (ii) such computer, program or software accepts,
calculates, compares, sorts, extracts, sequences, and otherwise processes
date inputs and date values, and returns and displays date values, in a
consistent and correct manner regardless of the dates used (whether before,
on, or after January 1, 2000); (iii) such computer, program or software
accepts and responds to year input, if any, in a manner that resolves any
ambiguities as to century in a defined, predetermined and appropriate
manner; (iv) such computer, program or software stores and displays date
information in ways that are unambiguous as to the determination of the
century; and (v) leap years are determined by the following standard: (A) if
dividing the year by 4 yields an integer, it is a leap year, except for
years ending in 00, but (B) a year ending in 00 is a leap year if dividing
it by 400 yields an integer.
(z) SUPPLY. To the knowledge of the Company, there are no
circumstances or facts concerning third party suppliers of active
ingredients, bulk product and finished product to the Company or any of its
Subsidiaries (as they relate to DaunoXome, AmBisome or MiKasome) that would
have a material adverse effect on the continued and timely supply of such
materials.
(aa) RECEIVABLES. Except as set forth in Schedule 3.1(aa) delivered to
Parent by the Company prior to the execution of this Agreement, all existing
accounts receivable of the Company and
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its Subsidiaries (including those accounts receivable reflected on the
Company Balance Sheet that have not yet been collected and those accounts
receivable that have arisen since September 30, 1998 and have not yet been
collected) represent valid obligations of customers of the Company and its
Subsidiaries arising from bona fide transactions entered into in the
ordinary course of business. Annexed to such Schedule 3.1(aa) is an accounts
receivable aging report as of December 31, 1998 which report is true and
complete in all material respects.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and
Sub represent and warrant to the Company as follows:
(a) DUE ORGANIZATION, GOOD STANDING AND POWER. Each of Parent and its
Subsidiaries (including Sub) is a corporation duly organized, validly
existing and in good standing (where applicable) under the laws of its
jurisdiction of incorporation and each such corporation has all requisite
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. Each of Parent and its Subsidiaries is
duly qualified or licensed to do business and is in good standing (where
applicable) in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in such jurisdictions where the failure to
be so qualified or licensed and in good standing (where applicable) would
not have a material adverse effect on the Condition of Parent and its
Subsidiaries taken as a whole.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. Each of Parent and Sub
has full power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to obtaining any necessary
stockholder approval of the issuance of Parent Shares in the Merger, to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by each of Parent and Sub, and the
consummation by it of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action on the part of Parent and Sub,
subject to the approval of the issuance of Parent Shares in the Merger by
Parent's stockholders in accordance with the rules of the National
Association of Securities Dealers, Inc., and no other corporate action on
the part of either of Parent or Sub is necessary to authorize the execution,
delivery and performance of this Agreement by each of Parent and Sub and the
consummation of the transactions contemplated hereby (other than the
approval of the issuance of Parent Shares in the Merger in accordance with
the rules of the National Association of Securities Dealers, Inc.). This
Agreement has been duly executed and delivered by each of Parent and Sub and
is a valid and binding obligation of each of Parent and Sub, enforceable
against each of Parent and Sub in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles.
(c) CAPITALIZATION. (i) The authorized capital stock of Parent
consists of 5,000,000 shares of preferred stock (of which 400,000 shares
have been designated Series A Junior Participating Preferred Stock and
1,133,786 shares have been designated Series B Preferred Stock) and
60,000,000 Parent Shares. As of January 31, 1999, (i) there were no shares
of Series A Junior Participating Preferred Stock, 1,133,786 shares of Series
B preferred stock and 30,775,227 Parent Shares issued and outstanding and
(ii) options to subscribe for an aggregate of 4,518,120 Parent Shares were
outstanding. All such issued and outstanding Parent Shares and all Parent
Shares issued in connection with the Merger have been, or will be, as the
case may be, duly authorized and validly issued in compliance with
applicable securities laws as fully paid or credited as fully paid and were
not and, in the case of Parent Shares issued in connection with the Merger,
will not have been, issued in violation of any preemptive right. None of the
outstanding shares of Parent Common Stock is subject to any right of first
refusal or similar right of Parent or any of its Subsidiaries, and, except
as set forth in Schedule 3.2(c) delivered to the Company by Parent prior to
the execution of this
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Agreement, there is no contract or arrangement relating to the voting or
registration of, or restricting any Person from purchasing, selling,
pledging or otherwise disposing of (or granting any option or similar right
with respect to), any Parent Shares and Parent is under no obligation, nor
is it bound by any contract or arrangement pursuant to which it may become
obligated, to repurchase, redeem or otherwise acquire any outstanding Parent
Shares. Except as set forth in this Section 3.2(c) or on Schedule 3.2(c)
delivered to the Company by Parent and except for changes since January 31,
1999 resulting from the granting or exercise of options or stock purchase
rights under any applicable Parent Employee Benefit Plan (defined below) or
the conversion of shares of convertible preferred stock into Parent Shares,
(i) there is no capital stock of Parent authorized, issued or outstanding
and (ii) there are not as of the date hereof, and at the Effective Time
there will not be, any outstanding options, warrants, rights, subscriptions,
claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise,
relating to Parent Shares or any other capital stock of Parent, pursuant to
which Parent is or may become obligated to issue, sell, grant or purchase,
redeem or otherwise acquire Parent Shares or any other capital stock or
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any capital stock of Parent.
(ii) All of the outstanding shares of capital stock of each of Parent's
Subsidiaries (other than directors' qualifying shares), except for corporate
Subsidiaries with no material assets or liabilities, contingent or
otherwise, have been validly issued as fully paid or credited as fully paid,
were not issued in violation of any preemptive rights and are beneficially
owned, directly or indirectly, by Parent, free and clear of all liens,
encumbrances, options or claims whatsoever.
(d) CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming that (i) the
filings required under the HSR Act are made and the waiting period
thereunder has been terminated or has expired; (ii) the filing of the Joint
Proxy Statement is made; (iii) the Registration Statement is declared
effective; (iv) the filing of the Certificate of Merger and other
appropriate merger documents, if any, as required by the laws of the State
of Delaware is made; (v) approval of the issuance of Parent Shares in the
Merger by a majority of the total votes cast at the Parent Stockholders'
Meeting (as defined in Section 4.7(b)) is obtained; and (vi) any applicable
state securities or Blue Sky laws are complied with, the execution and
delivery of this Agreement by Parent and Sub and the consummation by Parent
and Sub of the transactions contemplated hereby will not: (1) violate any
provision of the Certificate of Incorporation or Bylaws of Parent or the
Certificate of Incorporation or By-Laws of Sub, or any resolution adopted by
the stockholders of Parent or the Board of Directors of Parent or Sub or any
committee thereof; (2) to the knowledge of Parent and Sub, violate any
statute, ordinance, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority applicable to Parent or
any of its Subsidiaries or by which any of their respective properties or
assets may be bound, including, without limitation, any consent decrees,
court orders or judgments; (3) require any filing with, or permit, consent
or approval of, or the giving of any notice to any Governmental Entity; or
(4) except as set forth on Schedule 3.2(d) delivered to the Company by
Parent prior to the execution of this Agreement, result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease or other instrument or obligation to
which Parent or any of its Subsidiaries is a party, or by which it or any of
their respective properties or assets may be bound or under which Parent or
any of its Subsidiaries has or may acquire any rights, excluding from the
foregoing clauses (2), (3) and (4) filings, permits, consents, approvals and
notices, the absence of which, and violations, breaches, defaults, conflicts
and liens which, in the aggregate, would not have a material adverse effect
on the Condition of Parent and its Subsidiaries taken as a whole.
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(e) PARENT REPORTS AND FINANCIAL STATEMENTS; ACCOUNTING RECORDS. (i)
Since January 1, 1996, Parent has filed all forms, reports and documents
with the Commission required to be filed by it pursuant to the U.S. federal
securities laws and the rules and regulations promulgated thereunder, and,
except for preliminary filings, all such forms, reports and documents filed
with the Commission have complied in all material respects with all
applicable requirements of the U.S. federal securities laws and the
Commission rules and regulations promulgated thereunder. Parent has
heretofore made available to the Company true and complete copies of all
forms, reports, registration statements and other filings filed by the
Company with the Commission since January 1, 1996 (such forms, reports,
registration statements and other filings, together with any amendments
thereto, but excluding any preliminary filings, are sometimes collectively
referred to as the "Parent Commission Filings"). As of their respective
dates, the Parent Commission Filings did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) The audited consolidated financial statements included in the
Parent Commission Filings comply as to form in all material respects with
applicable accounting requirements and with the rules and regulations of the
Commission with respect thereto, were prepared in accordance with US GAAP
(as in effect from time to time), applied on a consistent basis (except as
may be indicated therein or in the notes or schedules thereto) and fairly
present in all material respects the consolidated financial position of
Parent and its consolidated Subsidiaries as of the dates thereof and the
results of their operations and cash flows and changes in stockholders'
equity, as the case may be, for the periods then ended. The unaudited
interim financial statements included in the Parent Commission Filings
comply as to form in all material respects with applicable accounting
regulations and with the rules and regulations of the Commission with
respect thereto, were prepared in accordance with US GAAP (as in effect from
time to time) applied on a basis consistent with the basis on which the
audited financial statements referred to in the preceding sentence were
prepared (except as may be indicated therein or in the notes or schedules
thereto) and fairly present the consolidated financial position of Parent
and its consolidated Subsidiaries as of the dates thereof and the results of
their operations and cash flows and changes in stockholders' equity, as the
case may be, for the periods then ended subject to normal and recurring
year-end audit adjustments and any other adjustments described therein and
the fact that certain information and notes have been condensed or omitted
in accordance with the Exchange Act and the rules promulgated thereunder.
(iii) The audited consolidated financial statements of Parent as of and
for the year ended December 31, 1998 delivered to the Company by Parent
prior to the execution of this Agreement comply as to form in all material
respects with applicable accounting requirements, were prepared in
accordance with US GAAP applied on a basis consistent with the basis on
which the financial statements referred to in Section 3.2(e)(ii) were
prepared and fairly present in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries as of
December 31, 1998, and the results of their operations and cash flows and
changes in stockholders' equity for the year ended December 31, 1998.
(iv) Parent and its Subsidiaries keep proper accounting records in which
all material assets and liabilities, and all material transactions, of
Parent and its Subsidiaries are recorded in conformity with applicable
accounting principles. No part of Parent's or any Subsidiary's accounting
system or records, or access thereto, is under the control of a Person who
is not an employee of Parent or such Subsidiary.
(f) ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule 3.2(f)
delivered to the Company by Parent, since December 31, 1998: (i) there has
not been any material adverse change in the Condition of Parent and its
Subsidiaries taken as a whole; (ii) the businesses of Parent and its
Subsidiaries have been conducted in all material respects only in the
ordinary course; and (iii) Parent and its Subsidiaries have not, other than
in the ordinary course of business, increased the compensation of any
officer or granted any general salary or benefits increase to their
employees.
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(g) COMPLIANCE WITH LAWS. (i) GENERAL. Except with respect to
FDA-related regulatory matters (which are covered by Section 3.2(q) hereof)
and environmental matters (which are covered by Section 3.2(g)(ii) below),
Parent and its Subsidiaries are, and at all times since January 1, 1996 have
been, in compliance with all applicable laws, regulations, orders, judgments
and decrees, except where the failure to so comply would not have a material
adverse effect on the Condition of Parent and its Subsidiaries taken as a
whole. Since January 1, 1996, neither Parent nor any of its Subsidiaries has
received any notice or other communication from any Governmental Entity or
other Person regarding any actual or possible material violation of, or
material failure to comply with, any law, regulation, order, judgment or
decree.
(ii) ENVIRONMENTAL MATTERS. Except to the extent that the inaccuracy
of any of the following (or the circumstances giving rise to such
inaccuracy), individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Condition of Parent and
its Subsidiaries taken as a whole (after taking into account any reserves
therefor reflected in the audited consolidated balance sheet of Parent as of
December 31, 1998) or as set forth on Schedule 3.2(g)(ii) delivered to the
Company by Parent prior to the execution of this Agreement (none of which
scheduled items are expected to have a material adverse effect on the
Condition of the Parent and its Subsidiaries taken as a whole):
(A) Parent and its Subsidiaries are and have been at all relevant
times in compliance with all applicable Environmental Laws and any
permits, authorizations, licenses and certificates issued by any
governmental regulatory authority or entity pursuant to Environmental
Laws;
(B) Parent and its Subsidiaries have obtained, or made timely
application for, all permits required for their operations under
Environmental Laws;
(C) there have been no Releases of any Hazardous Materials for which
the Parent or any of its Subsidiaries is liable or, to Parent's or any of
its Subsidiaries' knowledge, may be held liable, at any location, and
there are no uncontrolled Hazardous Materials present in the environment
or, to Parent's or any of its Subsidiaries' knowledge, imminent
threatened Releases of Hazardous Materials into the environment at any of
Parent's or its Subsidiaries' facilities; and
(D) neither Parent nor its Subsidiaries have received any written
notice that it is or may be liable for cleanup or other costs relating to
environmental matters as a result of (1) any Hazardous Materials in the
environment at any facility owned or operated by Parent or its
Subsidiaries or (2) the off-site disposal of Hazardous Materials
generated by Parent or its Subsidiaries at any of its facilities.
(h) LITIGATION. Except as disclosed in Parent Commission Filings filed
with the Commission prior to the date hereof or as set forth on Schedule
3.2(h) delivered to the Company by Parent, there is no action, suit or
proceeding at law or in equity, or any arbitration or any administrative or
other proceeding by or before (or to the knowledge of Parent any
investigation by) any governmental or other instrumentality or agency,
pending, or, to the knowledge of Parent, threatened, against or affecting
Parent or any of its Subsidiaries, or any of their properties or rights
which if adversely determined would be reasonably likely to have a material
adverse effect on the Condition of Parent and its Subsidiaries taken as a
whole. Except as disclosed in Parent Commission Filings filed with the
Commission prior to the date hereof, neither Parent nor any of its
Subsidiaries is subject to any judgment, order or decree entered in any
lawsuit, proceeding or arbitration which is reasonably likely to have a
material adverse effect on the Condition of Parent and its Subsidiaries
taken as a whole or on the ability of Parent or any Subsidiary of Parent to
conduct its business as presently conducted.
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(i) TAXES. Each material Tax Return required to be filed by or on
behalf of Parent and each material Tax Return required to be filed by or on
behalf of Parent's Subsidiaries with any Governmental Entity with respect to
any taxable period ending on or before the Closing Date (the "Parent
Returns") (a) has been or will be filed on or before the applicable due
date, and (b) has been, or will be when filed, prepared in all material
respects in compliance with all applicable laws, regulations, orders,
judgments and decrees. All amounts shown on the Parent Returns to be due on
or before the Closing Date have been or will be paid on or before the
Closing Date.
(ii) Parent's audited consolidated balance sheet as of December 31, 1998
(the "Parent Balance Sheet") fully accrues all actual and contingent
liabilities for Taxes with respect to all periods through December 31, 1998
in accordance with US GAAP. Parent and its Subsidiaries will establish, in
the ordinary course of business and consistent with their past practices,
reserves adequate for the payment of all Taxes that accrue during the period
from December 31, 1998 through the Closing Date. Since December 31, 1998,
neither Parent nor any of its Subsidiaries has incurred any material
liability (accrued, unaccrued, matured, unmatured, contingent or otherwise)
for any Tax other than in the ordinary course of its business.
(iii) No material Parent Return has ever been examined or audited by any
Governmental Entity. No extension or waiver of the limitation period
applicable to any material Parent Returns has been granted (by Parent, any
Subsidiary of Parent or any other Person), and no such extension or waiver
has been requested from Parent or any Subsidiary of Parent.
(iv) No claim or action, suit, proceeding or arbitration is pending or,
to the knowledge of Parent, has been threatened against or with respect to
Parent or any Subsidiary of Parent in respect of any material Tax. No claim
has ever been made by an authority in a jurisdiction where Parent or any of
its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no unsatisfied liabilities for
material Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by Parent or any Subsidiary of
Parent with respect to any material Tax (other than liabilities for Taxes
asserted under any such notice of deficiency or similar document which are
being contested in good faith by Parent or any Subsidiary of Parent and with
respect to which adequate reserves for payment have been established on the
Parent Balance Sheet). There are no liens or other security interests for
material Taxes upon any of the assets of Parent or any Subsidiary of Parent
except liens for current Taxes not yet due and payable. Neither Parent nor
any Subsidiary of Parent has entered into or become bound by any agreement
or consent pursuant to Section 341(f) of the Code (or any comparable
provision of state or foreign Tax laws). Neither Parent nor any Subsidiary
of Parent has been, and neither Parent nor any Subsidiary of Parent will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code (or any
comparable provision under state or foreign Tax laws) as a result of
transactions or events occurring, or accounting methods employed, prior to
the Closing.
(v) There is no contract or arrangement covering any employee or
independent contractor or former employee or independent contractor of
Parent or any Subsidiary of Parent that, considered individually or
considered collectively with any other such contracts and arrangements,
could reasonably be expected to give rise directly or indirectly to the
payment of any amount that would not be deductible pursuant to Section 162
of the Code (or any comparable provision under state or foreign Tax laws).
Neither Parent nor any Subsidiary of Parent is, or has ever been, a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar contract or arrangement.
