AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-09519
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRISTOL-MYERS SQUIBB COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2384 22-079-0350
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
345 PARK AVENUE, NEW YORK, NEW YORK 10154-0037
(212) 546-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
---------------
JOHN L. MCGOLDRICK, ESQ. Bristol-Myers Squibb Company ALICE C. BRENNAN, ESQ.
Senior Vice President 345 Park Avenue Vice President and Secretary
and General Counsel New York, New York 10154-0037
(212) 546-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES OF COMMUNICATIONS TO:
SUSAN WEBSTER, ESQ. STEVEN M. SPURLOCK, ESQ.
Cravath, Swaine & Moore Gunderson Dettmer Stough Villeneuve
Worldwide Plaza Franklin & Hachigian, LLP
825 Eighth Avenue 600 Hansen Way, Second Floor
New York, New York 10019 Palo Alto, California 94304
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the effective date of the merger described in this Registration
Statement.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AXION INC.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
(415) 589-5900
September 19, 1996
Dear Axion Stockholder:
A Special Meeting of stockholders of Axion Inc. ("Axion") will be held on
October 18, 1996, at 8:00 a.m., local time, at the offices of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, legal counsel to Axion, located at
600 Hansen Way, Second Floor, Palo Alto, California 94304. Enclosed are a Notice
of Special Meeting of Stockholders, a Proxy Statement/Prospectus and a Proxy
relating to the Special Meeting.
At the Special Meeting, you will be asked to consider and vote upon a
proposal described in the Proxy Statement/Prospectus to adopt and approve the
Amended and Restated Agreement and Plan of Merger, dated as of August 2, 1996
(the "Merger Agreement"), by and among Axion, Bristol-Myers Squibb Company, a
Delaware corporation ("BMS"), and OTN Acquisition Sub Inc., a Delaware
corporation and a wholly owned subsidiary of BMS ("BMS Sub"), whereby BMS Sub
will merge with and into Axion (the "Merger") and Axion will survive the Merger
as a wholly owned subsidiary of BMS (the "Merger Proposal").
At the Special Meeting, holders of Axion Preferred Stock will also be asked
to consider and vote upon a proposal described in the Proxy Statement/Prospectus
to convert each issued and outstanding share of Axion Preferred Stock into one
fully paid and nonassessable share of Axion Common Stock and to determine that
the Merger and related transactions do not constitute a liquidation of Axion
under its charter (the "Preferred Stock Proposal"). It is a condition to the
respective obligations of each party to the Merger Agreement that the Preferred
Stock Proposal be approved.
Immediately prior to the Merger, all options to purchase shares of Axion
Common Stock will be exercised or canceled and the Preferred Stock Proposal will
be implemented. In the Merger, holders of Axion Common Stock will receive shares
of BMS Common Stock with an aggregate value of $86,000,000 (subject to increase
or decrease if the value of BMS Common Stock fluctuates outside a certain
range). A portion of such BMS Common Stock, with an aggregate value of
$5,000,000, will be placed in escrow to secure certain contingent
indemnification obligations to BMS.
Also immediately prior to the Merger, Axion will spin off to its
stockholders (the "Distribution") all the stock of its wholly owned subsidiary,
Axion HealthCare Inc. ("AHC"), which will own certain assets and businesses of
Axion which will not be acquired in the Merger by BMS. These businesses and
assets, which include Axion's cancer-specific managed care services business,
its oncology-related drug and treatment information computer software business
and related supporting management information systems, are described in greater
detail in the Information Statement included as Appendix G to the Proxy
Statement/Prospectus. AHC will place $5,000,000 in cash in escrow to secure
certain contingent indemnification obligations to BMS. You will not be asked to
vote on the Distribution, which is not subject to stockholder approval.
The Merger and the Distribution should be tax-free to Axion stockholders.
After careful consideration, the Board of Directors of the Company has
unanimously determined that the Merger is fair to, and in the best interests of,
the Company and its stockholders and unanimously recommends that the
stockholders of the Company vote FOR the adoption and approval of the Merger
Agreement and that the holders of Axion Preferred Stock vote FOR the Preferred
Stock Proposal.
Adoption and approval of the Merger Proposal requires (a) at least a
majority of the votes entitled to be cast by the holders of the outstanding
shares of Axion Common Stock and Axion Preferred Stock voting together as a
single class and (b) at least a majority of the votes entitled to be cast by the
holders of the outstanding shares of Axion Preferred Stock voting together as a
single class. Approval of the Preferred Stock Proposal requires the affirmative
vote of at least 66 2/3% of the votes entitled to be cast by holders of Axion
Preferred Stock, voting as a single class. If the Merger is not consummated, the
Preferred Stock Proposal will not be implemented.
Record holders and beneficial owners of (a) approximately 82.6% of the
outstanding shares of Axion Common Stock and Axion Preferred Stock and (b)
approximately 85.2% of the outstanding shares of Axion Preferred Stock have
entered into an agreement with BMS and BMS Sub pursuant to which each such
stockholder has agreed to, among other things, vote all of its/his shares of
such stock in favor of approval of the Merger and the Preferred Stock Proposal.
Accordingly, the Merger and the Preferred Stock Proposal can be approved by the
affirmative vote of such persons even if all other Axion stockholders vote
against the Merger and the Preferred Stock Proposal. The Merger is expected to
be consummated promptly after the Special Meeting.
The Proxy Statement/Prospectus included in the materials accompanying this
letter more fully describes the proposed Merger and related transactions and
includes information about BMS and Axion.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy card in the enclosed self-addressed
postage paid envelope. If you attend the Special Meeting, you may vote in person
if you wish, even though you have previously returned your proxy card. It is
important that your shares be represented and voted at the Special Meeting.
Sincerely,
MICHAEL D. GOLDBERG
President and Chief Executive Officer
AXION INC.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
(415) 589-5900
-----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on October 18, 1996
Notice is hereby given that a Special Meeting of Stockholders of Axion Inc.