(j) PARENT EMPLOYEE BENEFIT PLANS. Except to the extent that any of
the following, either alone or in the aggregate, would not reasonably be
expected to have a material adverse effect on
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the Condition of Parent and its Subsidiaries taken as a whole: (i) neither
Parent nor its Subsidiaries nor, to Parent's knowledge, any of its or its
Subsidiaries' directors, officers, employees or agents, with respect to any
employee benefit plan, as defined in Section 3(3) of ERISA, and all other
employee benefit programs and arrangements, including, without limitation,
severance pay, salary continuation for disability, retirement, deferred or
other executive compensation, bonus, stock purchase, hospitalization,
medical insurance, and life insurance, maintained by Parent or its
Subsidiaries or to which Parent or any such Subsidiary is obligated to
contribute thereunder for current or former employees of Parent or its
Subsidiaries (the "Parent Employee Benefit Plans") has engaged in or been a
party to any "prohibited transaction", as such term is defined in Section
4975 of the Code or Section 406 of ERISA, which could result in the
imposition of either a penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in each case applicable to
Parent or any of its Subsidiaries or any Parent Employee Benefit Plan; (ii)
except as disclosed on Schedule 3.2(j) delivered to the Company by Parent
prior to the execution of this Agreement, all Parent Employee Benefit Plans
are and have been at all times in compliance in all respects with the
applicable requirements prescribed by all statutes, orders, or governmental
rules or regulations with respect to such Parent Employee Benefit Plans,
including, but not limited to, ERISA and the Code (except for such
requirements that are not required to be adopted as of the effective date of
the applicable requirement) and, to the knowledge of Parent, there are no
pending or threatened claims, lawsuits or arbitrations (other than routine
claims for benefits), relating to any of the Parent Employee Benefit Plans,
which have been asserted or instituted against Parent or any of its
Subsidiaries, any Parent Employee Benefit Plan or the assets of any trust or
group annuity contract for any Parent Employee Benefit Plan; (iii) each
Parent Employee Benefit Plan intended to be qualified under Section 401(a)
of the Code has heretofore been determined by the IRS to be so qualified
whether by determination letter or otherwise; (iv) neither Parent nor any of
its Subsidiaries or any trade or business which, together with Parent and
its Subsidiaries, is treated as a single employer under Section 414(t) of
the Code (a "Parent ERISA Affiliate") has, or at any time within the last
six years has had, an obligation to contribute to a "defined benefit plan"
as defined in Section 3(35) of ERISA, a pension plan subject to the funding
standards of Section 302 of ERISA or Section 412 of the Code, a
"multiemployer plan" within the meaning of Section 3(37) or 4001(a)(13) of
ERISA or Section 414(f) of the Code or a "multiple employer plan" within the
meaning of Section 210(a) of ERISA or Section 413(c) of the Code; (v) all
(A) insurance premiums required to be paid with respect to, (B) benefits,
expenses, and other amounts due and payable under and (C) contributions,
transfers, or payments required to be made to, any Parent Employee Benefit
Plan prior to the Effective Time will have been paid, made or accrued on or
before the Effective Time; (vi) no Parent Employee Benefit Plan provides
benefits, including, without limitation, death or medical benefits, beyond
termination of service or retirement other than (A) coverage mandated by
law, (B) death or retirement benefits under any qualified Parent Employee
Benefit Plan, or (C) deferred compensation benefits reflected on the books
of Parent or (D) arrangements listed on Schedule 3.2(j); (vii) except as
disclosed in Schedule 3.2(j), the execution and performance of this
Agreement will not (A) constitute a stated triggering event under any Parent
Employee Benefit Plan that will result in any payment (whether of severance
pay or otherwise) becoming due from Parent or any of Parent's Subsidiaries
to any officer, employee, or former employee (or dependents of such
employee), or (B) accelerate the time of payment or vesting, or increase the
amount of compensation due to any employee, officer or director of Parent or
any Subsidiary of Parent; and (viii) except as disclosed in Schedule 3.2(j),
any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Parent or any
Subsidiary of Parent or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or Parent
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Employee Benefit Plan currently in effect would not be characterized as an
"excess parachute payment" (as such term is defined in Section 280G(b)(1) of
the Code).
(k) PATENTS, TRADEMARKS, ETC. Except as referenced in Schedule 3.2(k)
provided by Parent to the Company prior to the execution of this Agreement,
Parent and its Subsidiaries have obtained or applied for all material
patents, trademarks, trade names, service marks and copyrights, maintained
all material trade secrets and obtained all material licenses and other
proprietary intellectual property rights and licenses and other proprietary
intellectual property rights as are necessary in connection with the
businesses of Parent and its Subsidiaries. Except as referenced in Schedule
3.2(k), Parent does not have any knowledge of any conflict with the
intellectual property rights of Parent or any of its Subsidiaries by others
or any knowledge of any conflict by Parent or any of its Subsidiaries with
the intellectual property rights of others which, insofar as reasonably can
be foreseen, could have a material adverse effect on the Condition of Parent
and its Subsidiaries taken as a whole.
(l) BROKER'S OR FINDER'S FEE. Except for J.P. Morgan Securities, Inc.
(whose fees and expenses as financial advisor to Parent will be paid by
Parent in accordance with Parent's agreement with such firm), no agent,
broker, Person or firm acting on behalf of Parent or Sub is, or will be,
entitled to any fee, commission or broker's or finder's fees from any of the
parties hereto, or from any Person controlling, controlled by, or under
common control with any of the parties hereto, in connection with this
Agreement or any of the transactions contemplated hereby.
(m) ACCOUNTING MATTERS. Parent knows of no reason why the Merger will
not be capable of being treated as a pooling of interest transaction under
APB 16. Neither Parent nor any of its Subsidiaries nor to its knowledge any
other Affiliate of Parent has taken any action that will prevent the Merger
from being recorded as a pooling of interest transaction under APB 16.
(n) TAX TREATMENT. Neither Parent nor any of its Subsidiaries has
taken or agreed to take any action that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
(o) OPERATIONS OF SUB. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
material business activities and has conducted its operations only as
contemplated hereby.
(p) ABSENCE OF UNDISCLOSED LIABILITIES. Except with respect to
environmental matters (which are covered in Section 3.2(g)(ii) hereof) and
FDA-related regulatory matters (which are covered in Section 3.2(q) hereof),
Parent does not have any indebtedness or liability except for (a)
liabilities identified as such in the "liabilities" column on the Parent
Balance Sheet or in the notes thereto; (b) liabilities described in Parent
Commission Filings filed with the Commission prior to the date hereof or on
Schedule 3.2(p) delivered to the Company by Parent prior to the execution of
this Agreement; (c) liabilities incurred or accrued in the ordinary course
of business (including liens of current taxes and assessments not in the
default) since December 31, 1998; and (d) liabilities that, individually and
in the aggregate, are immaterial in amount. Except as reserved on the Parent
Balance Sheet or shown in Schedule 3.2(p), neither Parent nor Sub is
directly or indirectly liable upon or with respect to (by discount,
repurchase agreements or otherwise), or obligated in any other way to
provide funds in respect of, or to guarantee or assume, any material debt,
obligation or dividend of any Person, except endorsements in the ordinary
course of business in connection with the deposit of items for collection.
(q) REGULATORY COMPLIANCE. (i) As to each Pharmaceutical Product that
is manufactured, tested, distributed and/or marketed by Parent or any of its
Subsidiaries, such product is being manufactured, tested, distributed and/or
marketed in substantial compliance with all applicable requirements under
FDCA and similar state and foreign laws and regulations, including but not
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limited to those relating to investigational use, premarket clearance, good
manufacturing practices, labeling, advertising, record keeping, filing of
reports and security.
(ii) As to each drug manufactured, marketed, sold or licensed by Parent
in the United States for which an NDA and similar state or foreign
regulatory filings, has been approved or an IND has been submitted to the
FDA and become effective, Parent and its Subsidiaries are in substantial
compliance with 21 U.S.C. SectionSection 355 or 357 or 21 C.F.R. Parts 312,
314 or 430 ET SEQ., 512, or 514 ET SEQ., respectively, and similar state and
foreign laws and regulations and all terms and conditions of such
applications. As to each such drug, Parent and any relevant Subsidiary, and
the officers, employees or agents of Parent or such Subsidiary have included
in the application for such drug, where required, the certification
described in 21 U.S.C. Section 335a(k)(1) or any similar state or foreign
law or regulation and the list described in 21 U.S.C. Section 335a(k)(2) or
any similar state or foreign law or regulation, and such certification and
such list was in each case true and accurate when made and remained true and
accurate thereafter. In addition, Parent and its Subsidiaries are in
substantial compliance with all applicable registration and listing
requirements set forth in 21 U.S.C. Section 360 and 21 C.F.R. Part 207 and
all similar state and foreign laws and regulations.
(iii) Each article of drug manufactured and/or distributed by Parent or
any of its Subsidiaries is not adulterated within the meaning of 21 U.S.C.
Section 351 (or similar state or foreign laws or regulations) or misbranded
within the meaning of 21 U.S.C. Section 352 (or similar state or foreign
laws or regulations), and is not a product that is in violation of 21 U.S.C.
Section 355 (or similar state or foreign laws or regulations).
(iv) Except as set forth in Schedule 3.2(q)(iv) delivered to the Company
by Parent prior to the execution of this Agreement, all manufacturing
operations of Parent and its Subsidiaries in the United States have been and
are being conducted in substantial compliance with the good manufacturing
practice regulations set forth in 21 C.F.R. Parts 210 and 211 and similar
state or foreign regulations.
(v) Except as disclosed in the Parent Commission Filings filed with the
Commission prior to the date hereof, neither Parent nor any of its
Subsidiaries has received any written notice that the FDA or any other state
or foreign regulatory authority has commenced, or threatened to initiate,
any action to withdraw its approval or request the recall of any product of
Parent or any of its Subsidiaries, or commenced, or overtly threatened to
initiate, any action to enjoin production at any facility of Parent or any
of its Subsidiaries.
(vi) Neither Parent, nor any of its Subsidiaries, nor any officer,
employee or agent of either Parent or any of its Subsidiaries has made an
untrue statement of a material fact or fraudulent statement to the FDA or
any state or foreign regulatory authority, failed to disclose a material
fact required to be disclosed to the FDA or any state or foreign regulatory
authority, or committed an act, made a statement, or failed to make a
statement that, at the time such disclosure was made, could reasonably be
expected to provide a basis for the FDA or any state or foreign regulatory
authority to invoke its policy respecting "Fraud, Untrue Statements of
Material Facts, Bribery, and Illegal Gratuities", set forth in 56 Fed. Reg.
46191 (September 10, 1991) or any similar policy. Neither Parent nor any of
its Subsidiaries, nor any officer, employee or agent of either Parent or any
of its Subsidiaries, has been convicted of any crime or engaged in any
conduct for which debarment is mandated by 21 U.S.C. Section 335a(a) or any
similar state or foreign law or regulation or authorized by 21 U.S.C.
Section 335a(b) or any similar state or foreign law or regulation.
(r) CERTAIN BUSINESS PRACTICES. Neither Parent nor any of its
Subsidiaries nor (to the knowledge of Parent) any director, officer, agent
or employee of Parent or any of its Subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any
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provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.
(s) GOVERNMENTAL AUTHORIZATIONS. Parent and its Subsidiaries hold all
permits, consents, approvals, variances, licenses, registrations and other
governmental authorizations necessary to enable them to conduct their
respective businesses in the manner in which such businesses are currently
being conducted, except where the failure to hold such permits, consents,
approvals, variances, licenses, registrations and other governmental
authorizations has not had and would not reasonably be expected to have a
material adverse effect on the Condition of Parent and its Subsidiaries
taken as a whole. All such permits, consents, approvals, variances,
licenses, registrations and other governmental authorizations are valid and
in full force and effect except where the failure to be valid and in full
force and effect, when considered together will all other such failures, has
not had and would not reasonably be expected to have a material adverse
effect on the Condition of Parent and its Subsidiary taken as a whole.
Parent and its Subsidiaries are, and at all times since January 1, 1996 have
been, in substantial compliance with the terms and requirements of such
permits, consents, approvals, variances, licenses, registrations and other
governmental authorizations, except where the failure to be in compliance
with the terms and requirements of such permits, consents, approvals,
variances, licenses, registrations and other governmental authorizations has
not had and would not reasonably be expected to have a material adverse
effect on the Condition of Parent and its Subsidiaries taken as a whole.
Neither the execution, delivery or performance of this Agreement nor the
consummation of the Merger or any of the other transactions contemplated by
this Agreement will (with or without notice or lapse of time) give any
Governmental Entity or other Person the right to revoke, withdraw, suspend,
cancel, terminate or modify: (i) any material grant, incentive, subsidy
provided to Parent or any of its Subsidiaries or (ii) any material permit,
consent, approval, variance, license, registration or other governmental
authorization.
(t) Y2K COMPLIANCE. To the knowledge of Parent and its Subsidiaries,
except as set forth in Schedule 3.2(t) delivered to the Company by Parent
prior to the execution of this Agreement, each computer, computer program
and other item of software (whether installed on a computer or on any other
piece of equipment, including firmware) that is owned, licensed or used by
Parent or any of its Subsidiaries for its internal business operations is
Year 2000 Compliant. Except as set forth in Schedule 3.2(t) delivered to the
Company by Parent prior to the execution of this Agreement, Parent and each
of its Subsidiaries has conducted sufficient Year 2000 compliance testing
for each computer, computer program and item of software referred to in the
preceding sentence to be able to determine whether such computer, computer
program or item of software is Year 2000 Compliant, and to Parent's
knowledge each of Parent's principal supplier's products or services
provided by such suppliers to Parent and its Subsidiaries is Year 2000
Compliant except, in each case where the failure to be Year 2000 Compliant
would not reasonably be expected to have a material adverse effect on the
Condition of Parent and its Subsidiaries taken as a whole.
ARTICLE IV.
CONDUCT OF BUSINESS; TRANSACTIONS PRIOR
TO CLOSING DATE; ADDITIONAL AGREEMENTS
SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY. The Company agrees that,
except as expressly permitted, required or contemplated by this Agreement or
otherwise consented to or approved in writing by Parent, during the period
commencing on the date hereof and ending on the Closing Date:
(a) The Company and each of its Subsidiaries will conduct their
respective operations in all material respects only according to their
ordinary and usual course of business and will use their reasonable efforts
to preserve intact their respective business organizations, keep available
the services of their directors, officers and employees, preserve in full
force and effect all material licenses and approvals held by them and
maintain satisfactory relationships with suppliers, distributors, clients
and others having material business relationships with them;
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(b) Neither the Company nor any of its Subsidiaries will (i) make any
change in or amendment to its Certificate of Incorporation or By-Laws or
other charter or organizational documents; (ii) issue or sell any shares of
its capital stock or share capital (other than in connection with the
exercise of options granted under the Stock Option Plans and warrants or
convertible securities outstanding on the date hereof or pursuant to the
Stock Purchase Plan) or any other securities, or issue, sell or grant any
securities exchangeable for or convertible into, or options (other than
employee stock options to purchase no more than a total of 250,000 shares of
Company Common Stock, which may be granted to employees in the ordinary
course of business), warrants or rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance, grant
or sale of, any shares of its capital stock or any of its other securities,
or make any other changes in its capital structure; (iii) declare, pay or
make any dividend or other distribution or payment with respect to, or
split, combine, redeem or reclassify, any shares of its capital stock or
other securities; (iv) make or authorize any capital expenditures in excess
of those set forth in Schedule 4.1(b) delivered to Parent by the Company
prior to the execution of this Agreement or in excess of $200,000,
individually, or $1,000,000, in the aggregate; (v) enter into or amend in
any material respect any other material contracts or commitments except for
contracts and amendments made in the ordinary course of business, consistent
with past practice and containing only normal and customary terms; (vi)
acquire, lease or license any rights or other assets (other than as
contemplated by clause (iv) above), other than in the ordinary course of
business and consistent with past practice, or acquire, lease or license any
rights or other assets having a value in an amount in excess of $200,000,
individually, or $1,000,000, in the aggregate, or dispose of (including by
way of sale, lease, license or encumbrance), other than in the ordinary
course of business and consistent with past practice, a material amount of
assets or release, relinquish or assign any material rights under any
material contract; (vii) except as contemplated by this Agreement (including
Section 2.5 hereof) or as may be required by law, establish, adopt, enter
into, accelerate the vesting under or amend any employee or non-employee
benefit plan or program, employment agreement, option, license agreement or
retirement agreement, or pay any bonus or contingent compensation (except
any bonuses or other payments required under any existing compensation
programs or benefit plans or arrangements and severance payments under any
existing severance plans in each case listed on Schedule 3.1(j)), or
increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to any of its directors, officers
or employees (except that the Company may provide routine, reasonable salary
increases to its non-officer employees in connection with the Company's
customary employee review process); (viii) hire any employee with an annual
base salary in excess of $100,000; (ix) change any of its sales policies,
revenue recognition policies, product return policies, personnel policies or
other business policies outside the ordinary course of business; (x) take or
permit to be taken any action that would adversely affect its ability to
consummate the Merger or the other transactions contemplated hereby or could
preclude Parent from accounting for the Merger as a "pooling of interests";
(xi) take or permit to be taken any action that could reasonably be expected
to prevent the Merger from constituting a reorganization within the meaning
of Section 368(a) of the Code; (xii) make any material Tax election; (xiii)
form or acquire any Subsidiary; (xiv) enter into any hedging, option or
derivative or other similar transaction or any foreign exchange position or
contract for the exchange of currency outside the ordinary course of
business or inconsistent with past practices; (xv) suspend, terminate or
otherwise discontinue or materially modify (except as required by a
Governmental Entity) any planned or ongoing clinical trials or similar
activities relating to DaunoXome, AmBisome, MiKasome, NX211 or NX1838; (xvi)
lend money to any Person or incur any indebtedness for borrowed money (other
than by drawing under current revolving credit agreements (as such
agreements are in effect on the date hereof and without giving effect to any
waivers of any of the provisions of such agreements)) or guarantee any
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries or
guarantee any debt securities of others; (xvii) agree, in writing or
otherwise,
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to take any of the foregoing actions; (xviii) make any material change in
its method of accounting or record keeping not otherwise required by US
GAAP; or (xix) commence or agree to the settlement of any material
litigation;
(c) The Company will not, nor will the Company permit any of its
Subsidiaries to, purchase or acquire, or offer to purchase or acquire, any
shares of its capital stock; and
(d) The Company will deliver to Parent all of the Company's monthly and
quarterly, if any, financial statements for periods and dates subsequent to
December 31, 1998, as soon as practicable after the same are available to
the Company.
SECTION 4.2. CONDUCT OF BUSINESS OF PARENT. Parent agrees that, except as
set forth on Schedule 4.2, and except as expressly permitted, required or
contemplated by this Agreement, or otherwise consented to or approved in writing
by the Company, during the period commencing on the date hereof and ending on
the Closing Date, Parent and each of its Subsidiaries will conduct their
respective operations in all material respects only according to their ordinary
and usual course of business and will use their reasonable efforts to preserve
intact their respective business organizations, keep available the services of
their directors, officers and employees, preserve in full force and effect all
material licenses and approvals held by them and maintain satisfactory
relationships with suppliers, distributors, clients and others having material
business relationships with them.
SECTION 4.3. ACCESS TO INFORMATION CONCERNING BUSINESS AND RECORDS. (a)
During the period commencing on the date hereof and ending on the Closing Date,
the Company shall, upon reasonable notice, afford to Parent and Parent's
counsel, accountants and other authorized representatives, reasonable access
during normal business hours to the properties, personnel, advisors, books and
records of the Company and its Subsidiaries in order that they may have the
opportunity to make such investigations as they shall desire of the affairs of
the Company and its Subsidiaries; such investigation shall not, however, affect
the representations and warranties made in this Agreement. The Company agrees to
cause its officers and employees to furnish such additional financial and
operating data and other information and respond to such inquiries as Parent
shall from time to time request.
(b) During the period commencing on the date hereof and ending on the
Closing Date, Parent shall, upon reasonable notice, afford to the Company and
the Company's counsel, accountants and other authorized representatives,
reasonable access during normal business hours to the properties, personnel,
advisors, books and records of Parent and its Subsidiaries in order that they
may have the opportunity to make such investigations as they shall desire of the
affairs of Parent and its Subsidiaries; such investigation shall not, however,
affect the representations and warranties made in this Agreement. Parent agrees
to cause its officers and employees to furnish such additional financial and
operating data and other information and respond to such inquiries as the
Company shall from time to time request.
SECTION 4.4. CONFIDENTIALITY. Information obtained by Parent and the
Company pursuant to this Agreement shall be subject to the provisions of the
Confidential Disclosure Agreement between the Company and Parent dated as of May
21, 1997, as amended (the "Confidential Disclosure Agreement").
SECTION 4.5. REGISTRATION STATEMENT/JOINT PROXY STATEMENT; QUOTATION ON
NASDAQ NATIONAL MARKET. (a) As promptly as practicable after the execution of
this Agreement, the Company and Parent shall prepare and file with the
Commission preliminary proxy materials which shall constitute the preliminary
Joint Proxy Statement and a preliminary prospectus with respect to the Parent
Shares to be issued in connection with the Merger. In connection with the Joint
Proxy Statement, counsel to the Company and counsel to Parent shall each provide
their opinion with respect to the tax disclosure contained therein for filing as
exhibits to the Registration Statement. At or prior to the filing of the
preliminary Joint Proxy Statement, the Company and Parent shall provide to such
counsel such tax representation letters as may be reasonably requested. As
promptly as practicable after comments are received from
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the Commission with respect to the preliminary proxy materials and after the
furnishing by the Company and Parent of all information required to be contained
therein (including, without limitation, financial statements and supporting
schedules and certificates and reports of independent public accountants), the
Company and Parent shall file with the Commission the definitive Joint Proxy
Statement and Parent shall file with the Commission the Registration Statement,
which Joint Proxy Statement and Registration Statement shall each comply in all
material respects with the applicable requirements of the Exchange Act and
Securities Act, respectively, and the applicable rules and regulations of the
Commission thereunder. Parent and the Company shall use their reasonable efforts
to cause the Registration Statement to become effective as soon thereafter as
practicable. The definitive Joint Proxy Statement shall contain the opinion of
Morgan Stanley & Co. Incorporated referred to in Section 3.1(q) of this
Agreement.
(b) The Company and Parent shall cause the Joint Proxy Statement to be
mailed to their respective stockholders and, if necessary, after the Joint Proxy
Statement shall have been so mailed, promptly circulate amended, supplemental or
supplemented proxy material and, if required in connection therewith, resolicit
proxies.
(c) Each of Parent and Sub, on the one hand, and the Company, on the other
hand, warrants to the other that the information provided and to be provided by
Parent and Sub and the Company, respectively (or incorporated by reference to
filings made with the Commission by Parent and the Company, respectively), for
use in each of the Registration Statement, on the date the Registration
Statement becomes effective, and the Joint Proxy Statement, on the date the
Joint Proxy Statement is filed with the Commission and on the date it is first
mailed to the Company's stockholders and the date it is first mailed to Parent's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
Parent and Sub, on the one hand, and the Company, on the other, shall notify the
other parties promptly of the receipt of any comments by the Commission and of
any request by the Commission for amendments or supplements to the preliminary
Joint Proxy Statement, the Joint Proxy Statement or the Registration Statement
or for additional information, and shall supply one another with copies of all
correspondence with the Commission with respect to any of the foregoing. If at
any time prior to the Special Meeting, any event should occur relating to Parent
or Sub (or any of their respective affiliates, directors or officers) which
should be described in an amendment or supplement to the Joint Proxy Statement
or the Registration Statement, Parent shall promptly inform the Company. If at
any time prior to the Parent Stockholders' Meeting, any event should occur
relating to the Company, its Subsidiaries or any of their respective affiliates,
directors or officers which should be described in an amendment or supplement to
the Joint Proxy Statement or the Registration Statement, the Company shall
promptly inform Parent. Whenever any event occurs which should be described in
an amendment or supplement to the Joint Proxy Statement or the Registration
Statement, Parent and the Company shall, upon learning of such event, cooperate
with each other promptly to file and clear with the Commission and, if
applicable, mail such amendment or supplement to the stockholders of the Company
and Parent.
(d) Parent shall use its best efforts to obtain approval for quotation on
the Nasdaq National Market, upon official notice of issuance, of the Parent
Shares to be issued pursuant to the Merger.
(e) Parent and the Company shall make all necessary filings with respect to
the Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder and under applicable blue sky or similar laws and shall
use their reasonable efforts to obtain required approvals and clearances with
respect thereto; PROVIDED, HOWEVER, that Parent shall not be required (i) to
qualify to do business as a foreign corporation in any jurisdiction in which it
is not now qualified or (ii) to file a general consent to service of process in
any jurisdiction in which it is not now required to do so.
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SECTION 4.6. EMPLOYEE BENEFITS. Immediately after the Effective Time,
Parent or the Surviving Corporation shall cause to be provided to the Surviving
Corporation's employees for not less than one year from and after the Closing
Date Current Benefits (as defined below) that are, in the aggregate,
substantially as favorable to such employees as the Current Benefits available
to them as of the date of this Agreement under the Employee Benefit Plans.
Without limiting the generality of the foregoing, for not less than one year
from and after the Closing Date (a) all Surviving Corporation employees will
continue to be provided with the same level of severance benefits provided to
them immediately prior to the date of this Agreement under those severance plans
specified in Schedule 3.1(j) delivered to Parent by the Company prior to the
execution of this Agreement, of which the Company has provided Parent with
accurate and complete copies prior to the date hereof and (b) to the extent that
any employee of the Surviving Corporation participates in any Parent Employee
Benefit Plan after the Effective Time, Parent shall use reasonable efforts to
ensure (i) that such employee receives credit for his or her service with the
Company, to the same extent as such service was credited under any similar
Employee Benefit Plan immediately prior to the Effective Time, for purposes of
determining eligibility to participate in and vesting under, and for purposes of
calculating the benefits under, such Parent Employee Benefit Plan, (ii) that any
pre-existing condition limitations, waiting periods or similar limitations under
such Parent Employee Benefit Plan are waived, and (iii) that such employee
receives credit for any co-payments previously made and any deductible
previously satisfied under any similar Employee Benefit Plan. For purposes of
this Section 4.6, "Current Benefits" shall refer to benefits available under
Employee Benefit Plans or Parent Employee Benefit Plans, other than benefits
available under stock option plans, stock purchase plans and other equity-based
benefit plans.
SECTION 4.7. STOCKHOLDER APPROVALS; RECOMMENDATIONS. (a) The Company,
acting through its Board of Directors, shall (i) call, give notice of, convene
and hold a special meeting of the holders of Company Common Stock for the
purpose of voting upon this Agreement and the Merger (the "Special Meeting") and
(ii) subject to Section 4.16(b), include in the Joint Proxy Statement the
recommendation of its Board of Directors that holders of Company Common Stock
approve and adopt this Agreement and approve the Merger at the Special Meeting.
The Special Meeting will be held as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. The
Company shall ensure that the Special Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited, in connection with the Special
Meeting are solicited in compliance with all applicable laws, regulations,
orders, judgments and decrees. The Company's obligation to call, give notice of,
convene and hold the Special Meeting in accordance with this Section 4.7(a)
shall not be limited or otherwise affected by the disclosure, announcement,
commencement, submission or making of any Superior Proposal or other Takeover
Proposal, or by any withdrawal or modification of the recommendation of the
Board of Directors of the Company with respect to the Merger. The Company shall
not be permitted to delay, adjourn, postpone or reschedule the Special Meeting,
or delay the vote of the Company's stockholders on the Merger, without Parent's
prior written consent (which consent will not be unreasonably withheld or
delayed if the need for the delay, adjournment, postponement or rescheduling of
the Special Meeting or the delay in such vote is attributable solely to factors
outside the Company's control).
(b) Parent, acting through its Board of Directors, shall (i) call, give
notice of, convene and hold a special meeting of its stockholders for the
purpose of voting upon the issuance of Parent Shares in the Merger (the "Parent
Stockholders' Meeting"), and (ii) include in the Joint Proxy Statement the
recommendation of its Board of Directors that its stockholders vote in favor of
the issuance of Parent Shares in the Merger at the Parent Stockholders' Meeting.
The Parent Stockholders' Meeting will be held as promptly as practicable after
(and, to the extent feasible, on the same day as) the Special Meeting. Parent
shall ensure that the Parent Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited in connection with the Parent
Stockholders' Meeting are solicited, in compliance with all applicable laws,
regulations, orders, judgments and decrees.
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(c) Notwithstanding anything to the contrary contained in this Section 4.7,
the Company's Board of Directors shall be permitted to withdraw or modify its
recommendation in favor of the Merger only in accordance with the provisions of
Section 4.16(b).
SECTION 4.8. STOCK OPTIONS. The Company shall take such actions as may be
permitted under the Stock Option Plans to effect the actions described in
Section 2.5.
SECTION 4.9. LETTERS OF THE COMPANY'S ACCOUNTANTS. The Company shall
diligently seek to cause to be delivered to Parent a letter of Ernst & Young
LLP, the Company's independent auditors, dated a date within two business days
before the date of the Proxy Statement and a second bring-down letter, dated a
date within two business days before the Effective Time, in each case addressed
to Parent and its board of directors, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement. The Company shall diligently
seek to cause Ernst & Young LLP to deliver to Parent and the Company a letter
(which may contain customary qualifications and assumptions), dated as of the
Closing Date, confirming the concurrence of Ernst & Young LLP with the Company's
management's conclusion that no conditions exist related to the Company that
would preclude Parent from accounting for the Merger as a pooling of interests
if the Merger is consummated in accordance with this Agreement.
SECTION 4.10. LETTERS OF PARENT'S ACCOUNTANTS. Parent shall diligently
seek to cause to be delivered to the Company a letter of Ernst & Young LLP,
Parent's independent auditors, dated a date within two business days before the
date on which the Registration Statement shall become effective and a second
bring-down letter, dated a date within two business days before the Effective
Time, in each case addressed to the Company and its board of directors, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement. Parent and
the Company shall diligently seek to cause Ernst & Young LLP to deliver the
letter referred to in Section 5.1(h).
SECTION 4.11. NOTICES OF CERTAIN EVENTS. Each party hereto shall promptly
notify the other parties of:
(a) the receipt by such party or any of such party's Subsidiaries of any
notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) the receipt by such party or any of such party's Subsidiaries of any
notice or other communication from any Governmental Entity in connection
with the transactions contemplated by this Agreement;
(c) such party's obtaining knowledge of any actions, suits, claims,
investigations or proceedings commenced or threatened against, relating to
or involving or otherwise affecting any of Parent, Sub or the Company, as
the case may be, or any of their respective Subsidiaries which relate to the
consummation of the transactions contemplated by this Agreement; and
(d) such party's obtaining knowledge of the occurrence, or failure to
occur, of any event which occurrence or failure to occur will be likely to
cause (A) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect, or (B) any material failure of
any party to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER,
that no such notification shall affect the representations, warranties or
obligations of the parties or the conditions to the obligations of the
parties hereunder.
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SECTION 4.12. HSR ACT. The Company and Parent shall, as soon as
practicable after the date of this Agreement, file Notification and Report Forms
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
shall use their reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
SECTION 4.13. INDEMNIFICATION; OFFICERS' AND DIRECTORS' INSURANCE. (a)
From and after the Effective Time, the Surviving Corporation shall indemnify,
defend and hold harmless each person who is now, or who becomes prior to the
Effective Time, an officer or director of the Company (the "Indemnified
Parties") against all losses, expenses, claims, damages, liabilities, costs,
expenses, judgments or amounts that are paid in settlement with the approval of
the indemnifying party (which approval will not be unreasonably withheld)
arising out of any action or omission of such Indemnified Party in his or her
capacity as an officer or director of the Company in connection with the
transactions contemplated by this Agreement to the fullest extent provided for
under the Company's Certificate of Incorporation and By Laws as in effect as of
the date hereof or permitted or required by applicable law, including without
limitation the advancement of expenses. Parent agrees that all rights to
indemnification existing in favor of the Indemnified Parties as provided in the
Company's Certificate of Incorporation or By-Laws, as in effect as of the date
hereof, with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years from the Effective Time, and Parent hereby guarantees
the due and prompt performance in full of such indemnification obligations of
the Surviving Corporation. Parent agrees to use its best efforts to cause the
Surviving Corporation to maintain in effect for not less than three years after
the Effective Time the current policies of directors' and officers' liability
insurance maintained by the Company with respect to matters occurring prior to
the Effective Time; PROVIDED, HOWEVER, that (i) the Surviving Corporation may
substitute therefor policies of at least the same coverage (with carriers
comparable to the Company's existing carriers) containing terms and conditions
which are no less advantageous to the Indemnified Parties and (ii) the Surviving
Corporation shall not be required to pay a premium at a rate for such insurance
in excess of 200% of the annual premium rate represented by the last premium
paid prior to the date hereof, but in such case shall purchase as much coverage
as possible for such amount and (iii) any or all of the Indemnified Parties
shall have the right to provide funds to the Surviving Corporation to fund
premiums to the extent they exceed such 200% level.
(b) The provisions of this Section 4.13 are intended for the benefit of, and
shall be enforceable by, each Indemnified Party and his or her heirs and
personal representatives.
SECTION 4.14. EFFORTS. Each of the Company, Parent and Sub shall, and
shall cause each of their respective Subsidiaries to, cooperate and use their
reasonable efforts to take, or cause to be taken, all appropriate action, and to
make, or cause to be made, all filings necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
their reasonable efforts to (i) obtain, prior to the Closing Date, all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and its
Subsidiaries and Parent and its Subsidiaries and (ii) defend against and respond
to any action, suit, proceeding or investigation relating to the transactions
contemplated by this Agreement, in each case as are necessary for consummation
of the transactions contemplated by this Agreement and to fulfill the conditions
to the Merger.
SECTION 4.15. RULE 145. Contemporaneously with the execution and delivery
of this Agreement, the Company is delivering to Parent a list of names and
addresses of those persons who are, in the Company's reasonable judgment,
"affiliates" (each such person, an "Affiliate") of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act. The Company shall use all reasonable efforts to deliver or cause
to be delivered to Parent, from each of the Affiliates of the Company identified
in the foregoing list (and from any Person who becomes, or could reasonably be
deemed to be, an Affiliate after the date of this Agreement), as promptly as
practicable
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after the date hereof (with respect to Persons identified on such list), and no
later than the date such Person becomes an Affiliate (with respect to Persons
who become Affiliates after the date hereof), an Affiliate Agreement in the form
attached hereto as Exhibit A (an "Affiliate Agreement"). Parent shall be
entitled to place legends as specified in such Affiliate Agreements on the
certificates evidencing any Parent Shares to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Shares, consistent with the
terms of such Affiliate Agreements.
SECTION 4.16. NO SOLICITATION. (a) The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any officer
or director of, or any investment banker, attorney or other advisor or
representative ("Representative") of, the Company or any of its Subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission or
announcement of any Takeover Proposal, (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect or
in response to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal; PROVIDED, HOWEVER, that if (1) neither the Company
nor any Subsidiary or Representative of the Company or any Subsidiary shall have
violated any of the restrictions set forth in this Section 4.16, (2) the Board
of Directors of the Company determines in good faith, based upon the advice of
outside counsel, that such action is required in order for the Board of
Directors of the Company to comply with its fiduciary duties to the Company's
stockholders under applicable law, and (3) the Company has given Parent the
notice referred to in Section 4.16(c) and at least two business days have
elapsed since the delivery to Parent of the notice and information referred to
in Section 4.16(c), then the Company may, prior to the adoption and approval of
this Agreement by the stockholders of the Company, in response to a Takeover
Proposal that has not been withdrawn and that (but for the inclusion of a "due
diligence condition" as part of such Takeover Proposal) constitutes a Superior
Proposal (as defined in Section 4.16(b)), furnish information with respect to
the Company to the Person who made such Takeover Proposal (but only information
that has been previously furnished by the Company to Parent or that the Company
simultaneously furnishes to both such Person and Parent) pursuant to a customary
confidentiality agreement (containing terms and provisions that are no less
favorable to and protective of the Company than the terms and provisions of the
Confidential Disclosure Agreement) and participate in discussions or
negotiations with such Person regarding such Takeover Proposal. Without limiting
the foregoing, it is understood that any violation of the restrictions set forth
in the preceding sentence by any officer or director of the Company or any of
its Subsidiaries or any investment banker, attorney or other advisor or other
Representative of the Company or any of its Subsidiaries, whether or not such
Person is purporting to act on behalf of the Company or any of its Subsidiaries
or otherwise, shall be deemed to be a breach of this Section 4.16(a) by the
Company. The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any Person that relate to any Takeover
Proposal. For purposes of this Agreement, "Takeover Proposal" means any (i)
offer, inquiry or proposal for, relating to or contemplating a merger,
consolidation, amalgamation, share exchange, business combination, issuance of
securities, acquisition of securities, tender offer, exchange offer or other
similar transaction or series of transactions (A) in which the Company or any of
its material Subsidiaries is a constituent company, (B) in which a Person or
"group" (as defined in the Exchange Act and the rules promulgated thereunder) of
Persons directly or indirectly acquires the Company or any material Subsidiary
of the Company or more than 20% of the Company's business or directly or
indirectly acquires beneficial or record ownership of securities representing,
or exchangeable for or convertible into, more than 20% of the outstanding
securities of any class of voting securities of the Company or any material
Subsidiary of the Company, or (C) in which the Company or any material
Subsidiary of the Company issues securities representing more than 20% of the
outstanding securities of any class of voting securities of the Company or such
material Subsidiary of the Company, or
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(ii) offer, inquiry or proposal for, relating to or contemplating a transaction
(including any joint venture, collaboration or similar transaction) involving
the sale, lease, exchange, transfer, license, acquisition or disposition or
sharing of control of any material portion of the intellectual property rights
or other rights or assets of the Company or any material Subsidiary of the
Company, other than the transactions contemplated by this Agreement.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose or resolve to withdraw or modify, in a
manner adverse to Parent or Sub, the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or (iii)
enter into any agreement or letter of intent with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that, prior to the
adoption and approval of this Agreement by the stockholders of the Company, (i)
the Board of Directors of the Company receives a Superior Proposal that is not
withdrawn, (ii) neither the Company nor any Subsidiary or Representative of the
Company or any Subsidiary shall have violated any of the restrictions set forth
in this Section 4.16, (iii) the Board of Directors of the Company concludes in
good faith, based upon the advice of its outside counsel, that, in light of such
Superior Proposal, the withdrawal or modification of such recommendation is
required in order for the Board of Directors of the Company to comply with its
fiduciary obligations to the Company's stockholders under applicable law, (iv)
the Company shall have provided Parent with at least two business days' prior
notice of any meeting of the Company's Board of Directors at which such Board of
Directors is expected to consider such Superior Proposal, and (v) the Company's
Board of Directors does not withdraw or modify its recommendation in favor of
the Merger for at least two business days after the Company provides Parent with
the name of the Person making such Superior Proposal and a copy of such Superior
Proposal, then the Board of Directors may appropriately withdraw or modify its
approval or recommendation of this Agreement or the Merger. Nothing contained in
this Section 4.16 shall limit the Company's obligation to call, give notice of,
convene and hold the Special Meeting (regardless of whether the recommendation
of the Board of Directors of the Company shall have been withdrawn or modified).