("Axion") will be held on October 18, 1996, at 8:00 a.m., local time, at the
offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, legal
counsel to Axion, located at 600 Hansen Way, Second Floor, Palo Alto, California
94304, for the following purposes:
(1) For holders of Axion Preferred Stock, to consider and vote upon a
proposal (a) to convert each issued and outstanding share of Axion Preferred
Stock into fully paid and nonassessable shares of Axion Common Stock at an
applicable conversion price (the "Preferred Stock Conversion") and (b) to
determine that the Merger and the Distribution (each as defined below) and
related transactions do not constitute a liquidation, dissolution or winding up
of Axion under its amended and restated certificate of incorporation (the
"Preferred Stock Proposal"); and
(2) For all stockholders, to consider and vote upon a proposal to adopt and
approve the Amended and Restated Agreement and Plan of Merger, dated as of
August 2, 1996 (the "Merger Agreement"), by and among Axion, Bristol-Myers
Squibb Company, a Delaware corporation ("BMS"), and OTN Acquisition Sub Inc., a
Delaware corporation and wholly owned subsidiary of BMS ("BMS Sub"), pursuant to
which, among other things, BMS Sub will merge with and into Axion (the "Merger")
and Axion will survive the Merger as a wholly owned subsidiary of BMS, all as
more fully described in the accompanying Proxy Statement/Prospectus, including
the Appendices thereto (the "Merger Proposal"). Immediately prior to the Merger,
all options to purchase shares of Axion Common Stock will be exercised or
canceled, following which Axion will distribute to its stockholders (the
"Distribution") all the stock of a subsidiary which will own certain assets and
businesses of Axion which will not be acquired in the Merger by BMS. These
assets and businesses are more fully described in the Information Statement
included as Appendix G to the Proxy Statement/Prospectus. Immediately after the
Distribution and immediately prior to the Merger, the Preferred Stock Conversion
will be implemented.
At the time the Merger becomes effective (the "Effective Time"), (a) each
issued and outstanding share of Axion Common Stock (other than any shares of
Axion Common Stock owned by Axion or any subsidiary of Axion or BMS or any
wholly owned subsidiary of BMS and any shares held by Axion stockholders who
perfect, under Delaware law, their right to dissent to the Merger) will be
converted into the right to receive the number of fully paid and nonassessable
shares of common stock, par value $.10 per share, of BMS (together with the
Rights associated with such common stock) (collectively, "BMS Common Stock")
determined as provided in the Merger Agreement, (b) each share of Axion Common
Stock owned by Axion or any subsidiary of Axion or BMS or any wholly owned
subsidiary of BMS will be canceled and retired without payment of any
consideration therefor and will cease to exist, and (c) a portion of the BMS
Common Stock to be received by Axion stockholders in the Merger will be held and
made subject to an escrow to secure certain contingent indemnification
obligations of such Axion stockholders and Axion and certain of its subsidiaries
to BMS.
(3) To vote on any other matter that may properly come before the Special
Meeting and at any adjournments or postponements thereof.
The close of business on August 31, 1996, has been fixed as the record date
for determining the Axion stockholders entitled to receive notice of and to vote
at the Special Meeting or any adjournment or postponements thereof. A complete
list of the stockholders entitled to vote at the Special Meeting will be
available during the 10 days prior to the Special Meeting at Axion's principal
executive offices located at 1111 Bayhill Drive, Suite 125, San Bruno,
California 94066 for examination by any stockholder and will also be available
for inspection at the Special Meeting.
Adoption and approval of the Merger Proposal requires (a) at least a
majority of the votes entitled to be cast by the holders of the outstanding
shares of Axion Common Stock and Axion Preferred Stock voting together as a
single class and (b) at least a majority of the votes entitled to be cast by the
holders of the outstanding shares of Axion Preferred Stock voting together as a
single class. Approval of the Preferred Stock Proposal requires the affirmative
vote of at least 66 2/3% of the votes entitled to be cast by holders of Axion
Preferred Stock, voting as a single class. It is a condition to the respective
obligations of each party to the Merger Agreement that the Preferred Stock
Proposal be approved. If the Merger is not consummated, the Preferred Stock
Conversion will not be implemented.
Record holders and beneficial owners of (a) approximately 82.6% of the
outstanding shares of Axion Common Stock and Axion Preferred Stock and (b)
approximately 85.2% of the outstanding shares of Axion Preferred Stock have
entered into an agreement with BMS and BMS Sub pursuant to which each such
stockholder has agreed to, among other things, vote all of its/his shares of
such stock in favor of approval of the Merger Proposal and the Preferred Stock
Proposal. Accordingly, the Merger Proposal and the Preferred Stock Proposal can
be approved by the affirmative vote of such persons even if all other Axion
stockholders vote against the Merger Proposal and the Preferred Stock Proposal.
The Merger is expected to be consummated promptly after the Special Meeting.
Holders of shares of Axion Common Stock will be entitled to dissenters'
rights in connection with the Merger as provided in the Merger Agreement and as
more fully described in the accompanying Proxy Statement/Prospectus.
The accompanying Proxy Statement/Prospectus describes in detail the
proposed Merger, the Merger Agreement and the transactions contemplated thereby.
Such Proxy Statement/Prospectus and the Appendices thereto (including the Merger
Agreement attached as Appendix A thereto) form a part of this Notice.
The proposed Merger is of great importance to Axion and its stockholders.
Please read the Proxy Statement/Prospectus carefully and then complete, sign and
date the enclosed proxy card, and return it promptly in the enclosed
self-addressed postage paid envelope.
2
- --------------------------------------------------------------------------------
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
- --------------------------------------------------------------------------------
BY ORDER OF THE BOARD OF DIRECTORS,
MICHAEL D. GOLDBERG
President and Chief Executive Officer
San Bruno, California
September 19, 1996
3
AXION INC.
PROXY STATEMENT
-------------------------
BRISTOL-MYERS SQUIBB COMPANY
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Axion Inc., a Delaware corporation ("Axion"), in connection with the
solicitation of proxies by the Board of Directors of Axion (the "Axion Board")
from holders of outstanding shares of common stock, par value $.001 per share,
of Axion (the "Axion Common Stock") and holders of outstanding shares of each
series of preferred stock, par value $.001 per share, of Axion (the "Axion
Preferred Stock"), for use at the Special Meeting of stockholders of Axion to be
held on October 18, 1996, and at any adjournments or postponements thereof (the
"Special Meeting").
At the Special Meeting, (i) stockholders of Axion will be asked to consider
and vote upon a proposal (the "Merger Proposal") to approve and adopt the
Amended and Restated Agreement and Plan of Merger, dated as of August 2, 1996,
among Bristol-Myers Squibb Company, a Delaware corporation ("BMS"), OTN
Acquisition Sub Inc., a Delaware corporation and a wholly owned subsidiary of
BMS ("BMS Sub"), and Axion, which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Merger
Agreement") and the transactions contemplated by the Merger Agreement, including
the Merger (as defined herein), and (ii) holders of Axion Preferred Stock will
be asked to consider and vote upon a proposal (the "Preferred Stock Proposal")
(a) to convert, immediately after the Distribution (as defined herein) and
immediately prior to the Merger, each issued and outstanding share of Axion
Preferred Stock into one fully paid and nonassessable share of Axion Common
Stock (the "Preferred Stock Conversion") and (b) to determine that the Merger,
the Distribution and related transactions do not constitute a liquidation,
dissolution or winding up of Axion under its amended and restated certificate of
incorporation (the "Axion Certificate of Incorporation"). The Merger Agreement
provides, subject to the satisfaction or waiver of certain conditions, that (i)
Axion will effect the distribution (the "Distribution") as contemplated by the
Agreement and Plan of Reorganization and Distribution to be entered into among
Axion, Axion HealthCare Inc., a Delaware corporation and a wholly owned
subsidiary of Axion ("AHC"), OPUS Health Systems Inc., a Delaware corporation
and a wholly owned subsidiary of Axion ("OPUS"), Oncology Therapeutics Network
Corporation, a Delaware corporation and a wholly owned subsidiary of Axion
("OTNC"), OPUS Sub, Inc., a Delaware corporation to be formed as a wholly owned
subsidiary of OPUS ("OPUS Sub"), and Oncology Therapeutics Network Joint
Venture, L.P., a Delaware limited partnership ("OTN" or the "Partnership"), the
form of which is attached as Appendix B to this Proxy Statement/Prospectus and
is incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Distribution Agreement") pursuant to
which Axion will distribute to the holders of Axion Common Stock and the holders
of Axion Preferred Stock all the then outstanding shares of preferred stock, par
value $.0001, of AHC (the "AHC Preferred Stock"), (ii) immediately after the
Distribution and immediately prior to the Merger, the Preferred Stock Conversion
will be implemented and (iii) BMS Sub will immediately thereafter be merged with
and into Axion (the "Merger"), with Axion surviving the Merger (sometimes
hereinafter referred to as the "Surviving Corporation").
At the time the Merger becomes effective (the "Effective Time"), each share
of Axion Common Stock outstanding immediately prior to the Effective Time (other
than any shares of Axion Common Stock owned by Axion or any subsidiary of Axion
or BMS or any subsidiary of BMS and any Dissenting Shares (as defined herein))
will be converted into the right to receive the number (the "Conversion Number")
of fully paid and nonassessable shares of common stock, par value $.10 per
share, of BMS together with the associated rights (the "BMS Rights") pursuant to
the Rights Agreement dated as of December 4, 1987 (as amended, the "Rights
Agreement") between BMS and The Chase Manhattan Bank, as Rights Agent
(collectively, "BMS Common Stock"), equal to the quotient of (a)(i) $86,000,000
divided by (ii) the Average Value of BMS Common Stock (as defined herein)
divided by (b) the number of shares of Axion Common Stock outstanding
immediately prior to the Effective Time (calculated on a fully diluted basis
assuming that each share of Axion Preferred Stock outstanding immediately prior
to the Effective Time has been converted in accordance with its terms into one
share of Axion Common Stock and that all options, warrants or other rights to
acquire Axion Common Stock ("Axion Options") outstanding immediately
1
prior to the Effective Time have been exercised or canceled and the related
subject shares (other than any subject shares related to any portion of any
Axion Option that shall have been canceled and not exercised) of Axion Common
Stock are outstanding (collectively, the "Diluted Share Assumption")). In the
event that as of the closing date of the Merger (the "Closing Date") the Average
Value of BMS Common Stock is less than $82.73 (the "Minimum Price"), then the
Average Value of BMS Common Stock will be deemed to be an amount equal to the
Minimum Price, and in the event that as of the Closing Date the Average Value of
BMS Common Stock is greater than $91.43 (the "Maximum Price"), then the Average
Value of BMS Common Stock will be deemed to be an amount equal to the Maximum
Price, in each case subject to certain adjustments for dividends.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options (as defined herein), resulting in
an aggregate of 9,970,509 shares of Axion Common Stock outstanding), and
assuming an Average Value of BMS Common Stock equal to $92.83 (the average per
share closing price of BMS Common Stock for the 10 full NYSE trading days ending
September 18, 1996, the most recent full NYSE trading day available prior to
printing this Proxy Statement/Prospectus), in which event the Conversion Number
would be calculated based on an Average Value of BMS Common Stock equal to the
Maximum Price of $91.43, (a) the Conversion Number would be 0.094 and (b)
assuming a market value of the BMS Common Stock on the date received by holders
of Axion Common Stock in the Merger of $92.83, the aggregate market value of BMS
Common Stock to be received by holders of Axion Common Stock in the Merger would
be approximately $87 million, or approximately $8.73 per share of Axion Common
Stock. There can be no assurance that these assumptions will be true as of the
Effective Time.
The Average Value of BMS Common Stock is determined as of five full NYSE
trading days immediately preceding the Effective Time (which date may be after
the date of the Special Meeting), at which time the Average Value of BMS Common
Stock may be less than the assumed $92.83 Average Value of BMS Common Stock
referred to above and indeed may be less than the Minimum Price. If the Average
Value of BMS Common Stock at such time is between the Minimum Price ($82.73) and
the Maximum Price ($91.43), the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be $86 million, or
approximately $8.63 per share of Axion Common Stock (based on the Diluted Share
Assumption and assuming exercise of all Axion Options other than the Goldberg
$10.00 Options). If the Average Value of BMS Common Stock at such time is less
than the Minimum Price, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be less, and may be
substantially less, than $86 million, or approximately $8.63 per share of Axion
Common Stock (based on the Diluted Share Assumption and assuming exercise of all
Axion Options other than the Goldberg $10.00 Options). The foregoing statements
in this paragraph assume that the market value of BMS Common Stock on the
Closing Date is equal to the Average Value of the BMS Common Stock used to
calculate the Conversion Number. However, the actual market value of BMS Common
Stock on the Closing Date may be substantially less than the Average Value of
BMS Common Stock used to calculate the Conversion Number. The actual aggregate
market value on the Closing Date of BMS Common Stock received by holders of
Axion Common Stock in the Merger will be equal to the number of shares of BMS
Common Stock issued in the Merger multiplied by the market value of the BMS
Common Stock on the Closing Date.