For purposes of this Agreement, a "Superior Proposal" means any unsolicited bona
fide written offer made by a third party (1) to enter into a merger or business
combination with the Company whereby the shares of Company Common Stock and
other equity securities of the Company that are outstanding immediately before
such merger or business combination shall be exchanged for or converted into
shares of common stock and other equity securities of such third party that (on
a fully diluted basis) represent less than 50% of the common stock of such third
party outstanding immediately after such merger or business combination or (2)
to purchase for cash or a combination of cash and securities more than 50% of
the outstanding shares of Company Common Stock (provided that, in cases in which
holders of Company Common Stock receive common stock or other equity securities
of a third party, such common stock and other securities represent less than 50%
of the common stock (on a fully diluted basis) of such third party outstanding
immediately after such transaction), in either case on terms which the Board of
Directors of the Company determines in its good faith reasonable judgment (based
upon the written opinion of a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger;
PROVIDED, HOWEVER, that any such offer shall not be deemed to be a "Superior
Proposal" if any financing required to consummate the transaction contemplated
by such offer is not committed and is not likely to be obtained by such third
party on a timely basis.
(c) In addition to the obligations of the Company set forth in Sections
4.16(a) and (b) above, the Company shall promptly advise Parent orally and in
writing of any request for information or of any Takeover Proposal, or any
inquiry with respect to or which could reasonably be expected to lead to any
Takeover Proposal, the material terms and conditions of such request, Takeover
Proposal or inquiry, and the identity of the Person making any such Takeover
Proposal or inquiry. The Company shall use its best efforts to keep Parent fully
informed of the status and details of any such request, Takeover Proposal or
inquiry.
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SECTION 4.17. TAX REORGANIZATION. Prior to the Closing Date, each party
shall use its best efforts to cause the Merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code, and will not take any action
reasonably likely to cause the Merger not to so qualify.
SECTION 4.18. CONVERTIBLE DEBENTURES. From and after the Effective Time,
Parent shall cause the Surviving Corporation to comply with the provisions of
the indenture dated as of July 31, 1997 between the Company and IBJ Schroder
Bank & Trust Company, a New York banking corporation, as trustee, in its
entirety, including without limitation Sections 1311 and 1401 therein.
SECTION 4.19. WARRANTS. Prior to the Closing Date, the Company shall
comply with the provisions of each outstanding warrant to purchase Company
Common Stock. Without limiting the generality of the foregoing, the Company
shall, on a timely basis, provide all notices required under each such warrant.
ARTICLE V.
CONDITIONS PRECEDENT TO MERGER
SECTION 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT, SUB AND THE
COMPANY. The respective obligations of Parent and Sub, on the one hand, and the
Company, on the other hand, to effect the Merger are subject to the satisfaction
or waiver (subject to applicable law) at or prior to the Effective Time of each
of the following conditions:
(a) APPROVAL OF STOCKHOLDERS. This Agreement, the Merger and related
transactions shall have been approved and adopted by the requisite vote or
consent of the stockholders of the Company in accordance with applicable law
and the Company's Certificate of Incorporation and By-Laws, and the issuance
of Parent Shares in the Merger shall have been duly approved by the
requisite vote or consent of the stockholders of Parent in accordance with
the applicable rules of the National Association of Securities Dealers, Inc.
(b) HSR ACT. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
(c) NO RESTRAINTS. No preliminary or permanent injunction or other
order shall have been issued by any court or by any governmental or
regulatory agency, body or authority which enjoins, restrains or prohibits
the transactions contemplated hereby, including the consummation of the
Merger, or has the effect of making the Merger illegal and which is in
effect at the Effective Time (each party agreeing to use its reasonable
efforts to have any such injunction or order lifted).
(d) STATUTES. No statute, rule, regulation, executive order, decree or
order of any kind shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits the consummation of
the Merger or has the effect of making the Merger illegal and which remains
in effect at the Effective Time.
(e) NASDAQ NATIONAL MARKET QUOTATION. The Parent Shares issuable to
Company stockholders pursuant to this Agreement shall have been approved for
quotation on the Nasdaq National Market upon official notice of issuance.
(f) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(g) MARKET EVENTS. There shall not have occurred and be continuing any
general suspension or limitation of trading in the Parent Shares (exclusive,
however, of any temporary suspension or pending and ensuing public
announcement) or in securities generally on the Nasdaq National Market.
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(h) ACCOUNTING TREATMENT. Parent shall have received a letter from
Ernst & Young LLP (which may contain customary qualifications and
assumptions) confirming the concurrence of Ernst & Young LLP with Parent's
management's conclusion as to the appropriateness of accounting for the
Merger as a pooling of interests if the Merger is consummated in accordance
with this Agreement.
SECTION 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger are also subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Company contained herein shall be true and correct in
all material respects as of the date hereof and at and as of the Closing,
with the same force and effect as though made on and as of the Closing Date
unless the failure of such representations and warranties to be true and
correct in all material respects does not, individually or in the aggregate,
materially and adversely affect the value of the Company and its
Subsidiaries taken as a whole, and Parent and Sub shall have received a
certificate to this effect from a senior financial officer of the Company.
(b) PERFORMANCE BY COMPANY. Except as otherwise agreed in writing, the
Company shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants,
contained in this Agreement to be performed or complied with by it on or
prior to the Closing Date, and Parent and Sub shall have received a
certificate to this effect from a senior financial officer of the Company.
(c) AFFILIATE AGREEMENTS. Each Person who could reasonably be deemed
to be an "affiliate" of the Company (as that term is used in Rule 145 under
the Securities Act) shall have executed and delivered to Parent an Affiliate
Agreement.
(d) TAX OPINION. Parent shall have received the opinion of Cooley
Godward LLP, counsel to Parent, to the effect that the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; PROVIDED, HOWEVER, that if
Cooley Godward LLP does not render such opinion or withdraws or modifies
such opinion, the condition set forth in this Section 5.2(d) shall
nonetheless be deemed to be satisfied if Willkie Farr & Gallagher renders
such opinion to Parent. In delivering its opinion, counsel shall be entitled
to rely on the tax representation letters delivered pursuant to Section
4.5(a).
(e) ACCOUNTANTS' LETTERS. Parent shall have received from Ernst &
Young LLP the letters referred to in Section 4.9.
(f) CONSENTS. All material consents required to be obtained (from
Governmental Entities or other Persons) in connection with the Merger and
the other transactions contemplated by this Agreement (including, without
limitation, the consents identified in Schedule 3.1(d)(4)) shall have been
obtained and shall be in full force and effect.
(g) NO GOVERNMENTAL LITIGATION. There shall not be pending and there
shall not have been threatened any action, suit or proceeding in which a
Governmental Entity is or is threatened to become a party or is otherwise
involved: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement; (b) relating to the Merger and seeking to obtain from Parent
or any of its Subsidiaries, or the Company or any of the Company's
Subsidiaries, any damages or other relief that are or are likely to be
material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporation; or (d) which would materially and adversely affect the right of
Parent, the Surviving Corporation or any of the Surviving Corporation's
Subsidiaries to own the
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assets or operate the business of the Surviving Corporation and the
Surviving Corporation's Subsidiaries.
SECTION 5.3. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver, at or prior to the Effective Time, of each of the
following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Parent and Sub contained herein shall be true and correct
in all material respects as of the date hereof and at and as of the Closing,
with the same force and effect as though made on and as of the Closing Date
unless the failure of such representations and warranties to be true and
correct in all material respects does not, individually or in the aggregate,
materially and adversely affect the value of Parent and its Subsidiaries
taken as a whole, and the Company shall have received a certificate to this
effect from a senior financial officer of Parent.
(b) PERFORMANCE BY PARENT AND SUB. Except as otherwise agreed in
writing, each of Parent and Sub shall have performed in all material
respects all obligations and agreements, and complied in all material
respects with all covenants, contained in this Agreement to be performed or
complied with by it on or prior to the Closing Date, and the Company shall
have received a certificate to this effect from a senior financial officer
of Parent.
(c) TAX OPINION. The Company shall have received the opinion of
Willkie Farr & Gallagher, counsel to the Company, to the effect that the
Merger will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; PROVIDED,
HOWEVER, that if Willkie Farr & Gallagher does not render such opinion or
withdraws or modifies such opinion, the condition set forth in this Section
5.3(c) shall nonetheless be deemed to be satisfied if Cooley Godward LLP
renders such opinion to the Company. In delivering its opinion, counsel
shall be entitled to rely on the tax representation letters delivered
pursuant to Section 4.5(a).
(d) REGISTRATION RIGHTS AGREEMENT. At or prior to the Effective Time,
Parent shall have executed and delivered a Registration Rights Agreement
substantially in the form of Exhibit B hereto with Warburg, Pincus
Investors, L.P. and Warburg, Pincus Capital Partners Liquidating Trust.
(e) UNDERTAKINGS. Parent shall have delivered to the Company copies of
undertakings executed by each of its executive officers and directors in
substantially the form of Exhibit C hereto.
ARTICLE VI.
TERMINATION AND ABANDONMENT
SECTION 6.1. TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of the Company:
(a) by mutual consent of the Company, on the one hand, and of Parent and
Sub, on the other hand;
(b) by either Parent or the Company, if the Effective Time shall not
have occurred by September 30, 1999 (unless the failure to consummate the
Merger is attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(c) by Parent, if the required approval of the Company's stockholders
shall not have been obtained by reason of the failure to obtain the required
vote at a duly held meeting of stockholders or at any adjournment thereof;
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(d) by either Parent or the Company if the required approval of Parent's
stockholders of the issuance of Parent Shares in the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or at any adjournment thereof;
(e) by either Parent or the Company, if there shall be any law or
regulation of any Governmental Entity that makes consummation of the Merger
illegal or otherwise prohibited or if any judgment, injunction, order or
decree of any Governmental Entity prohibiting such transaction is entered
and such judgment, injunction, order or decree shall have become final and
nonappealable;
(f) by either Parent or the Company, if there has been a breach of any
covenant or a breach of any representation or warranty on the part of the
other, such that the condition set forth in Section 5.2(a) or Section 5.2(b)
(in the case of any termination by Parent) or the condition set forth in
Section 5.3(a) or Section 5.3(b) (in the case of any termination by the
Company) would not be satisfied; PROVIDED that any such breach of a covenant
or representation or warranty has not been cured within 15 business days
following receipt by the breaching party of notice hereunder of such breach;
(g) by Parent, if the Special Meeting is canceled or is otherwise not
held or if a final vote of the Company's stockholders has not been taken
with respect to the Merger prior to September 15, 1999, except as a result
of a judgment, injunction, order or decree of any competent authority or
events or circumstances beyond the reasonable control of the Company;
PROVIDED, HOWEVER, that such termination under this clause (g) shall not
relieve the Company of its fee obligations under Section 7.1(c) hereof; or
(h) by Parent, if (i) the Board of Directors of the Company shall have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation to the Company's stockholders of this Agreement or the
Merger; (ii) the Company shall have failed to include in the Joint Proxy
Statement the recommendation of the Board of Directors of the Company in
favor of the adoption and approval of this Agreement and the approval of the
Merger; (iii) the Board of Directors of the Company shall have approved,
endorsed or recommended any Takeover Proposal; (iv) a tender or exchange
offer relating to securities of the Company shall have been commenced and
the Company shall not have sent to its security holders, within ten business
days after the commencement of such tender or exchange offer, a statement
disclosing that the Company recommends rejection of such tender or exchange
offer; (v) the Company breaches any of its obligations under Section 4.16 of
this Agreement; (vi) subsequent to the date of this Agreement, a Person or
"group" (as defined in the Exchange Act and the rules promulgated
thereunder) of Persons directly or indirectly becomes the beneficial or
record owner of securities representing, or exchangeable for or convertible
into, at least 20% of the outstanding securities of any class of voting
securities of the Company or any material Subsidiary of the Company; (vii) a
Person or group of Persons that, as of the date of this Agreement, directly
or indirectly is the beneficial or record owner of securities representing,
or exchangeable for or convertible into, 20% or more of the outstanding
securities of any class of voting securities of the Company or any material
Subsidiary of the Company, directly or indirectly acquires beneficial or
record ownership of an additional 5% of the outstanding securities of any
class of voting securities of the Company or any material Subsidiary of the
Company; or (viii) the Company or the Company's Board of Directors or any
committee thereof shall have resolved to do or permit any of the foregoing;
PROVIDED, HOWEVER, that such termination under this clause (h) shall not
relieve the Company of its fee obligations under Section 7.1(c) hereof. For
purposes of clause (vii) of this Section 6.1(h), a group shall be deemed to
include, without limitation, all Persons who file a Statement or Statements
on Schedule 13D as a group, whether or not such Persons disclaim the
existence of a group and whether or not such Persons disclaim beneficial
ownership of any securities.
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SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 6.1 hereof by Parent or Sub, on the one hand,
or the Company, on the other hand, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall become void and have no
effect, and there shall be no liability hereunder on the part of Parent, Sub or
the Company, except that Sections 3.1(p), 3.2(l), 4.4, this Section 6.2 and
Article VII hereof shall survive any termination of this Agreement. Nothing in
this Section 6.2 shall relieve any party to this Agreement of liability for
breach of this Agreement or for representations which were incorrect when made.
ARTICLE VII.
MISCELLANEOUS
SECTION 7.1. FEES AND EXPENSES. (a) Except as provided below in this
Section 7.1, all fees and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party (the Company, on the one hand, or Parent and Sub, on the other hand)
incurring such fees or expenses, whether or not the Merger is consummated;
PROVIDED, HOWEVER, that (i) Parent and the Company shall share equally all fees
and expenses, other than attorneys' fees, incurred in connection with (A) the
filing, printing and mailing of the Registration Statement and the Joint Proxy
Statement and any amendments or supplements thereto and (B) the filing by Parent
and the Company of the premerger notification and report forms relating to the
Merger under the HSR Act.
(b) If this Agreement is terminated by Parent pursuant to Sections 6.1(c),
6.1(f), 6.1(g) or 6.1(h), the Company shall pay, or cause to be paid, in same
day funds to Parent upon demand, all actual out-of-pocket costs and expenses of
Parent and Sub incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, legal, professional and
service fees and expenses. If this Agreement is terminated by the Company
pursuant to Section 6.1(f), Parent shall pay, or cause to be paid, in same day
funds to the Company upon demand, all actual out-of-pocket costs and expenses of
the Company incurred in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, legal, professional and
service fees and expenses.
(c) The Company shall pay, or cause to be paid, in same day funds to Parent
upon demand (in addition to any amount required to be paid pursuant to Section
7.1(a) or 7.1(b)) a fee of $18,000,000 if:
(i) this Agreement is terminated pursuant to Section 6.1(c) and at or
prior to the time of such termination a Takeover Proposal shall have been
disclosed, announced, commenced, submitted or made; or
(ii) this Agreement is terminated by Parent pursuant to Section 6.1(g)
or 6.1(h).
(d) Parent shall pay, or cause to be paid, in same day funds to the Company
upon demand (in addition to any amount required to be paid pursuant to Section
7.1(a)) a fee of $5,000,000 if (i) this Agreement is terminated by the Company
pursuant to Section 6.1(d) and (ii) there shall not have occurred, and no facts,
events or circumstances shall have been publicly announced that are likely to
result in, a material adverse change in the Condition of the Company and its
Subsidiaries taken as a whole.
SECTION 7.2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The respective
representations and warranties of the Company, on the one hand, and Parent and
Sub, on the other hand, contained herein or in any certificates or other
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party. Each and every such
representation and warranty and all agreements contained herein shall expire
with, and be terminated and extinguished by, the Closing and thereafter none of
the Company, Parent or Sub shall be under any liability whatsoever
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with respect to any such representation or warranty or agreement except those
contained in Sections 2.2, 2.3, 2.5, 4.4, 4.13 and Article VII. This Section 7.2
shall have no effect upon any other obligation of the parties hereto, whether to
be performed before or after the Effective Time.
SECTION 7.3. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken by or on behalf of the respective Boards of
Directors of the Company, Parent or Sub, may (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein by any other applicable party or in any document, certificate or writing
delivered pursuant hereto by any other applicable party or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
SECTION 7.4. PUBLIC ANNOUNCEMENTS. The Company, on the one hand, and
Parent and Sub, on the other hand, agree to consult promptly with each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation and
review by the other party of a copy of such release or statement (the comments
of such party to be given reasonable consideration), unless such disclosure is
required by applicable law or the rules or regulations of any applicable
securities exchange or the Nasdaq National Market.