Under the terms of the Merger Agreement, Axion does not have the right to
decline to consummate the Merger solely because either the Average Value of BMS
Common Stock used to calculate the Conversion Number is less than the Minimum
Price or because the actual market value of BMS Common Stock on the Closing Date
is less than the Average Value of BMS Common Stock used to calculate the
Conversion Number. Therefore, if the Merger Proposal is adopted and approved and
all other conditions to the Merger are satisfied (or waived by the party for
whose benefit any such condition exists) at or prior to the Effective Time,
Axion stockholders will assume the risk of a decline in the market value of BMS
Common Stock below the Minimum Price and the risk that the actual market value
of BMS Common Stock on the Closing Date is less than the Average Value of BMS
Common Stock used to calculate the Conversion Number and, accordingly, the risk
that the aggregate market value of BMS Common Stock to be received by the
holders of Axion Common Stock in the Merger will be substantially less than $86
million or approximately $8.63 per share
2
(based on the Diluted Share Assumption and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options).
In addition, the number of assumed outstanding shares of Axion Common Stock
for the purpose of calculating the Conversion Number is determined as of
immediately prior to the Effective Time (which date may be after the date of the
Special Meeting), at which time the actual number of outstanding shares of Axion
Common Stock may be greater than the assumed 9,970,509 shares referred to above.
Each share of Axion Common Stock will be converted in the Merger into the right
to receive the Conversion Number of shares of BMS Common Stock. Any increase in
the actual number of outstanding shares of Axion Common Stock as of immediately
prior to the Effective Time would result in a corresponding decrease in the
Conversion Number and, accordingly, in the number of shares of BMS Common Stock
to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
See "Risk Factors--Risk of Decline in Average Value of BMS Common Stock
Prior to the Effective Time" and "The Merger--Terms of the Merger
Agreement--Conversion of Axion Common Stock in the Merger" and
"--Conditions--Conditions to Obligations of Axion".
On the Closing Date, a portion of the BMS Common Stock to be received by
the stockholders of Axion as of immediately preceding the Effective Time
("Former Axion Stockholders"), with a value of $5,000,000 (the "Escrowed
Shares"), will be placed in escrow on behalf of such Former Axion Stockholders,
and AHC will place $5,000,000 in cash (the "Escrowed Cash") in escrow, to secure
certain obligations of the Former Axion Stockholders and AHC and certain of its
subsidiaries to indemnify the BMS Indemnified Parties (as defined herein) under
the Indemnification Agreement, the Tax Matters Agreement and the Escrow
Agreement (each as defined herein). There can be no assurance as to whether all
or any portion of such Escrowed Shares will eventually be released to such
Former Axion Stockholders or as to whether all or any portion of such Escrowed
Cash will eventually be released to AHC. See "Risk Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries"
and "Indemnification Arrangements--Terms of the Indemnification Agreement",
"--Terms of the Tax Matters Agreement" and "--Terms of the Escrow Agreement".
This Proxy Statement/Prospectus is first being mailed to Axion stockholders
on or about September 19, 1996.
This Proxy Statement/Prospectus also constitutes the Prospectus of BMS
under the Securities Act of 1933 (the "Securities Act") for the public offering
of up to 1,039,526 shares of BMS Common Stock to be received by Axion
stockholders in the Merger. This Proxy Statement/Prospectus does not cover
resales of such stock, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale.
-------------------
SEE "RISK FACTORS" COMMENCING ON PAGE [31] OF THIS PROXY STATEMENT/PROSPECTUS
FOR A DISCUSSION OF CERTAIN RISKS RELEVANT TO THE MERGER AND RELATED
TRANSACTIONS WHICH SHOULD BE CONSIDERED CAREFULLY BY AXION STOCKHOLDERS IN
EVALUATING THE MERGER PROPOSAL, THE PREFERRED STOCK PROPOSAL (IF APPLICABLE) AND
THE ACQUISITION OF SECURITIES OFFERED HEREBY.
-------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Proxy Statement/Prospectus is September 19, 1996
3
AVAILABLE INFORMATION
BMS is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and other
information filed by BMS with the Commission can be inspected and copied at the
Commission's public reference room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the public reference facilities in the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be obtained from the World Wide Web site maintained by the Commission
(http://www.sec.gov). In addition, reports, proxy statements and other
information concerning BMS may be inspected at the offices of the New York Stock
Exchange, Inc., (the "NYSE") 20 Broad Street, New York, New York 10005 and The
Pacific Stock Exchange, Incorporated (the "PSE"), 301 Pine Street, San
Francisco, California 94104.
BMS has filed a Registration Statement on Form S-4 (including exhibits and
amendments thereto, the "BMS Registration Statement" or the "Form S-4") pursuant
to the Securities Act covering shares of BMS Common Stock issuable in the
Merger. This Proxy Statement/Prospectus constitutes both the Proxy Statement of
Axion relating to the solicitation of proxies for use at the Special Meeting and
the Prospectus of BMS filed as part of the BMS Registration Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the BMS Registration Statement covering the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which portions reference is hereby made
for further information with respect to BMS and the securities offered hereby.
Statements contained herein concerning any documents which are filed as exhibits
to the BMS Registration Statement are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as such
exhibits. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference documents not
presented herein or delivered herewith. Such documents, excluding exhibits
unless specifically incorporated herein, are available without charge upon
request to Bristol-Myers Squibb Company, 345 Park Avenue, New York, New York
10154-0037, Attention: Office of the Secretary. Telephone requests may be
directed to the Office of the Secretary at (212) 546-4000. In order to ensure
timely delivery of the documents, any request should be made no later than
September 12, 1996.