SECTION 7.5. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in Person or
mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
if to the Company, to it at:
NeXstar Pharmaceuticals, Inc.
3035 Centre Green Drive
Boulder, CO 80301
Attention: Chief Financial Officer
Telecopy No.: (303) 413-5311
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Peter H. Jakes, Esq.
Telecopy No.: (212) 728-8111
if to either Parent or Sub, to it at:
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, CA 94404
Attention: General Counsel
Telecopy No.: (650) 522-5622
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<PAGE>
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Richard E. Climan, Esq.
Telecopy No.: (650) 857-0663
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless mailed, in which case on the third business day (fifth business
day, if mailed outside the country of the recipient) after the mailing thereof
except for a notice of a change of address, which shall be effective only upon
receipt thereof.
SECTION 7.6. ENTIRE AGREEMENT. This Agreement, the schedules and the
exhibits and other documents referred to herein or delivered pursuant hereto
collectively contain the entire understanding of the parties hereto with respect
to the subject matter contained herein and therein and supersede all prior
agreements and understandings, oral and written, with respect thereto; PROVIDED,
HOWEVER, that the Confidential Disclosure Agreement is not superseded by this
Agreement and shall remain in full force and effect in accordance with its
terms.
SECTION 7.7. BINDING EFFECT; BENEFIT; ASSIGNMENT. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any Person other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement;
provided that the Indemnified Parties shall be third-party beneficiaries of
Parent's agreement contained in Section 4.13 hereof.
SECTION 7.8. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented, or provisions hereof
waived, in writing by the parties hereto in any and all respects before the
Effective Time (notwithstanding any stockholder approval), by action taken by
the respective Boards of Directors of Parent, Sub and the Company or by the
respective officers authorized by such Boards of Directors, PROVIDED, HOWEVER,
that after any such stockholder approval, no amendment, modification, supplement
or waiver shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 7.9. FURTHER ACTIONS. Each of the parties hereto agrees that,
subject to its legal obligations, it will use its reasonable efforts to fulfill
all conditions precedent specified herein, to the extent that such conditions
are within its control, and to do all things reasonably necessary to consummate
the transactions contemplated hereby.
SECTION 7.10. HEADINGS. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
SECTION 7.11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
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SECTION 7.12. APPLICABLE LAW. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflict of laws rules
thereof.
SECTION 7.13. SEVERABILITY. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained in this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
SECTION 7.14. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 7.15. "PERSON" DEFINED. "Person" shall mean and include an
individual, a partnership, a joint venture, a corporation, a partnership, a
limited liability company, a trust, an unincorporated organization and a
government or other department or agency thereof.
SECTION 7.16. SUBMISSION TO JURISDICTION. With respect to any suit, action
or proceeding initiated by a party to this Agreement arising out of, under or in
connection with this Agreement, the Company, Parent and Sub each hereby submit
to the non-exclusive jurisdiction of any state or federal court sitting in the
State of Delaware and irrevocably waive, to the fullest extent permitted by law,
any objection that they may now have or hereafter obtain to the laying of venue
in any such court in any such suit, action or proceeding.
SECTION 7.17. SUBSIDIARIES. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation or other
organization or entity, whether incorporated or unincorporated, of which such
party directly or indirectly owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner.
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IN WITNESS WHEREOF, each of Parent, Sub and the Company has caused this
Agreement to be executed by their respective officers or directors thereunto
duly authorized, all as of the date first above written.
GILEAD SCIENCES, INC.
/s/ MARK L. PERRY
--------------------------------------
By: Mark L. Perry
Title: Senior Vice President and
Chief Financial Officer
GAZELLE ACQUISITION SUB, INC.
/s/ MARK L. PERRY
--------------------------------------
By: Mark L. Perry
Title: Secretary
NEXSTAR PHARMACEUTICALS, INC.
/s/ MICHAEL E. HART
--------------------------------------
By: Michael E. Hart
Title: Vice President and Chief
Financial Officer
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<PAGE>
EXHIBIT A
FORM OF
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT ("Affiliate Agreement") is being executed and
delivered as of February 28, 1999 by _______________________ ("Stockholder") in
favor of and for the benefit of GILEAD SCIENCES, INC. a Delaware corporation
("Parent").
RECITALS
A. Stockholder is a stockholder of, is an officer of, NEXSTAR
PHARMACEUTICALS, INC., a Delaware corporation (the "Company").
B. Parent, the Company and Gazelle Acquisition Sub, Inc., a wholly owned
subsidiary of Parent ("Merger Sub"), have entered into an Agreement and Plan of
Merger dated as of February 28, 1999 (the "Merger Agreement"), providing for the
merger of Merger Sub into the Company (the "Merger"). The Merger Agreement
contemplates that, upon consummation of the Merger, (i) holders of shares of
common stock of the Company will receive shares of common stock of Parent
("Parent Common Stock") in exchange for their shares of common stock of the
Company and (ii) the Company will become a wholly owned subsidiary of Parent. It
is accordingly contemplated that Stockholder will receive shares of Parent
Common Stock in the Merger.
C. Stockholder understands that the Parent Common Stock being issued in the
Merger will be issued pursuant to a registration statement on Form S-4, and that
Stockholder may be deemed an "affiliate" of the Company (i) as such term is
defined for purposes of paragraphs (c) and (d) of Rule 145 under the Securities
Act of 1933, as amended (the "Securities Act"), and (ii) for purposes of
determining Parent's eligibility to account for the Merger as a "pooling of
interests" under Accounting Series Releases 130 and 135, as amended, of the
Securities and Exchange Commission (the "SEC"), and under other applicable
"pooling of interests" accounting requirements.
AGREEMENT
Stockholder, intending to be legally bound, agrees as follows:
1. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder represents
and warrants to Parent as follows:
(a) Stockholder is the holder and "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of the number
of outstanding shares of common stock of the Company set forth beneath
Stockholder's signature on the signature page hereof (the "Company Shares"),
and Stockholder has good and valid title to the Company Shares, free and
clear of any liens, pledges, security interests, adverse claims, equities,
options, proxies, charges, encumbrances or restrictions of any nature.
Stockholder has the sole right to vote and to dispose of the Company Shares.
(b) Stockholder is the holder of options to purchase the number of
shares of common stock of the Company set forth beneath Stockholder's
signature on the signature page hereof (the "Company Options"), and
Stockholder has good and valid title to the Company Options, free and clear
of any liens, pledges, security interests, adverse claims, equities,
options, proxies, charges, encumbrances or restrictions of any nature.
(c) Stockholder does not own, of record or beneficially, directly or
indirectly, any securities of the Company other than the Company Shares and
the Company Options.
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(d) Stockholder has carefully read this Affiliate Agreement and, to the
extent Stockholder felt necessary, has discussed with counsel the
limitations imposed on Stockholder's ability to sell, transfer or otherwise
dispose of the Company Shares, the Company Options, the shares of Parent
Common Stock that Stockholder is to receive in the Merger (the "Parent
Shares") and the options to purchase shares of Parent Common Stock that
Stockholder is to receive in respect of the Company Options in connection
with the Merger. Stockholder fully understands the limitations that this
Affiliate Agreement places upon Stockholder's ability to sell, transfer or
otherwise dispose of securities of the Company and securities of Parent.
(e) Stockholder understands that the representations, warranties and
covenants set forth in this Affiliate Agreement will be relied upon by
Parent and its counsel and accountants for purposes of determining Parent's
eligibility to account for the Merger as a "pooling of interests" and for
purposes of determining whether Parent should proceed with the Merger.
2. PROHIBITIONS AGAINST TRANSFER.
(a) Stockholder agrees that, during the period from the date hereof
through the date on which financial results covering at least 30 days of
post-Merger combined operations of Parent and the Company have been
published by Parent (within the meaning of the applicable "pooling of
interests" accounting requirements):
(i) Stockholder shall not sell, transfer or otherwise dispose of, or
reduce Stockholder's interest in or risk relating to, (A) any capital
stock of the Company (including the Company Shares and any additional
shares of capital stock of the Company acquired by Stockholder, whether
upon exercise of a stock option or otherwise), except pursuant to and
upon consummation of the Merger, or (B) any option or other right to
purchase any shares of capital stock of the Company, except pursuant to
and upon consummation of the Merger; and
(ii) Stockholder shall not sell, transfer or otherwise dispose of,
or reduce Stockholder's interest in or risk relating to, (A) any shares
of capital stock of Parent (including the Parent Shares and any
additional shares of capital stock of Parent acquired by Stockholder,
whether upon exercise of a stock option or otherwise), or (B) any option
or other right to purchase any shares of capital stock of Parent;
it being understood, in each case, that Stockholder may exercise any options
to acquire capital stock of the Company in accordance with the plan and
agreement pursuant to which it was issued and in a manner that will not
jeopardize the "pooling of interest" accounting treatment. Parent agrees to
notify Stockholder upon the publication of such results.
(b) Without limiting the generality or the effect of the restrictions
set forth in Section 2(a), Stockholder agrees that Stockholder shall not
effect any sale, transfer or other disposition of any Parent Shares unless:
(i) such sale, transfer or other disposition is effected pursuant to
an effective registration statement under the Securities Act;
(ii) such sale, transfer or other disposition is made in conformity
with the requirements of Rule 145 under the Securities Act, as evidenced
by a broker's letter and a representation letter executed by Stockholder
(satisfactory in form and content to Parent) stating that such
requirements have been met;
(iii) counsel reasonably satisfactory to Parent shall have advised
Parent in a written opinion letter (satisfactory in form and content to
Parent), upon which Parent may rely, that such sale, transfer or other
disposition will be exempt from the registration requirements of the
Securities Act; or
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(iv) an authorized representative of the SEC shall have rendered
written advice to Stockholder to the effect that the SEC would take no
action, or that the staff of the SEC would not recommend that the SEC
take action, with respect to such sale, transfer or other disposition,
and a copy of such written advice and all other related communications
with the SEC shall have been delivered to Parent.
3. STOP TRANSFER INSTRUCTIONS; LEGEND.
Stockholder acknowledges and agrees that (a) stop transfer instructions will
be given to Parent's transfer agent with respect to the Parent Shares, and (b)
each certificate representing any of such shares that are held in certificated
form shall bear a legend identical or similar in effect to the following legend
(together with any other legend or legends required by applicable state
securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145(d) OF THE SECURITIES ACT OF 1933
APPLIES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH RULE AND IN ACCORDANCE WITH THE TERMS OF AN
AFFILIATE AGREEMENT DATED AS OF FEBRUARY 28, 1999, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICES OF THE GILEAD SCIENCES, INC."
4. INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of
Stockholder set forth in this Affiliate Agreement shall be construed as
independent of any other agreement or arrangement between Stockholder, on the
one hand, and the Company or Parent, on the other. The existence of any claim or
cause of action by Stockholder against the Company or Parent shall not
constitute a defense to the enforcement of any of such covenants or obligations
against Stockholder.
5. SPECIFIC PERFORMANCE. Stockholder agrees that in the event of any
breach or threatened breach by Stockholder of any covenant, obligation or other
provision contained in this Affiliate Agreement, Parent shall be entitled (in
addition to any other remedy that may be available to Parent) to: (a) a decree
or order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision; and (b) an
injunction restraining such breach or threatened breach. Stockholder further
agrees that neither Parent nor any other person or entity shall be required to
obtain, furnish or post any bond or similar instrument in connection with or as
a condition to obtaining any remedy referred to in this Section 5, and
Stockholder irrevocably waives any right Stockholder may have to require the
obtaining, furnishing or posting of any such bond or similar instrument.
6. OTHER AGREEMENTS. Nothing in this Affiliate Agreement shall limit any
of the rights or remedies of Parent under the Merger Agreement, or any of the
rights or remedies of Parent or any of the obligations of Stockholder under any
agreement between Stockholder and Parent or any certificate or instrument
executed by Stockholder in favor of Parent; and nothing in the Merger Agreement
or in any other agreement, certificate or instrument shall limit any of the
rights or remedies of Parent or any of the obligations of Stockholder under this
Affiliate Agreement.
7. NOTICES. Any notice or other communication required or permitted to be
delivered to Stockholder or Parent under this Affiliate Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered to the address or facsimile telephone number set forth
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beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in a written notice given to
the other party):
IF TO PARENT:
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, CA 94404
Attn: General Counsel
Fax: (650) 522-5622
IF TO STOCKHOLDER:
___________________
___________________
Attn: _____________
Fax: (___) ________
8. SEVERABILITY. If any provision of this Affiliate Agreement or any part
of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) the
invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Affiliate Agreement.
Each provision of this Affiliate Agreement is separable from every other
provision of this Affiliate Agreement, and each part of each provision of this
Affiliate Agreement is separable from every other part of such provision.
9. APPLICABLE LAW; JURISDICTION. THIS AFFILIATE AGREEMENT IS MADE UNDER,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF DELAWARE
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. In any action between the parties
hereto, whether arising out of this Affiliate Agreement or otherwise, (a) each
of the parties irrevocably and unconditionally consents and submits to the
jurisdiction and venue of the state and federal courts located in Delaware; (b)
if any such action is commenced in a state court, then, subject to applicable
law, no party shall object to the removal of such action to any federal court
located in Delaware; (c) each of the parties irrevocably waives the right to
trial by jury; and (d) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance
with Section 7.
10. WAIVER; TERMINATION. No failure on the part of Parent to exercise any
power, right, privilege or remedy under this Affiliate Agreement, and no delay
on the part of Parent in exercising any power, right, privilege or remedy under
this Affiliate Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. Parent shall not be deemed to have
waived any claim arising out of this Affiliate Agreement, or any power, right,
privilege or remedy under this Affiliate Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of Parent; and any such waiver
shall not be applicable or have any effect except in
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<PAGE>
the specific instance in which it is given. If the Merger Agreement is
terminated, this Affiliate Agreement shall thereupon terminate.
11. ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to this Affiliate Agreement or the enforcement of any provision of this
Affiliate Agreement is brought against Stockholder, the prevailing party shall
be entitled to recover reasonable attorneys' fees, costs and disbursements (in
addition to any other relief to which the prevailing party may be entitled).
12. CAPTIONS. The captions contained in this Affiliate Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Affiliate Agreement and shall not be referred to in connection with the
construction or interpretation of this Affiliate Agreement.
13. FURTHER ASSURANCES. Stockholder shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Affiliate Agreement.
14. ENTIRE AGREEMENT. This Affiliate Agreement and any Voting Agreement or
Registration Rights Agreement between Stockholder and Parent collectively set
forth the entire understanding of Parent and Stockholder relating to the subject
matter hereof and thereof and supersede all other prior agreements and
understandings between Parent and Stockholder relating to the subject matter
hereof and thereof.
15. NON-EXCLUSIVITY. The rights and remedies of Parent under this
Affiliate Agreement are not exclusive of or limited by any other rights or
remedies which it may have, whether at law, in equity, by contract or otherwise,
all of which shall be cumulative (and not alternative). Without limiting the
generality of the foregoing, the rights and remedies of Parent under this
Affiliate Agreement, and the obligations and liabilities of Stockholder under
this Affiliate Agreement, are in addition to their respective rights, remedies,
obligations and liabilities under common law requirements and under all
applicable statutes, rules and regulations. Nothing in this Affiliate Agreement
shall limit any of Stockholder's obligations, or the rights or remedies of
Parent, under any Voting Agreement between Parent and Stockholder; and nothing
in any such Voting Agreement shall limit any of Stockholder's obligations, or
any of the rights or remedies of Parent, under this Affiliate Agreement.
16. AMENDMENTS. This Affiliate Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent and Stockholder.
17. ASSIGNMENT. This Affiliate Agreement and all obligations of
Stockholder hereunder are personal to Stockholder and may not be transferred or
delegated by Stockholder at any time. Parent may freely assign any or all of its
rights under this Affiliate Agreement, in whole or in part, to any other person
or entity without obtaining the consent or approval of Stockholder.
18. BINDING NATURE. Subject to Section 16, this Affiliate Agreement will
inure to the benefit of Parent and its successors and assigns and will be
binding upon Stockholder and Stockholder's representatives, executors,
administrators, estate, heirs, successors and assigns.
19. EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Affiliate Agreement shall be paid by the party
incurring such costs and expenses.
20. SURVIVAL. Each of the representations, warranties, covenants and
obligations contained in this Affiliate Agreement shall survive the consummation
of the Merger.
21. CONSTRUCTION.
(a) For purposes of this Affiliate Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine
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and neuter genders; the feminine gender shall include the masculine and
neuter genders; and the neuter gender shall include masculine and feminine
genders.
(b) The parties agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Affiliate Agreement.
(c) As used in this Affiliate Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this Affiliate
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Affiliate Agreement and Exhibits to this Affiliate Agreement.
Stockholder has executed this Affiliate Agreement on _____________, 1999.
______________________________________
(SIGNATURE)
______________________________________
(Print Name)
NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK OF THE COMPANY
HELD BY STOCKHOLDER:
____________________________________
NUMBER SHARES OF COMMON STOCK OF THE COMPANY
SUBJECT TO OPTIONS HELD BY STOCKHOLDER:
____________________________________
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<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
_______________ [ ], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
SECTION 1. GENERAL...................................................................................... A-B-1
1.1 Definitions............................................................................... A-B-1
SECTION 2. REGISTRATION RIGHTS.......................................................................... A-B-3
2.1 Registration.............................................................................. A-B-3
2.2 Obligations of Parent..................................................................... A-B-3
2.3 Obligations of the Holders and Other Investors............................................ A-B-5
2.4 Rule 144 and Rule 145..................................................................... A-B-6
2.5 Expenses.................................................................................. A-B-6
2.6 Indemnification........................................................................... A-B-6
SECTION 3. MISCELLANEOUS................................................................................ A-B-8
3.1 Survival of Representations, Warranties and Covenants..................................... A-B-8
3.2 Independence of Obligations............................................................... A-B-8
3.3 Other Agreements.......................................................................... A-B-8
3.4 Notices................................................................................... A-B-8
3.5 Severability.............................................................................. A-B-8
3.6 Applicable Law; Jurisdiction.............................................................. A-B-9
3.7 Amendment and Waiver...................................................................... A-B-9
3.8 Attorney's Fees........................................................................... A-B-9
3.9 Captions.................................................................................. A-B-9
3.10 Entire Agreement.......................................................................... A-B-9
3.11 Successors and Assigns.................................................................... A-B-9
3.12 Counterparts.............................................................................. A-B-9
3.13 Construction.............................................................................. A-B-10
</TABLE>
A-B-i
<PAGE>
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "REGISTRATION RIGHTS AGREEMENT") is
entered into as of ______________, 1999, by and among GILEAD SCIENCES, INC., a
Delaware corporation ("PARENT"), and holders of common stock, par value $0.01
per share of NEXSTAR PHARMACEUTICALS, INC., a Delaware corporation (the
"COMPANY") listed on Schedule A (the "HOLDERS").
RECITALS
A. Parent, Gazelle Acquisition Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Parent ("MERGER SUB"), and the Company, have entered
into an Agreement and Plan of Merger dated as of February 28, 1999 (the "MERGER
AGREEMENT") that provides for the merger of Merger Sub into the Company (the
"MERGER").
B. Parent and each of the Holders have entered into Voting Agreements of
even date herewith (the "VOTING AGREEMENTS") which provide (subject to the
conditions set forth therein) that at any meeting of the stockholders of the
Company, each Holder will cause all outstanding shares of common stock, par
value $0.01 per share of the Company ("COMPANY COMMON STOCK") to be voted in
favor of the Merger Agreement and the approval of the Merger and in favor of
each of the other actions contemplated by the Merger Agreement.
C. In order to induce the Holders to enter into the Voting Agreements,
Parent has agreed to enter into this Registration Rights Agreement.
AGREEMENT
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Registration Rights Agreement the
following terms shall have the following respective meanings:
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which the commercial banks in the City of New York are authorized or required by
law or executive order to remain closed.
"CLOSING DATE" shall have the meaning assigned to it in the Merger
Agreement.
"EARNINGS RELEASE DATE" means the date on which financial results
covering at least thirty (30) days of post-Merger combined operations of Parent
and the Company have been published by Parent (within the meaning of the
applicable "pooling of interests" accounting requirements).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by Parent with the
SEC.
"INVESTORS" means the Holders and any partner of a Holder, or in the
case of the Warburg, Pincus Capital Partners Liquidating Trust, any beneficiary
of such Trust, who agrees to be bound by the provisions of this Registration
Agreement.
"NON-RESPONSIVE INVESTOR" means an Investor who does not provide the
Requested Information to Parent at least one (1) Business Day prior to the
filing of the Registration Statement.
"PARENT SHARES" means shares of common stock, par value $0.001 each, of
Parent.
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<PAGE>
"PERSON" means any natural person, corporation, partnership, limited
liability company, trust, incorporated organization, government, governmental
agency or political subdivision.
"PROSPECTUS" means the prospectus forming part of the Registration
Statement at the time the Registration Statement is declared effective and any
amendment or supplement thereto.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a Registration Statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
Registration Statement or document.
"REGISTRABLE SECURITIES" means the Parent Shares to be issued to the
Holders in the Merger and any stock or other securities into which or for which
the Parent Shares issued to Holders in the Merger may hereafter be changed,
converted or exchanged by Parent or its successor, as the case may be.
"REGISTRATION PERIOD" means the period from the SEC Effective Date to
the earliest of (i) the date which is two years after the Closing Date, (ii) the
date on which each Investor (and its affiliates, partners, former partners,
members and former members) may, taking into account any applicable aggregation
requirement, sell all of its Registrable Securities under Rule 144 or Rule 145
during any ninety (90) day period, or (iii) the date on which the Investors no
longer own any Registrable Securities.
"REGISTRATION STATEMENT" means a registration statement on Form S-3 of
the Parent under the Securities Act or any similar or successor form which names
the Holders as selling stockholders.
"REQUESTED INFORMATION" means the information Parent requires from each
Investor in connection with the preparation of the Registration Statement.
"RULE 144" means Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a holder
of any securities to sell securities of the Parent to the public without
registration under the Securities Act.
"RULE 145" means Rule 145 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a holder
of any securities to sell securities of the Parent to the public without
registration under the Securities Act.
"RULE 415" means Rule 415 under the Securities Act or any successor rule
providing for offering securities on delayed or continuous basis.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SEC EFFECTIVE DATE" means the date the Registration Statement is
declared effective by the SEC.
"SEC FILING DATE" means the date the Registration Statement is first
filed with the SEC.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means at any time a day on which any of a national
securities exchange, Nasdaq or such other securities market as at such time
constitutes the principal securities market for the Parent Shares is open for
general trading of securities.
"VIOLATION" means (i) any untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such Registration
Statement.
A-B-2
<PAGE>
SECTION 2. REGISTRATION RIGHTS
2.1 REGISTRATION. Parent shall prepare and, on or prior to the date which
is fifteen (15) days after the Closing Date, file with the SEC a Registration
Statement on Form S-3, covering the resale by the Holders of the Registrable
Securities that shall have been received by the Holders in the Merger.
2.2 OBLIGATIONS OF PARENT. In connection with the registration of the
Registrable Securities described in Section 2.1, Parent shall:
(A) use all reasonable efforts to cause the Registration Statement
referred to in Section 2.1 to become effective prior to the Earnings Release
Date, and keep the Registration Statement effective pursuant to Rule 415 at
all times during the Registration Period. Parent shall submit to the SEC, on
or prior to the later of (i) three (3) Business Days after Parent learns
that no review of the Registration Statement will be made by the staff of
the SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, and (ii) three (3) Business Days
prior to the Earnings Release Date a request for acceleration of
effectiveness of the Registration Statement to a time and date not later
than forty-eight (48) hours after the submission of such request; PROVIDED,
HOWEVER, that if Parent determines that a development which has not been
publicly disclosed would require public disclosure prior to the Registration
Statement being declared effective and that such public disclosure at such
time would not be in the best interests of Parent, Parent may refrain from
making such public disclosure for up to an aggregate of forty-five (45)
Trading Days (whether or not consecutive), but in no event beyond the date
which is ninety (90) days after the Earnings Release Date and by so
refraining from making such public disclosure Parent shall not be deemed to
have failed to use all reasonable efforts, and in connection therewith
Parent shall not be obligated to submit an acceleration request for the
Registration Statement during the period Parent refrains from making such
public disclosure in accordance with this proviso. Parent represents and
warrants to the Investors that the Prospectus, at the time the Registration
Statement is declared effective by the SEC and at all times that the
Prospectus is required by this Registration Rights Agreement to be available
for use by any Investor and, in accordance with Section 2.3(d), any Investor
is entitled to sell Registrable Securities pursuant to the Prospectus, shall
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading;
(B) subject to Section 2.2(e), prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective, and the Prospectus current, at all times
during the Registration Period, and, during the Registration Period, comply
with the provisions of the Securities Act applicable to Parent in order to
permit the disposition by the Investors of all Registrable Securities
covered by the Registration Statement;
(C) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (i) promptly after the
same is prepared and publicly distributed, filed with the SEC or received by
Parent, one copy of the Registration Statement and any amendment thereto,
each Prospectus and each amendment or supplement thereto, and (ii) such
number of copies of a Prospectus and all amendments and supplements thereto
and such other documents, as such Investor may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by such
Investor;
(D) subject to Section 2.2(e), use all reasonable efforts to (i)
register and qualify the Registrable Securities covered by the Registration
Statement under the securities or blue sky laws of such jurisdictions as the
Investors who hold a majority in interest of the Registrable Securities
reasonably request, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to
A-B-3
<PAGE>
maintain the effectiveness thereof at all times during the Registration
Period and (iii) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale by the Investors in such
jurisdictions; PROVIDED, HOWEVER, that Parent shall not be required in
connection therewith or as a condition thereto (A) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this Section 2.2(d), (B) to subject itself to general taxation in any
such jurisdiction, (C) to file a general consent to service of process in
any such jurisdiction, (D) to provide any undertakings that cause more than
nominal expense or burden to Parent or (E) to make any change in its charter
or by-laws which the Board of Directors of Parent determines to be contrary
to the best interests of Parent and its stockholders;
(E) (1) as promptly as practicable after becoming aware of such event
or circumstance, notify each Investor that an event or circumstance has
occurred, (i) as a result of which the Prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in right of the
circumstances under which they were made, not misleading or (ii) which
requires Parent to amend or supplement the Registration Statement due to the
receipt from an Investor of new or additional information about an Investor
or its intended plan of distribution of the Parent Shares, and use all
reasonable efforts promptly to prepare a supplement or amendment to the
Registration Statement and Prospectus to correct such untrue statement or
omission or to add any new or additional information, and deliver a number
of copies of such supplement or amendment to each Investor as such Investor
may reasonably request;
(2) notwithstanding Section 2.2(e)(1) above, if Parent notifies the
Investors that public disclosure of the event or circumstance giving rise to
the notice referred to in Section 2.2(e)(1) above would not be in the best
interest of Parent at that time, then Parent shall not be required to amend
the Registration Statement or supplement the Prospectus for a period not to
exceed forty five (45) Trading Days (a "Blackout Period"); PROVIDED,
HOWEVER, that the aggregate number of Trading Days on which Blackout Periods
may be in effect during the Registration Period may not exceed one hundred
thirty-five (135) Trading Days (whether or not consecutive), of which not
more than ninety (90) such Trading Days (whether or not consecutive) may
occur during the period commencing on the SEC Effective Date and ending on
the first anniversary of the SEC Effective Date; PROVIDED FURTHER, HOWEVER,
that the number of Trading Days in which any Blackout Period is in effect
during the period of fifty (50) Trading Days commencing on the SEC Effective
Date shall not exceed twenty (20) Trading Days; and PROVIDED FURTHER,
HOWEVER, that no Blackout Period may commence within twenty (20) Trading
Days after the end of an earlier Blackout Period:
(F) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold of the
issuance by the SEC of any stop order or other suspension of effectiveness
of the Registration Statement at the earliest possible time;
(G) permit the Investors who hold Registrable Securities being included
in the Registration Statement, at such Investors' sole cost and expense to
review and have a reasonable opportunity to comment on the Registration
Statement and all amendments and supplements thereto at least three (3)
Business Days (or such shorter period as may reasonably be specified by
Parent) prior to their filing with the SEC; PROVIDED, HOWEVER, that all
comments by such Investors shall be given to a single legal counsel,
designated by Investors who hold a majority in interest of the Registrable
Securities proposed to be offered, for conveyance to Parent;
(H) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earning statement (in form complying with the provisions
of Rule 158 under the Securities Act) covering a twelve (12) month
A-B-4
<PAGE>
period beginning not later than the first day of Parent's fiscal quarter
next following the SEC Effective Date;
(I) use all reasonable efforts to cause all the Registrable Securities
covered by the Registration Statement as of the SEC Effective Date to be
listed on the Nasdaq National Market or such other principal securities
market on which securities of the same class or series issued by Parent are
then listed or traded;
(J) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the SEC Effective
Date; and
(K) cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable Securities to
be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors may
reasonably request and registered in such names as the Investors may
request.
2.3 OBLIGATIONS OF THE HOLDERS AND OTHER INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(A) It shall be a condition precedent to the obligations of Parent to
complete the registration pursuant to this Registration Rights Agreement
with respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to Parent such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably required to
effect the registration of such Registrable Securities and shall execute
such documents in connection with such registration as Parent may reasonably
request. At least four (4) Business Days prior to the first anticipated
filing date of the Registration Statement, Parent shall notify each Investor
of the Requested Information if any of such Investor's Registrable
Securities are eligible for inclusion in the Registration Statement. If at
least one (1) Business Day prior to the SEC Filing Date Parent has not
received the Requested Information from an Investor, then Parent may file
the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(B) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with Parent as reasonably requested by Parent
in connection with the preparation and filing of the Registration Statement
hereunder, unless such Investor has notified Parent of such Investor's
election to exclude all of such Investor's Registrable Securities from the
Registration Statement;
(C) Each Investor agrees that it will not effect any disposition of the
Registrable Securities except as contemplated in the Registration Statement
or as otherwise in compliance with applicable securities laws and that it
will promptly notify Parent of any material changes in the information set
forth in the Registration Statement regarding such Investor or its plan of
distribution: each Investor agrees (i) to notify Parent in the event that
such Investor enters into any material agreement with a broker or a dealer
for the sale of the Registrable Securities through a block trade, special
offering, exchange distribution or a purchase by a broker or dealer and (ii)
in connection with such agreement, to provide to Parent in writing the
information necessary to prepare any supplemental prospectus pursuant to
Rule 424(c) under the Securities Act which is required with respect to such
transaction;
(D) Each Investor acknowledges that during the times specified in
Section 2.2(e) or 2.2(f) Parent must suspend the use of the Prospectus until
such time as an amendment to the Registration Statement has been filed by
Parent and declared effective by the SEC, Parent has prepared a supplement
to the Prospectus or Parent has filed an appropriate report with the SEC
pursuant to the Exchange Act. Each Investor hereby covenants that it will
not sell any Registrable
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Securities pursuant to the Prospectus in accordance with Section 2.2(e) or
2.2(f) during the period commencing at the time at which Parent gives such
Investor notice of the suspension of the use of the Prospectus and ending at
the time Parent gives such Investor notice that such Investor may thereafter
effect sales pursuant to the Prospectus, or until Parent delivers to such
Investor an amended or supplemented Prospectus;
(E) In connection with any sale of Registrable Securities which is made
by an Investor pursuant to the Registration Statement, the Investor agrees
to make such sale only through a market maker in the Parent Shares and such
Investor shall supply copies of such Prospectus to such broker or brokers
and shall instruct its broker or brokers to deliver the Prospectus to the
purchaser or purchasers in connection with such sale; and
(F) Each Investor agrees to notify Parent promptly after the event of
the completion of the sale by such Investor of all Registrable Securities to
be sold by such Investor pursuant to the Registration Statement.
2.4 RULE 144 AND RULE 145. With a view to making available to the
Investors the benefits of Rule 144 and Rule 145, Parent agrees:
(A) to promptly furnish to each Investor so long as such Investor owns
Registrable Securities, such information as may be necessary to permit the
Investors to sell Registrable Securities pursuant to Rule 144 or Rule 145
without registration; and
(B) if at any time Parent is not required to file such reports with the
SEC under Section 13 or 15(d) of the Exchange Act, to use all reasonable
efforts to, upon the request of an Investor, make publicly available other
information so long as is necessary to permit publication by brokers and
dealers of quotations for the Parent Shares and sales of the Registrable
Securities in accordance with Rule 15c2-11 under the Exchange Act.
2.5 EXPENSES. All reasonable expenses incurred in connection with
registrations, filings or qualifications pursuant to this Registration Rights
Agreement shall be paid by Parent including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for Parent but excluding (i) fees and
expenses of investment bankers retained by any Investor, (ii) brokerage
commissions incurred by any Investor and (iii) fees and disbursements of counsel
for the Investors.
2.6 INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement:
(A) To the extent permitted by law, Parent will indemnify and hold
harmless each Investor, the partners, officers and directors of each
Investor, any underwriter (as defined in the Securities Act) for such
Investor and each person, if any, who controls such Investor or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any Violation by
Parent; and Parent will pay as incurred to each such Investor, partner,
officer, director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED
HOWEVER, that the indemnity agreement contained in this Section 2.6(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
Parent, which consent shall not be unreasonably withheld, nor shall Parent
be liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
A-B-6
<PAGE>
furnished expressly for use in connection with such registration by such
Investor, partner, officer, director, underwriter or controlling person of
such Investor.
(B) To the extent permitted by law, each Investor will, if Registrable
Securities held by such Investor are included in the securities as to which
such registration qualifications or compliance is being effected, indemnify
and hold harmless Parent, each of its directors, its officers and each
person, if any, who controls Parent within the meaning of the Securities
Act, any underwriter and any other Investor selling securities under such
Registration Statement or any of such other Investor's partners, directors
or officers or any person who controls such Investor, against any losses,
claims, damages or liabilities (joint or several) to which Parent or any
such director, officer, controlling person, underwriter or other such
Investor, or partner, director, officer or controlling person of such other
Investor may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Investor under an instrument duly executed by such
Investor and stated to be specifically for use in connection with such
registration; and each such Investor will pay as incurred any legal or other
expenses reasonably incurred by Parent or any such director, officer,
controlling person, underwriter or other Investor, or partner, officer,
director or controlling person of such other Investor in connection with
investigating or defending any such loss, claim, damage, liability or action
if it is judicially determined that there was such a Violation; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 2.6(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Investor, which consent shall not be unreasonably withheld; PROVIDED
FURTHER, that in no event shall any indemnity under this Section 2.6 exceed
the gross proceeds from the offering received by such Investor.
(C) Promptly after receipt by an indemnified party under this Section
2.6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified
party under this Section 2.6, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 2.6.
(D) If the indemnification provided for in this Section 2.6 is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law contribute
to the amount paid or payable by such indemnified party as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative
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fault of the indemnifying party and of the indemnified party shall be
determined by a court of law by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; PROVIDED, that in no event shall any contribution by
a Investor hereunder exceed the gross proceeds from the offering received by
such Investor.
(E) The obligations of Parent and Investors under this Section 2.6 shall
survive completion of any offering of Registrable Securities in a
Registration Statement and the termination of this agreement. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim
or litigation.
SECTION 3. MISCELLANEOUS
3.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties, covenants, and agreements made herein shall survive
any investigation made by any Investor and the closing of the transactions
contemplated hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of any party pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
to be representations and warranties by such party hereunder solely as of the
date of such certificate or instrument.
3.2 INDEPENDENCE OF OBLIGATIONS. The covenants and obligations of any
party set forth in this Registration Rights Agreement shall be construed as
independent of any other agreement or arrangement between Investors, on the one
hand, and Parent or Company on the other. The existence of any claim or cause of
action by an Investor against the Company or Parent shall not constitute a
defense to the enforcement of any such obligations against such Investor.
3.3 OTHER AGREEMENTS. Nothing in this Registration Rights Agreement shall
limit any of the rights or remedies of Parent under or any of the obligations of
Investors under any agreement between Investors and Parent or any certificate or
instrument executed by Investors in favor of Parent; and nothing in any other
agreement, certificate or instrument shall limit any of the rights or remedies
of Parent or any of the obligations of the Investors under this Registration
Rights Agreement.