The following documents filed with the Commission by BMS (File No. 1-1136)
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "BMS Form 10-K"), (b) Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 1996 and June 30, 1996, (c)
the information contained in BMS's Proxy Statement (the "BMS 1996 Proxy
Statement") dated March 18, 1996 for its Annual Meeting of Shareholders held on
May 7, 1996 that has been incorporated by reference in the BMS Form 10-K, (d)
Registration Statement on Form S-8 dated April 26, 1996 and the Amendment
thereto dated May 2, 1996, (e) the description of BMS Common Stock set forth in
Registration Statements filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating any such description and
(f) the description of the BMS Rights contained in the Registration Statement on
Form 8-A dated December 10, 1987 and the Form 8 dated July 27, 1989.
4
All documents filed by BMS pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the Special Meeting
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of such filing. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
All information contained in this Proxy Statement/Prospectus relating to
Axion, AHC, OTNC, OTN, OPUS, OPUS Sub, OnCare Inc. ("OnCare") and their
respective affiliates (other than BMS) and subsidiaries has been supplied by
Axion, and all information relating to BMS, BMS Sub and their respective
affiliates and subsidiaries (other than OTN) has been supplied by BMS.
Oncology Therapeutics Network(R), Axion(R) and the Axion logo are
registered trademarks of Axion, and Axion HealthCare(TM), OnCare Practice
Utilization System(TM), OPUS(TM) and OPUS Health Systems(TM) are trademarks of
Axion. Further, the Axion HealthCare, OnCare Practice Utilization System and
OPUS trademarks are pending applications at the United States Patent and
Trademarks Office. All other trademarks or trade names referred to in this Proxy
Statement/Prospectus are the property of their respective owners.
No dealer, salesperson or other person is authorized to give any
information or to make any representation on behalf of Axion or BMS concerning
the matters being considered at the Special Meeting if not contained in or
appended to this Proxy Statement/Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement/Prospectus or the solicitation of a proxy, by any person in any
jurisdiction in which such an offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such an offer or solicitation.
Neither delivery of this Proxy Statement/Prospectus nor any distribution of the
securities being offered pursuant to this Proxy Statement/Prospectus shall,
under any circumstances, create an implication that there has been no change in
the affairs of Axion or BMS since the date of this Proxy Statement/Prospectus.
5
TABLE OF CONTENTS
AVAILABLE INFORMATION .................................................... 4
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE ........................................................... 4
SUMMARY .................................................................. 7
The Companies ............................................................ 7
The Transactions ......................................................... 8
Recommendation of the Axion Board ........................................ 18
The Special Meeting ...................................................... 18
Stockholder Agreement .................................................... 19
Certain Federal Income Tax Consequences .................................. 19
Interests of Certain Persons in the Transactions ......................... 20
Relationship with BMS .................................................... 21
Dissenters' Rights ....................................................... 22
Certain Regulatory Approvals ............................................. 22
Comparison of Certain Rights of Holders of BMS Common Stock,
Axion Common Stock and Holders of Axion Preferred Stock ................ 22
Risk Factors ............................................................. 22
Market Price and Dividend Data ........................................... 23
Comparative Per Share Data ............................................... 24
Selected Financial Information ........................................... 26
RISK FACTORS ............................................................. 31
THE SPECIAL MEETING ...................................................... 39
General .................................................................. 39
Time, Place and Date ..................................................... 39
Record Date .............................................................. 39
Vote Required ............................................................ 40
Voting and Revocation of Proxies ......................................... 41
Solicitation of Proxies .................................................. 41
Dissenters' Rights ....................................................... 42
THE TRANSACTIONS ......................................................... 42
THE COMPANIES ............................................................ 46
Axion .................................................................... 46
BMS ...................................................................... 53
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF AXION ................................................. 54
THE MERGER ............................................................... 59
Background and Reasons for the Merger; Recommendation of
the Axion Board ........................................................ 59
BMS's Reasons for the Merger ............................................. 62
Terms of the Merger Agreement ............................................ 62
Effective Time; Closing .................................................. 64
Exchange of Certificates in the Merger ................................... 64
Indemnification Arrangements; Escrow; Appointment of
AHC as Representative .................................................. 66
Representations and Warranties ........................................... 67
Covenants ................................................................ 69
Certain Regulatory Approvals ............................................. 74
Stock Exchange Listing ................................................... 74
Conditions ............................................................... 74
Termination, Amendment and Waiver ........................................ 79
Expenses ................................................................. 80
Accounting Treatment ..................................................... 80
Interests of Certain Persons in the Transactions ......................... 81
Resales of BMS Common Stock Issued in the Merger;
Affiliates ............................................................. 83
Dissenters' Rights ....................................................... 83
THE DISTRIBUTION ......................................................... 86
Reasons for the Distribution ............................................. 86
Terms of the Distribution Agreement ...................................... 86
INDEMNIFICATION ARRANGEMENTS ............................................. 91
Terms of the Indemnification Agreement ................................... 91
Terms of the Tax Matters Agreement ....................................... 96
Terms of the Escrow Agreement ............................................ 98
EFFECT OF TRANSACTIONS ON AXION
EMPLOYEES AND AXION BENEFIT PLANS ...................................... 104
Transfer of Employment ................................................... 104
OTNC Employment Agreements ............................................... 105
Axion Indemnification Agreements ......................................... 106
Transfer of Plans ........................................................ 107
Retained Plans ........................................................... 108
Severance Arrangements ................................................... 108
RELATIONSHIP WITH BMS .................................................... 109
Indemnification Agreement; Escrow Agreement;
Tax Matters Agreement .................................................. 109
Noncompetition Agreements ................................................ 109
AHC Supply Agreement; OnCare Supply Agreement;
AHC Medstation Agreement; OnCare Medstation
Agreement .............................................................. 109
License Agreement ........................................................ 110
Transitional Services Agreement .......................................... 110
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................. 110
DESCRIPTION OF CAPITAL STOCK OF BMS ...................................... 114
General .................................................................. 114
Common Stock ............................................................. 115
BMS Convertible Preferred ................................................ 115
BMS Rights ............................................................... 116
COMPARISON OF CERTAIN RIGHTS OF HOLDERS
OF BMS COMMON STOCK, HOLDERS OF AXION
COMMON STOCK HOLDERS OF AXION
PREFERRED STOCK ........................................................ 117
Voting ................................................................... 117
No Cumulative Voting ..................................................... 118
Certain Business Combinations ............................................ 118
Rights Plan .............................................................. 118
Liquidation Preference ................................................... 118
Dividends ................................................................ 119
Conversion Rights ........................................................ 120
Size and Classification of the Board of Directors ........................ 120
Removal of Directors ..................................................... 121
Vacancies on the Board of Directors ...................................... 121
Amendments to the Certificate of Incorporation ........................... 121
Amendments to By-laws .................................................... 122
Special Meetings of Stockholders; Action by Written
Consent ................................................................ 122
Indemnification of Officers and Directors ................................ 123
EXPERTS .................................................................. 123
VALIDITY OF BMS SHARES ................................................... 124
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF AXION ......................................... 125
STOCKHOLDER PROPOSALS .................................................... 128
INDEX OF DEFINED TERMS ................................................... 129
INDEX TO FINANCIAL STATEMENTS OF
AXION INC .............................................................. F-1
Appendix A Amended and Restated Agreement and Plan of Merger
Appendix B Agreement and Plan of Reorganization and Distribution
Appendix C Post-Closing Covenants and Indemnification Agreement
Appendix D Tax Matters Agreement
Appendix E Escrow Agreement
Appendix F Section 262 of Delaware General Corporation Law
Appendix G Information Statement Relating to Axion HealthCare Inc. and the
Distribution
6
- --------------------------------------------------------------------------------
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information included elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference. Stockholders are urged to read carefully this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference in their entirety.
All information concerning Axion, AHC, OnCare, OTNC, OTN, OPUS, OPUS Sub
and their respective affiliates and subsidiaries (other than BMS) included in
this Proxy Statement/Prospectus and the Appendices hereto has been furnished by
Axion, and all information concerning BMS, BMS Sub and their respective
affiliates and subsidiaries (other than OTN) included in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference has been furnished by BMS.
An Index of Defined Terms used herein is included at page [127] of this
Proxy Statement/Prospectus.
The Companies
Axion
Axion was incorporated under the laws of the State of Delaware on July 30,
1987. Axion is a holding company with three direct wholly owned subsidiaries,
OTNC, AHC and OPUS. OTNC is the general partner of the Partnership, which
distributes oncology drugs and related supplies to office-based oncologists (the
"OTN Business"). Bristol-Myers Oncology Therapeutic Network, Inc., a Delaware
corporation and a wholly owned subsidiary of BMS ("BMOTN"), is the limited
partner. Axion's investment in the Partnership constitutes Axion's principal
business, representing 98.2% and 99.9%, respectively, of Axion's consolidated
total revenues and all of Axion's consolidated income from operations during
1995 and for the six months ended June 30, 1996, and representing approximately
98.6% of Axion's consolidated total assets at June 30, 1996.
AHC expects that its principal business will consist of providing
cancer-specific managed care services to cancer care payers and providers (the
"AHC Business"). The AHC Business has generated limited revenues and has
incurred losses since AHC's formation in 1994. AHC was formed to carry on the
clinical studies programs which Axion began in 1987 and to continue the
development of oncology disease management programs arising from such clinical
studies programs. OPUS consists of the OPUS Station Business (the "OPUS Station
Business") and the OPUS Matrix Business (the "OPUS Matrix Business"). The OPUS
Station Business furnishes automated drug dispensing and inventory tracking
systems to office-based oncology practices. The OPUS Station Business has not
generated significant revenues, and has operated at a loss since its inception
in 1994. The OPUS Matrix Business consists of (i) computer software which
provides office-based oncology practices with access to drug and treatment
information and (ii) the management information systems currently used to
support Axion's businesses. The OPUS Matrix Business has incurred losses since
its inception in 1994.
Axion is also the beneficial owner of 2,700,000 shares of Series A
Redeemable Preferred Stock of OnCare (the "OnCare Preferred Stock"). OnCare is
an oncology physician practice management company formed by Axion in June 1995.
On December 31, 1995, Axion distributed to holders of Axion Common Stock,
holders of Axion Options and holders of Axion Preferred Stock all Axion's
holdings of shares of common stock of OnCare.
As a result of the distribution of the Preference Amount (as defined
herein), the Contributions (as defined herein) and the Distribution, OTNC,
including its interest in the Partnership, and OPUS, which at the Effective Time
will include only the OPUS Station Business, including in each case the assets
and certain of the liabilities
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
relating thereto (collectively, the "Retained Business"), will constitute all
the businesses, assets and liabilities of Axion at the Effective Time.
Immediately prior to the time at which the Distribution is effected (the "Time
of Distribution"), all Axion's other businesses, assets and liabilities
(collectively, the "Acquired Business"), which will include the AHC Business,
the OPUS Matrix Business, the OnCare Preferred Stock, all cash and cash
equivalents of Axion and its subsidiaries (other than Retained Cash (as defined
herein)) and the Employee Loans (as defined herein) will be held by AHC.
At June 30, 1996, Axion and its consolidated subsidiaries had total assets
of approximately $159.1 million and stockholders' equity of approximately $27.6
million, and the Retained Business had total assets of approximately $156.9
million, or approximately 98.6% of Axion's consolidated total assets, and
stockholders' equity of $26.9 million, or approximately 97.2% of Axion's
consolidated stockholders' equity. For the six months ended June 30, 1996, and
the year ended December 31, 1995, the Retained Business accounted for
approximately $133.1 million, or approximately 99.9%, and $195.3 million, or
approximately 98.2%, respectively, of Axion's consolidated net revenues. The
Acquired Business has not, to date, realized significant revenues, and has
operated and continues to operate at a loss, with funding provided by Axion.
Axion's principal executive offices are located at 1111 Bayhill Drive,
Suite 125, San Bruno, California 94066, and its telephone number at such offices
is (415) 589-5900.
BMS
BMS was incorporated under the laws of the State of Delaware in August 1933
under the name Bristol-Myers Company as successor to a New York business started
in 1887. In 1989, the Bristol-Myers Company changed its name to Bristol-Myers
Squibb Company, as a result of a merger. BMS, through its divisions and
subsidiaries, is a major producer and distributor of pharmaceutical products,
medical devices, nonprescription health products, toiletries and beauty aids. At
June 30, 1996, BMS had total assets of approximately $13,750 million and
stockholders' equity of approximately $6,065 million.
BMS's principal executive offices are located at 345 Park Avenue, New York,
New York 10154-0037 and its telephone number at such offices is (212) 546-4000.
Additional Information
To obtain additional information regarding the businesses of BMS and the
Retained Business, see "Available Information", "Incorporation of Certain
Information by Reference" and "The Companies". For information regarding the
businesses of AHC and the Acquired Business, see the Information Statement (the
"Information Statement") attached as Appendix G hereto.
The Transactions
Pursuant to the transactions described in this Proxy Statement/Prospectus,
BMS will acquire the Retained Business, which consists of (i) OTNC, including
its interest in the Partnership, and (ii) OPUS, which at the Effective Time will
contain only the OPUS Station Business, including in each case the assets and
certain of the liabilities relating thereto.
The proposals to be submitted to Axion stockholders at the Special Meeting
relate to the acquisition by BMS of the Retained Business. The acquisition of
the Retained Business by BMS will be effected through a series of sequential
transactions, including the Contributions, the Distribution and the Merger, all
as set forth in the Merger
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
Agreement and the Distribution Agreement. Prior to the Effective Time, the
Acquired Business will be transferred to AHC and its wholly-owned subsidiary,
OPUS Sub, and the AHC Preferred Stock will be distributed to the stockholders of
Axion in the Distribution. After the Distribution and at the Effective Time,
Axion will hold the Retained Business, so that BMS will effectively acquire the
Retained Business in the Merger. The purpose of this complex structure is to
permit the disposition of the Retained Business in a transaction that should be
tax free to Axion stockholders in which stockholders of Axion will receive BMS
Common Stock and will also retain their proportionate equity interests in the
Acquired Business in the form of AHC Preferred Stock to be received in the
Distribution. See "Risk Factors--Certain Federal Income Tax Consequences" and
"Certain Federal Income Tax Consequences". For information regarding the
Acquired Business and the AHC Preferred Stock, see the Information Statement
attached as Appendix G hereto.
The significant sequential transactions that will be effected in order to
accomplish the Distribution and the Merger, all of which will take place at or
shortly before the Effective Time, are as follows: (i) pursuant to the
Distribution Agreement, the Partnership will distribute to OTNC, and OTNC will
distribute to Axion, an amount in cash equal to $13,615,147 (the "Preference
Amount"); (ii) the Employee Loans will be made and all Axion Options will be
exercised or canceled; (iii) pursuant to the Distribution Agreement, OPUS will
contribute certain assets consisting primarily of assets related to the OPUS
Matrix Business to OPUS Sub and OPUS Sub will assume certain liabilities
consisting primarily of liabilities relating to the OPUS Matrix Business); (iv)
pursuant to the Distribution Agreement, OPUS will distribute all of the stock of
OPUS Sub to Axion; (v) pursuant to the Distribution Agreement, Axion will
contribute the stock of OPUS Sub and certain other tangible and intangible
assets of Axion and its subsidiaries, including the OnCare Preferred Stock, the
Employee Loans and an amount in cash equal to the Preference Amount (net of
Retained Cash), but excluding certain assets relating to the OTN Business and
the OPUS Station Business, to AHC, and AHC will assume all the liabilities of
Axion and its subsidiaries other than the liabilities assumed by OPUS Sub (which
will remain liabilities of OPUS Sub) and certain liabilities relating to the OTN
Business and the OPUS Station Business (the transactions in clauses (iii), (iv)
and (v), collectively, the "Contributions"); (vi) pursuant to the Distribution
Agreement, the issued and outstanding shares of common stock, par value $.0001
per share, of AHC ("AHC Common Stock"), all of which are held by Axion, will be
converted into the requisite number of shares of AHC Preferred Stock to effect
the Distribution; (vii) pursuant to the Distribution Agreement, in the
Distribution Axion will distribute to each holder of Axion Common Stock one
share of AHC Preferred Stock in respect of each share of Axion Common Stock held
by such holder on the Distribution Record Date (as defined below) and to each
holder of Axion Preferred Stock one share of AHC Preferred Stock in respect of
each share of Axion Preferred Stock held by such holder on the Distribution
Record Date; (viii) immediately after the Distribution and immediately prior to
the Merger, each issued and outstanding share of Axion Preferred Stock will be
converted into one fully paid and nonassessable share of Axion Common Stock; and
(ix) the Merger will be consummated pursuant to the Merger Agreement. See "The
Transactions" and "The Distribution".
The Merger Agreement
General. If the Merger Agreement is approved and adopted by the Axion
stockholders and the other conditions to the Merger are satisfied or waived, at
the Effective Time BMS Sub will be merged with and into Axion (which will then
hold only the Retained Business) with Axion as the Surviving Corporation, and
the separate existence of BMS Sub will cease.
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of Axion Common Stock (other than any shares of Axion Common
Stock owned by Axion or any subsidiary of Axion or BMS or any wholly owned
subsidiary of BMS and any Dissenting Shares) will be converted into the right to
receive the Conversion Number of fully paid and nonassessable shares of BMS
Common Stock (the "Merger Consideration").
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
The "Conversion Number" will be equal to the quotient of (a)(i) $86,000,000
divided by (ii) the Average Value of BMS Common Stock divided by (b) the number
of shares of Axion Common Stock outstanding immediately prior to the Effective
Time (calculated on a fully diluted basis assuming that each share of Axion
Preferred Stock outstanding immediately prior to the Effective Time has been
converted in accordance with its terms into one share of Axion Common Stock and
that all options, warrants or other rights to acquire Axion Common Stock ("Axion
Options") outstanding immediately prior to the Effective Time have been
exercised or canceled and that the related subject shares (other than any
subject shares related to any portion of any Axion Option that shall have been
canceled and not exercised) of Axion Common Stock are outstanding (collectively,
the "Diluted Share Assumption")). The term "Average Value of BMS Common Stock"
means an amount equal to the average of the per share closing prices of BMS
Common Stock as reported on the New York Stock Exchange Composite Transaction
Tape (the "NYSE Tape") for the 10 consecutive full NYSE trading days ending on
the fifth full NYSE trading day immediately preceding the Effective Time;
provided that (A) if the Board of Directors of BMS (the "BMS Board") declares a
cash dividend on the outstanding shares of BMS Common Stock having a record date
after the Effective Time but an ex-dividend date (based on "regular way" trading
on the NYSE of shares of BMS Common Stock, the "Ex-Date") that occurs during the
averaging period, then for purposes of computing the Average Value of BMS Common
Stock, the closing price on the Ex-Date and any trading day in the averaging
period after the Ex-Date will be adjusted by adding thereto the amount of such
dividend and (B) if the BMS Board declares a cash dividend on the outstanding
shares of BMS Common Stock having a record date before the Effective Time and an
Ex-Date that occurs during the averaging period, then for purposes of computing
the Average Value of BMS Common Stock, the closing price on any trading day
before the Ex-Date will be adjusted by subtracting therefrom the amount of such
dividend. Notwithstanding anything to the contrary contained in the Merger
Agreement, in the event that as of the closing date of the Merger (the "Closing
Date") the Average Value of BMS Common Stock is less than $82.73 (an amount
equal to 95 percent of the daily average per share closing price of BMS Common
Stock as reported on the NYSE Tape for the 10 full NYSE trading days immediately
prior to the date of the Merger Agreement) (the "Minimum Price"), then for the
purposes of calculating the Merger Consideration, the Average Value of BMS
Common Stock will be deemed to be an amount equal to the Minimum Price, and in
the event that as of the Closing Date the Average Value of BMS Common Stock is
greater than $91.43 (an amount equal to 105 percent of the daily average per
share closing price of BMS Common Stock as reported on the NYSE Tape for the 10
full NYSE trading days immediately prior to the date of the Merger Agreement)
(the "Maximum Price"), then for the purposes of calculating the Merger
Consideration, the Average Value of BMS Common Stock will be deemed to be the
Maximum Price. If, prior to the Effective Time, the BMS Board declares a stock
split, stock combination, stock dividend or other non-cash distribution on the
outstanding shares of BMS Common Stock, then the Minimum Price and Maximum Price
(and, if the Ex-Date for such event occurs during the averaging period, the
Average Value of BMS Common Stock) will be appropriately adjusted to reflect
such split, combination, dividend or other distribution.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options, resulting in an aggregate of
9,970,509 shares of Axion Common Stock outstanding), and assuming an Average
Value of BMS Common Stock equal to $92.83 (the average per share closing price
of BMS Common Stock for the 10 full NYSE trading days ending September 18, 1996,
the most recent full NYSE trading day available prior to printing this Proxy
Statement/Prospectus), in which event the Conversion Number would be calculated
based on an Average Value of BMS Common Stock equal to the Maximum Price of
$91.43, (a) the Conversion Number would be 0.094 and (b) assuming a market value
of the BMS Common Stock on the date received by holders of Axion Common Stock in
the Merger of $92.83, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger would be approximately
$87 million, or approximately $8.73 per share of Axion Common Stock. There can
be no assurance that these assumptions will be true as of the Effective Time.
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
The Average Value of BMS Common Stock is determined as of five full NYSE
trading days immediately preceding the Effective Time (which date may be after
the date of the Special Meeting), at which time the Average Value of BMS Common
Stock may be less than the assumed $92.83 Average Value of BMS Common Stock
referred to above and indeed may be less than the Minimum Price. If the Average
Value of BMS Common Stock at such time is between the Minimum Price ($82.73) and
the Maximum Price ($91.43), the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be $86 million, or
approximately $8.63 per share of Axion Common Stock (based on the Diluted Share
Assumption and assuming exercise of all Axion Options other than the Goldberg
$10.00 Options). If the Average Value of BMS Common Stock at such time is less
than the Minimum Price, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be less, and may be
substantially less, than $86 million, or approximately $8.63 per share of Axion
Common Stock (based on the Diluted Share Assumption and assuming exercise of all
Axion Options other than the Goldberg $10.00 Options). The foregoing statements
in this paragraph assume that the market value of BMS Common Stock on the
Closing Date is equal to the Average Value of the BMS Common Stock used to
calculate the Conversion Number. However, the actual market value of BMS Common
Stock on the Closing Date may be substantially less than the Average Value of
BMS Common Stock used to calculate the Conversion Number. The actual aggregate
market value on the Closing Date of BMS Common Stock received by holders of
Axion Common Stock in the Merger will be equal to the number of shares of BMS
Common Stock issued in the Merger multiplied by the market value of the BMS
Common Stock on the Closing Date.
Under the terms of the Merger Agreement, Axion does not have the right to
decline to consummate the Merger solely because either the Average Value of BMS
Common Stock used to calculate the Conversion Number is less than the Minimum
Price or because the actual market value of BMS Common Stock on the Closing Date
is less than the Average Value of BMS Common Stock used to calculate the
Conversion Number. Therefore, if the Merger Proposal is adopted and approved and
all other conditions to the Merger are satisfied (or waived by the party for
whose benefit any such condition exists) at or prior to the Effective Time,
Axion stockholders will assume the risk of a decline in the market value of BMS
Common Stock below the Minimum Price and the risk that the actual market value
of BMS Common Stock on the Closing Date is less than the Average Value of BMS
Common Stock used to calculate the Conversion Number and, accordingly, the risk
that the aggregate market value of BMS Common Stock to be received by the
holders of Axion Common Stock in the Merger will be substantially less than $86
million or approximately $8.63 per share (based on the Diluted Share Assumption
and assuming exercise of all Axion Options other than the Goldberg $10.00
Options).
In addition, the number of assumed outstanding shares of Axion Common Stock
for the purpose of calculating the Conversion Number is determined as of
immediately prior to the Effective Time (which date may be after the date of the
Special Meeting), at which time the actual number of outstanding shares of Axion
Common Stock may be greater than the assumed 9,970,509 shares referred to above.
Each share of Axion Common Stock will be converted in the Merger into the right
to receive the Conversion Number of shares of BMS Common Stock. Any increase in
the actual number of outstanding shares of Axion Common