3.4 NOTICES. Any notice or other communication required or permitted to be
delivered to the Investors or Parent under this Registration Rights Agreement
shall be in writing and shall be deemed properly delivered, given and received
when delivered to the address or facsimile telephone number set forth on the
signature pages hereof or Exhibit A hereto (or to such other address or
facsimile telephone number as such party shall have specified in a written
notice given to the other party).
3.5 SEVERABILITY. If any provision of this Registration Rights Agreement
or any part of any such provision is held under any circumstances to be invalid
or unenforceable in any jurisdiction, then (i) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (ii) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (iii)
the invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Registration Rights
Agreement. Each provision of this Registration Rights Agreement is separable
from every other provision of this
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Registration Rights Agreement, and each part of each provision of this
Registration Rights Agreement is separable from every other part of such
provision.
3.6 APPLICABLE LAW; JURISDICTION. THIS REGISTRATION RIGHTS AGREEMENT IS
MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. In any action between
the parties hereto, whether arising out of this Registration Rights Agreement or
otherwise, (i) each of the parties irrevocably and unconditionally consents and
submits to the exclusive jurisdiction and venue of the state and federal courts
located in Delaware; (ii) if any such action is commenced in a state court,
then, subject to applicable law, no party shall object to the removal of such
action to any federal court located in Delaware; (iii) each of the parties
irrevocably waives the right to trial by jury; and (iv) each of the parties
irrevocably consents to service of process by first class certified mail, return
receipt requested, postage prepaid, to the address at which such party is to
receive notice in accordance with Section 3.4.
3.7 AMENDMENT AND WAIVER. Except as otherwise expressly provided, this
Registration Rights Agreement may be amended or modified only upon the written
consent of Parent and Investors holding at least a majority of the Registrable
Securities. Except as otherwise expressly provided, the obligations of Parent
and the rights of the Investors under this Registration Rights Agreement may be
waived only with the written consent of Investors holding at least a majority of
the Registrable Securities.
3.8 ATTORNEY'S FEES. If any legal action or other legal proceeding
relating to this Registration Rights Agreement or the enforcement of any
provision of this Registration Rights Agreement is brought against the Investor,
the prevailing party shall be entitled to recover reasonable attorney's fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
3.9 CAPTIONS. The captions contained in this Registration Rights Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Registration Rights Agreement and shall not be referred to in connection with
the construction or interpretation of this Registration Rights Agreement.
3.10 ENTIRE AGREEMENT. This Registration Rights Agreement and the Exhibits
hereto, and any Affiliate Agreement or Voting Agreement between each Investor
and Parent collectively set forth the entire understanding of Parent and each
Investor relating to the subject matter hereof and thereof and supersede all
other prior agreements and understandings between Parent and any Investor and
the Company and any Investor relating to the subject matter hereof and thereof.
3.11 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
Investor; PROVIDED, HOWEVER, that prior to the receipt by Parent of adequate
written notice of the transfer of any Registrable Securities specifying the full
name and address of the transferee, Parent may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price. A Holder that distributes Registrable Securities to its
partners or beneficiaries shall be deemed, upon notice to Parent of such
distribution, to have assigned to such partners or beneficiaries its rights
under this Registration Agreement with respect to the Registrable Securities so
distributed. Any such distributee shall become an Investor for all purposes of
this Registration Agreement upon such distributee agreeing to be bound by the
provisions of this Registration Agreement.
3.12 COUNTERPARTS. This Registration Rights Agreement may be executed by
the parties in separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument.
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3.13 CONSTRUCTION.
(A) For purposes of this Registration Rights Agreement, whenever the
context requires: the singular number shall include the plural, and vice
versa; the masculine gender shall include the feminine and neuter genders;
the feminine gender shall include the masculine and neuter genders; and the
neuter gender shall include masculine and feminine genders.
(B) The parties agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Registration Rights
Agreement.
(C) As used in this Registration Rights Agreement, the words "include"
and "including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(D) Except as otherwise indicated, all references in this Registration
Rights Agreement to "Sections" and "Exhibits" are intended to refer to
Sections of this Registration Rights Agreement and Exhibits to this
Registration Rights Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
<TABLE>
<S> <C>
PARENT: HOLDERS:
GILEAD SCIENCES, INC. [HOLDER]
By: By:
Title:
</TABLE>
HOLDER RIGHTS AGREEMENT
SIGNATURE PAGE
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<PAGE>
EXHIBIT A
SCHEDULE OF HOLDERS
[Warburg and any transferees]
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<PAGE>
EXHIBIT C
UNDERTAKING
In connection with the contemplated merger (the "Merger") of a subsidiary of
Gilead Sciences, Inc. ("Parent") into NeXstar Pharmaceuticals, Inc. (the
"Company"), the undersigned agrees, for the benefit of Parent, that, during the
period from the date specified below through the date on which financial results
covering at least 30 days of post-Merger combined operations of Parent and the
Company have been published by Parent (within the meaning of the applicable
"pooling of interests" accounting requirements), the undersigned will not
(without the prior written consent of Parent) sell, transfer or otherwise
dispose of, or reduce the undersigned's interest in or risk relating to, any
shares of capital stock of Parent or any option or other right to purchase any
shares of capital stock of Parent.
Very truly yours,
_____________________________________________
(Signature)
_________________________________________________________
(Print Name)
Dated: _____________________ , 1999
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- --------------------------------------------------------------------------------
APPENDIX B
SHARE OPTION AGREEMENT BETWEEN
NEXSTAR PHARMACEUTICALS, INC.
AND
GILEAD SCIENCES, INC.
DATED AS OF FEBRUARY 28, 1999
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- --------------------------------------------------------------------------------
<PAGE>
APPENDIX B
SHARE OPTION AGREEMENT
THIS SHARE OPTION AGREEMENT (the "Option Agreement") is entered into as of
February 28, 1999, by and between NEXSTAR PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), and GILEAD SCIENCES, INC., a Delaware corporation
(the "Grantee").
RECITALS
A. The Grantee, Gazelle Acquisition Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Grantee ("Merger Sub"), and the Company are
entering into an Agreement and Plan of Merger of even date herewith (as
amended from time to time, the "Merger Agreement"), which provides (subject
to the conditions set forth therein) for the merger of Merger Sub into the
Company (the "Merger").
B. As a condition to the willingness of the Grantee to enter into the Merger
Agreement, the Grantee has required that the Company enter into, and in
order to induce the Grantee to enter into the Merger Agreement, the Company
desires to enter into, this Option Agreement.
AGREEMENT
The parties to this Option Agreement, intending to be legally bound, agree
as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used but not defined in this
Option Agreement shall have the meanings ascribed to such terms in the Merger
Agreement.
2. GRANT OF OPTION. The Company hereby grants to the Grantee an
irrevocable option (the "Option") to purchase, out of the authorized but
unissued Company Common Stock, a number of shares of Company Common Stock equal
to up to 19.9% of the shares of Company Common Stock outstanding as of the date
hereof (as adjusted as set forth herein, the "Option Shares"), at a price per
Option Share equal to the Exercise Price. For purposes of this Option Agreement,
the "Exercise Price" shall be equal to $17.48 (subject to adjustment as set
forth herein).
3. TERM. The Option shall terminate on the earliest of the following dates
(the "Termination Date"): (a) the date on which the Merger becomes effective;
(b) the first anniversary of the date on which the Grantee receives written
notice from the Company of the occurrence of an Exercise Event (as defined in
Section 4(b)); or (c) the date on which the Merger Agreement is validly
terminated pursuant to Section 6.1 thereof, if an Exercise Event shall not have
occurred on or prior to such date; PROVIDED, HOWEVER, that with respect to
clause (b) of this sentence, if the Option cannot be exercised on such first
anniversary by reason of any applicable law, regulation, order, judgment, decree
or other legal impediment, then the Termination Date shall be extended until the
date 30 days after the date on which such impediment is removed. The rights and
obligations set forth in Sections 8 and 9 shall not terminate on the Termination
Date, but shall extend to such time as is provided in those Sections.
4. EXERCISE OF OPTION.
(a) The Grantee may exercise the Option, in whole or in part, at any time
and from time to time on or before the Termination Date following the occurrence
of an Exercise Event (as defined in Section 4(b)). Notwithstanding the
occurrence of the Termination Date, the Grantee shall be entitled to purchase
those Option Shares with respect to which it has exercised the Option in
accordance with the terms hereof prior to the Termination Date.
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(b) As used herein, an "Exercise Event" shall be deemed to have occurred if
the Grantee shall have the right to terminate the Merger Agreement:
(i) pursuant to Section 6.1(c) thereof and a Takeover Proposal shall
have been previously disclosed, announced, commenced, submitted or made; or
(ii) pursuant to Section 6.1(g) or 6.1(h) thereof.
(c) In the event the Grantee wishes to exercise the Option with respect to
any Option Shares, the Grantee shall send to the Company a written notice (the
date of which being herein referred to as the "Notice Date") specifying: (i) the
number of Option Shares the Grantee will purchase; (ii) the place at which such
Option Shares are to be purchased; and (iii) the date on which such Option
Shares are to be purchased, which shall not be earlier than two business days
nor later than twenty business days after the Notice Date. The closing of the
purchase of such Option Shares (the "Closing") shall take place at the place
specified in such written notice and on the date specified in such written
notice (the "Closing Date"); PROVIDED, HOWEVER, that: (A) if such purchase
cannot be consummated by reason of any applicable law, regulation, order,
judgment, decree or other legal impediment, the Closing Date may be extended by
the Grantee to a date not more than 30 days after the date on which such
impediment is removed; and (B) if prior notification to or approval of any
governmental authority is required (or if any waiting period must expire or be
terminated) in connection with such purchase, the Company shall promptly cause
to be filed the required notice or application for approval and shall
expeditiously process the same (and the Company shall cooperate with the Grantee
in the filing of any such notice or application required to be filed by the
Grantee and the obtaining of any such approval required to be obtained by the
Grantee), and the Closing Date may be extended by the Grantee to a date not more
than 30 days after the date on which any required notification has been made,
approval has been obtained or waiting period has expired or been terminated.
(d) Notwithstanding Section 4(c), so long as the Company shall have fully
complied with all of its obligations under this Option Agreement, in no event
shall any Closing Date be more than 12 months after the related Notice Date,
and, if the Closing Date shall not have occurred within 12 months after the
related Notice Date, the exercise of the Option effected on the Notice Date
shall be deemed to have expired.
5. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, the Grantee shall pay to the Company in
immediately available funds by wire transfer to a bank account designated by the
Company an amount equal to the Exercise Price multiplied by the number of Option
Shares to be purchased on such Closing Date.
(b) At each Closing, simultaneously with the delivery of immediately
available funds as provided in Section 5(a), the Company shall deliver to the
Grantee a certificate or certificates representing the Option Shares to be
purchased at such Closing, which Option Shares shall be duly authorized, validly
issued, fully paid and nonassessable and free and clear of all liens, security
interests, charges or other encumbrances ("Encumbrances").
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend that shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A SHARE OPTION AGREEMENT DATED AS OF FEBRUARY 28,
1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT
CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR.
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A new certificate or certificates evidencing the same number of shares of the
Company Common Stock will be issued to the Grantee in lieu of the certificate
bearing the above legend, and such new certificate shall not bear such legend,
insofar as it applies to the Securities Act, if the Grantee shall have delivered
to the Company a copy of a letter from the staff of the Commission, or an
opinion of counsel in form and substance reasonably satisfactory to the Company
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any change in the Company Common Stock by reason of a
stock divided, split-up, combination, recapitalization, exchange of shares or
similar transaction, the type and number of shares or securities subject to the
Option, and the Exercise Price therefor, shall be adjusted appropriately, and
proper provision shall be made in the agreements governing such transaction, so
that the Grantee shall receive upon exercise of the Option the same class and
number of outstanding shares or other securities or property that Grantee would
have received in respect of the Company Common Stock if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable. If any additional shares of Company Common Stock are issued after
the date of this Option Agreement (other than pursuant to an event described in
the first sentence of this Section 6(a)), the number of shares of Company Common
Stock then remaining subject to the Option shall be adjusted so that, after such
issuance of additional shares, such number of shares then remaining subject to
the Option, together with any shares theretofore issued pursuant to the Option,
equals 19.9% of the number of shares of the Company Common Stock then issued and
outstanding.
(b) If the Company shall enter into an agreement (i) to consolidate,
exchange, shares or merge with any Person, other than the Grantee or one of the
Grantee's subsidiaries, and, in the case of a merger, shall not be the
continuing or surviving corporation, (ii) to permit any Person, other than the
Grantee or one of the Grantee's subsidiaries, to merge into the Company and the
Company shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Company Common Stock shall be
changed into or exchanged for stock or other securities of the Company or any
other Person or cash or any other property, or the shares of Company Common
Stock outstanding immediately before such merger shall after such merger
represent less than 50% of the common shares and common share equivalents of the
Company outstanding immediately after the merger, or (iii) to sell, lease or
otherwise transfer all or substantially all of its assets to any Person, other
than the Grantee or one of the Grantee's subsidiaries, then, and in each such
case, proper provision shall be made in the agreement governing such
transactions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, become
exercisable for the stock, securities, cash or other property that would have
been received by the Grantee if the Grantee had exercised this Option
immediately prior to such transaction or the record date for determining the
stockholders entitled to participate therein, as appropriate.
(c) The provisions of Sections 7, 8 and 9 shall apply with appropriate
adjustments to any securities for which the Option becomes exercisable pursuant
to this Section 6.
7. REPURCHASE AT THE OPTION OF GRANTEE.
(a) At any time on or prior to the Termination Date, at the request of the
Grantee made at any time after the first Exercise Event and ending on the first
anniversary thereof (the "Put Period"), the Company (or any successor thereto)
shall repurchase from the Grantee (i) that portion of the Option that then
remains unexercised and (ii) all (but not less than all) of the shares of
Company Common Stock purchased by the Grantee pursuant hereto and with respect
to which the Grantee then has beneficial ownership. The date on which the
Grantee exercises its rights under this Section 7 is referred
B-3
<PAGE>
to as the "Grantee Request Date." Such repurchase shall be at an aggregate price
(the "Section 7 Repurchase Consideration") equal to the sum of:
(i) the aggregate exercise price paid (or, in the case of Option Shares
with respect to which the Option has been exercised but the Closing Date has
not occurred, payable) by the Grantee for any Option Shares as to which the
Option has theretofore been exercised and with respect to which the Grantee
then has beneficial ownership or has exercised the right to acquire
beneficial ownership;
(ii) the excess, if any, of the Applicable Price (as defined in Section
7(c)), over the Exercise Price (subject to adjustment pursuant to Section 6)
paid (or, in the case of Option Shares with respect to which the Option has
been exercised but the Closing Date has not occurred, payable) by the
Grantee for each Option Share as to which the Option has been exercised and
with respect to which the Grantee then has beneficial ownership, multiplied
by the number of such shares; and
(iii) the excess, if any, of (x) the Applicable Price for each share of
Company Common Stock over (y) the Exercise Price (subject to adjustment
pursuant to Section 6), multiplied by the number of Option Shares as to
which the Option has not been exercised.
(b) If the Grantee exercises its rights under this Section 7, the Company
shall, within five business days after the Grantee Request Date, pay the Section
7 Repurchase Consideration to the Grantee in immediately available funds, and
the Grantee shall surrender to the Company the Option and the certificates
evidencing the shares of Company Common Stock purchased thereunder with respect
to which the Grantee then has beneficial ownership, and the Grantee shall
warrant to the Company that, immediately prior to the repurchase thereof
pursuant to this Section 7, the Grantee had sole record and beneficial ownership
of such shares and that such shares were then held free and clear of all
Encumbrances.
(c) For purposes of this Option Agreement, the "Applicable Price" means the
highest of (i) the highest purchase price per share paid pursuant a tender or
exchange offer made for shares of Company Common Stock after the date hereof and
on or prior to the Grantee Request Date, (ii) the price per share to be paid by
any third Person for shares of Company Common Stock pursuant to an agreement for
a merger or other business combination transaction with the Company entered into
on or prior to the Grantee Request Date, or (iii) the highest bid price per
share of Company Common Stock as quoted on The Nasdaq National Market (or if
Company Common Stock is not quoted on The Nasdaq National Market, the highest
bid price per share as quoted on any other market comprising a part of The
Nasdaq Stock Market or, if the shares of Company Common Stock are not quoted
thereon, on the principal trading market (as defined in Regulation M under the
Exchange Act) on which such shares are traded as reported by a recognized
source) during the 60 business days preceding the Grantee Request Date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by the Grantee and reasonably
acceptable to the Company, which determination shall be conclusive for all
purposes of this Option Agreement.
8. REGISTRATION RIGHTS.
(a) The Company shall, if requested by the Grantee at any time and from time
to time within two years of the first exercise of the Option (the "Registration
Period"), as expeditiously as practicable, prepare, file and cause to be made
effective up to two registration statements under the Securities Act if such
registration is necessary or desirable in order to permit the offering, sale and
delivery of any or all shares of Company Common Stock or other securities that
have been acquired by or are issuable to the Grantee upon exercise of the Option
in accordance with the intended method of sale or other
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<PAGE>
disposition stated by the Grantee, including, at the sole discretion of the
Company, a "shelf" registration statement under Rule 415 under the Securities
Act or any successor provision, and the Company shall use all reasonable efforts
to qualify such shares or other securities under any applicable state securities
laws. Without the Grantee's prior written consent, no other securities may be
included in any such registration. The Company shall use all reasonable efforts
to cause each such registration statement to become effective, to obtain all
consents or waivers of other parties that are required therefor and to keep such
registration effective for such period not in excess of 180 days from the day
such registration statement first becomes effective as may be as reasonably
necessary to effect such sale or other disposition. The obligations of the
Company hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time not exceeding 60
days in the aggregate if the Board of Directors of the Company shall have
determined in good faith that the filing of such registration or the maintenance
of its effectiveness would require disclosure of nonpublic information that
would materially and adversely affect the Company. For purposes of determining
whether two requests have been made under this Section 8, only requests relating
to a registration statement that has become effective under the Securities Act
and pursuant to which the Grantee has disposed of all shares covered thereby in
the manner contemplated therein shall be counted.
(b) The expenses associated with the preparation and filing of any such
registration statement pursuant to this Section 8 and any sale covered thereby
(including any fees related to blue sky qualifications and filing fees in
respect of the National Association of Securities Dealers, Inc.) ("Registration
Expenses") shall be for the account of the Company except for underwriting
discounts or commissions or brokers' fees in respect to shares to be sold by the
Grantee and the fees and disbursement of the Grantee's counsel; PROVIDED,
HOWEVER, that the Company shall not be required to pay for any Registration
Expenses with respect to such registration if the registration request is
subsequently withdrawn at the request of the Grantee unless the Grantee agrees
to forfeit its right to request one registration; AND PROVIDED FURTHER that, if
at the time of such withdrawal the Grantee has learned of a material adverse
change in the results of operations, condition (financial or other), business or
prospects of the Company from that known to the Grantee at the time of its
request and has withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Grantee
shall not be required to pay any of such expenses and shall retain all remaining
rights to request registration.
(c) The Grantee shall provide all information reasonably requested by the
Company for inclusion in any registration statement to be filed hereunder. If
during the Registration Period the Company shall propose to register under the
Securities Act the offering, sale and delivery of Company Common Stock for cash
for its own account or for any other the Company of the Company pursuant to a
firm underwriting, it shall, in addition to the Company's other obligations
under this Section 8, allow the Grantee the right to participate in such
registration provided that the Grantee participates in the underwriting;
PROVIDED, HOWEVER, that, if the managing underwriter of such offering advises
the Company in writing that in its opinion the number of shares of Company
Common Stock requested to be included in such registration exceeds the number
that can be sold in such offering, the Company shall, after fully including
therein all securities to be sold by the Company, include the shares requested
to be included therein by Grantee pro rata (based on the number of shares
intended to be included therein) with the shares intended to be included therein
by Persons other than the Company. In connection with any offering, sale and
delivery of Company Common Stock pursuant to a registration statement effected
pursuant to this Section 8, the Company and the Grantee shall provide each other
and each underwriter of the offering with customary representations, warranties
and covenants, including covenants of indemnification and contribution.
9. FIRST REFUSAL. At any time after the first occurrence of an Exercise
Event and prior to the second anniversary of the first purchase of shares of
Company Common Stock pursuant to the Option, if the Grantee shall desire to
sell, assign, transfer or otherwise dispose of all or any of the Option
B-5
<PAGE>
Shares or other securities acquired by it pursuant to the Option, it shall give
the Company written notice of the proposed transaction (an "Offeror's Notice"),
identifying the proposed transferee, accompanied by a copy of a binding offer to
purchase such shares or other securities signed by such transferee and setting
forth the terms of the proposed transaction. An Offeror's Notice shall be deemed
an offer by the Grantee to the Company, which may be accepted, in whole but not
in part, within ten business days of the receipt of such Offeror's Notice, on
the same terms and conditions and at the same price at which the Grantee is
proposing to transfer such shares or other securities to such transferee. The
purchase of any such shares or other securities by the Company shall be settled
within ten business days of the date of the acceptance of the offer and the
purchase price shall be paid to the Grantee in immediately available funds. If
the Company shall fail or refuse to purchase all the shares or other securities
covered by an Offeror's Notice, the Grantee may, within sixty days from the date
of the Offeror's Notice, sell all but not less them all, of such shares or other
securities to the proposed transferee at no less than the price specified and on
terms no more favorable than those set forth in the Offeror's Notice; PROVIDED,
HOWEVER, that the provisions of this sentence shall not limit the rights the
Grantee may otherwise have if the Company has accepted the offer contained in
the Offeror's Notice and wrongfully refuses to purchase the shares or other
securities subject thereto. The requirements of this Section 9 shall not apply
to (a) any disposition as a result of which the proposed transferee would own
beneficially not more than 4.9% of the outstanding voting power of the Company,
(b) any disposition of Company Common Stock or other securities by a Person to
whom the Grantee has assigned its rights under the Option with the consent of
the Company, (c) any sale by means of a public offering registered under the
Securities Act or (d) any transfer to a wholly owned subsidiary of the Grantee
which agrees in writing to be bound by the terms hereof.
10. PROFIT LIMITATION. Notwithstanding any provision to the contrary
contained in this Option Agreement, the Grantee may not exercise its rights
pursuant to this Option Agreement in a manner that would result in a cash
payment to the Grantee of an aggregate amount under this Option Agreement and
under Section 7.1(c) of the Merger Agreement of more than the sum of (a) the
aggregate exercise price paid by the Grantee for any Option Shares as to which
the Option has theretofore been exercised, PLUS (b) $18,000,000, it being
understood and agreed that to the extent that any amount is paid by the Company
to the Grantee pursuant to this Option Agreement, the fee payable pursuant to
Section 7(c) of the Merger Agreement shall be reduced appropriately so that the
aggregate amount payable by the Company under this Option Agreement and Section
7(c) of the Merger Agreement shall not exceed such sum.
11. LISTING. If at the time of the occurrence of an Exercise Event the
Company Common Stock is (or any other securities subject to the Option are) then
listed on The Nasdaq National Market or on any other market or exchange, the
Company, upon the occurrence of an Exercise Event, shall promptly file an
application to list on The Nasdaq National Market and on such other market or
exchange the shares of the Company Common Stock or other securities then subject
to the Option, and shall use all reasonable efforts to cause such listing
application to be approved as promptly as practicable.
12. REPLACEMENT OF AGREEMENT. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Option Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Option Agreement, if mutilated, the Company will execute and deliver a new
Option Agreement of like tenor and date.
13. MISCELLANEOUS.
(a) EXTENSION; WAIVER. At any time prior to the Termination Date, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, or (ii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth
B-6
<PAGE>
in an instrument in writing signed on behalf of such party. Except as
provided in this Option Agreement, no action taken pursuant to this Option
Agreement shall be deemed to constitute a waiver by the party taking such
action of compliance with any covenants or agreements contained in this
Option Agreement. The waiver by any party hereto of a breach of any
provision hereunder shall not operate or be construed as a waiver of any
prior or subsequent breach of the same or any other provision hereunder.
(b) NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Option Agreement
shall be in writing and shall be deemed to have been duly given if delivered
in person or mailed, certified or registered mail with postage prepaid, or
sent by telex, telegram or telecopier, as follows:
if to the Company, to it at:
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, Colorado 80301
Attention: Chief Financial Officer
Telecopy No.: (303) 546-7603
with a copy to:
Willkie Farr & Gallaghere
787 Seventh Avenue
New York, New York 10019
Attention: Peter H. Jakes, Esq.
Telecopy No.: (212) 728-8111
if to either Parent or Sub, to it at:
Gilead Sciences, Inc
333 Lakeside Drive
Foster City, CA 94404
Attn: General Counsel
Telecopy No. : (650) 522-5622
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 E1 Camino Real
Palo Alto, CA 94306-2155
Attention: Richard E. Climan, Esq.
Keith A. Flaum, Esq.
Telecopy No.: (650) 857-0663
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed, in which case on the third business day (fifth
business day, if mailed outside the country of the recipient) after the mailing
thereof except for a notice of a change of address, which shall be effective
only upon receipt thereof.
(c) ENTIRE AGREEMENT. This Option Agreement and the other documents
referred to herein or delivered pursuant hereto collectively contain the
entire understanding of the parties hereto with respect to the subject
matter contained herein and therein and supersede all prior agreements and
understandings, oral and written, with respect thereto.
B-7
<PAGE>
(d) BINDING EFFECT; BENEFIT; ASSIGNMENT. This Option Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Option
Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of
the other parties. Notwithstanding anything contained in this Option
Agreement to the contrary, nothing in this Option Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto
or their respective successors and assigns any rights, remedies, obligations
or liabilities under or by reason of this Option Agreement.
(e) AMENDMENT AND MODIFICATION. Subject to applicable law, this Option
Agreement may be amended, modified and supplemented, or provisions hereof
waived, in writing by the parties hereto in any and all respects before the
Termination Date, by action taken by the respective Boards of Directors of
the Company or the Grantee or by the respective officers authorized by such
Boards of Directors. This Option Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(f) FURTHER ACTIONS. Each of the parties hereto agrees that, subject
to its legal obligations, it will use its reasonable efforts to do all
things reasonably necessary to consummate the transactions contemplated
hereby.
(g) HEADINGS. The descriptive headings of the several Sections of this
Option Agreement are inserted for convenience only, do not constitute a part
of this Option Agreement and shall not affect in any way the meaning or
interpretation of this Option Agreement.
(h) COUNTERPARTS. This Option Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to be one and the same instrument.
(i) APPLICABLE LAW. This Option Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to the conflict of
laws rules thereof.
(j) SEVERABILITY. If any term, provision, covenant or restriction
contained in this Option Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions contained in this Option Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
(k) ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Option Agreement was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Option Agreement and to enforce specifically the terms and provisions
hereof in any Delaware Court, this being in addition to any other remedy to
which they are entitled at law or in equity.
(l) SUBMISSION TO JURISDICTION. With respect to any suit, action or
proceeding initiated by a party to this Option Agreement arising out of,
under or in connection with this Option Agreement, the Company and the
Grantee each hereby submit to the non-exclusive jurisdiction of any state or
federal court sitting in the State of Delaware and irrevocably waive, to the
fullest extent permitted by law, any objection that they may now have or
hereafter obtain to the laying of venue in any such court in any such suit,
action or proceeding.
(m) ATTORNEYS' FEES. If any suit, action or proceeding relating to
this Option Agreement or the enforcement of any provision of this Option
Agreement is brought against the Company, the
B-8
<PAGE>
prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
(n) NON-EXCLUSIVITY. The rights and remedies of the Grantee under this
Option Agreement are not exclusive of or limited by any other rights or
remedies which it may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Without
limiting the generality of the foregoing, the rights and remedies of the
Grantee under this Option Agreement, and the obligations and liabilities of
the Company under this Option Agreement, are in addition to their respective
rights, remedies, obligations and liabilities under common law requirements
and under all applicable statutes, rules and regulations. The covenants and
obligations of the Company set forth in this Option Agreement shall be
construed as independent of any other agreement or arrangement between the
Company, on the one hand, and the Grantee, on the other. The existence of
any claim or cause of action by the Company against the Grantee shall not
constitute a defense to the enforcement of any of such covenants or
obligations against the Company.
IN WITNESS WHEREOF, the Company and the Grantee have caused this Option
Agreement to be signed by their respective officers thereupon duly authorized,
all as of the day and year first written above.
<TABLE>
<S> <C> <C>
GILEAD SCIENCES, INC.:
By: /s/ MARK L. PERRY
-----------------------------------------
Name: Mark L. Perry
TITLE: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
NEXSTAR PHARMACEUTICALS, INC.:
By: /s/ MICHAEL E. HART
-----------------------------------------
Name: Michael E. Hart
TITLE: VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
B-9
<PAGE>
APPENDIX C-1
[J.P. MORGAN SECURITIES LETTERHEAD]
February 28, 1999
The Board of Directors
Gilead Sciences, Inc.
333 Lakeside Drive
Foster City, CA 94404
Attention: Don Rumsfeld
Chairman of the Board
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to Gilead Sciences, Inc. (the "Company") of the consideration proposed to
be paid by the Company in connection with the proposed merger (the "Merger") of
Gazelle Acquisition Sub, Inc., a wholly-owned subsidiary of the Company ("Sub"),
with and into NeXstar Pharmaceuticals, Inc. (the "Seller"). Pursuant to the
Agreement and Plan of Merger, dated as of February 28, 1999 (the "Agreement"),
by and among the Company, Sub and the Seller, Sub will be merged with and into
the Seller, the Seller will continue as the surviving corporation, and each
issued and outstanding share of common stock, par value $.01 per share, of the
Seller (other than such shares to be canceled pursuant to the Agreement) shall
be converted into the right to receive that number of shares of common stock,
par value $.001 per share, of the Company (the "Gilead Common Stock") as
calculated pursuant to a formula contained in the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Seller and the
Company and of certain other companies engaged in businesses comparable to those
of the Seller and the Company, and the reported market prices for certain other
companies' securities deemed comparable; (iii) publicly available terms of
certain transactions involving companies comparable to the Seller and the
consideration received for such companies; (iv) current and historical market
prices of the common stock of the Seller and the Company; (v) the audited
financial statements of the Company and the Seller for the fiscal year ended
December 31, 1997, and the unaudited financial statements of the Company and the
Seller for the period ended December 31, 1998; (vi) certain agreements with
respect to outstanding indebtedness or obligations of the Company and the
Seller; (vii) certain internal financial analyses and forecasts prepared by the
Company and the Seller and their respective managements; and (viii) the terms of
other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management
of the Company and the Seller with respect to certain aspects of the Merger, the
past and current business operations of the Company and the Seller, the
financial condition and future prospects and operations of the Company and the
Seller, the effects of the Merger on the financial condition and future
prospects of the Company and the Seller, and certain other matters we believed
necessary or appropriate to our inquiry. We have visited certain representative
facilities of the Company and the Seller, and reviewed such other financial
studies and analyses and considered such other information as we deemed
appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the
C-1-1
<PAGE>
Company and the Seller or otherwise reviewed by us, and we have not assumed any
responsibility or liability therefor. We have not conducted any valuation or
appraisal of any assets or liabilities, nor have any such valuations or
appraisals been provided to us. In relying on financial analyses and forecasts
provided to us, we have assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of the Company and the Seller to which such analyses or forecasts
relate. We have also assumed that the Merger will have the tax consequences
described in discussions with, and materials furnished to us by, representatives
of the Company, and that the other transactions contemplated by the Agreement
will be consummated as described in the Agreement. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Gilead Common
Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company if the proposed Merger
is consummated. As you are aware, in the past we have managed an equity offering
for the Company. In the ordinary course of their businesses, J.P. Morgan
Securities Inc. and its affiliates may actively trade the debt and equity
securities of the Company or the Seller for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or short
positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid by the Company in the proposed
Merger is fair, from a financial point of view, to the Company.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote with respect to the Merger. This opinion
may be reproduced in full in any proxy or information statement mailed to
stockholders of the Company.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ DAVID DEMING
--------------------------------------------
Name: David Deming
Title: Managing Director
C-1-2
<PAGE>
APPENDIX C-2
February 28, 1999
Board of Directors
NeXstar Pharmaceuticals, Inc.
2860 Wilderness Place
Boulder, CO 80301
Members of the Board:
We understand that NeXstar Pharmaceuticals, Inc. ("NeXstar" or the
"Company"), Gilead Sciences, Inc. ("Gilead") and Gazelle Acquisition Sub, Inc.,
a wholly owned subsidiary of Gilead ("Acquisition Sub"), propose to enter into
an Agreement and Plan of Merger, substantially in the form of the draft dated
February 27, 1999 (the "Merger Agreement"), which provides, among other things,
for the merger (the "Merger") of Acquisition Sub with and into the Company.
Pursuant to the Merger, the Company will become a wholly owned subsidiary of
Gilead, and each outstanding share of common stock, par value $.01 per share, of
the Company (the "Company Common Stock"), other than shares owned by the Company
as treasury stock, will be converted into the right to receive a certain number
of shares of common stock, par value $.001 per share, of Gilead (the "Gilead
Common Stock") determined pursuant to a formula set forth in the Merger
Agreement. The terms and conditions of the Merger are more fully set forth in
the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of the Company Common Stock (other than Gilead
and its affiliates) pursuant to the Merger Agreement is fair from a financial
point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Gilead, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company and Gilead prepared by the managements
of the Company and Gilead, respectively;
(iii) analyzed certain financial projections prepared by the management of the
Company;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company and Gilead, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of the Company and Gilead, respectively;
(v) analyzed the pro forma impact of the Merger on Gilead's earnings per share;
(vi) reviewed the reported prices and trading activity for the Company Common
Stock and Gilead Common Stock;
(vii) compared the financial performance of the Company and Gilead and the
prices and trading activity of the Company Common Stock and Gilead Common
Stock with that of certain other comparable publicly-traded companies and
their securities;
(viii)reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of the
Company and Gilead (and certain other parties) and their financial and legal
advisors;
(x) reviewed the draft Merger Agreement and certain related documents; and
C-2-1
<PAGE>
(xi) performed such other analyses and considered such other factors as we have
deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Gilead. We have relied upon
without independent verification, the assessment by the managements of Gilead
and the Company that such products will receive all of the necessary regulatory
approvals for their production and sale and that they will attain certain
product revenue levels. Morgan Stanley has also relied upon Gilead's ability to
retain key personnel. We have not made any independent valuation or appraisal of
the assets or liabilities of the Company, nor have we been furnished with any
such appraisals. We have assumed that the Merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S. generally
accepted accounting principles and the Merger will be treated as a tax free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986. We have also assumed that the Merger will be consummated in accordance
with the terms set forth in the draft Merger Agreement. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Merger. In addition, this opinion does not in any manner
address the prices at which the Gilead Common Stock will trade following
consummation of the Merger, and we express no opinion or recommendation as to
how the holders of Company Common Stock should vote at the shareholders' meeting
held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of the
Company Common Stock (other than Gilead and its affiliates) pursuant to the
Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ L. ALEX LIPE
--------------------------------------------
Name: L. Alex Lipe
Title: Principal
C-2-2
<PAGE>
- --------------------------------------------------------------------------------
NEXSTAR PHARMACEUTICALS, INC.
PROXY SOLICATED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 29, 1999
The undersigned hereby appoints Michael E. Hart and Lawrence M. Gold,
and each of them, as attorneys-in-fact and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Nexstar
Pharmaceuticals, Inc., which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of Nexstar Pharmaceuticals, Inc. to be held at
The Boulder Broker Inn, 555 30th Street, Boulder, Colorado on Thursday, July
29, 1999 at 10 a.m., and at any and all continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with
the following instructions, with discretionary authority as to any and all
other matters that may properly come before the meeting.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE>
- --------------------------------------------------------------------------------
Please mark
your votes as
indicated in
this example /X/
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED
IN ACCORDANCE THEREWITH.
1. To approve and adopt the agreement and plan of merger between Nexstar and
Gilead Sciences, Inc, dated February 28, 1999 and to approve the merger
thereunder.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
FOR AGAINST ABSTAIN
/ / / / / /
Signature(s) ______________________________________ Dated: ______________, 1999
Please sign exactly as your name appears hereon. If the stock is registered
in the names of two or more persons, each should sign. Executors,
Administrators, Trustees, Guardians and Attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have
a duly authorized officer sign, stating title. If signer is a partnership,
please sign in partnership name by authorized person. Please vote, date, sign
and promptly return this proxy in the enclosed return envelope that is
postage prepaid if mailed in the United States.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
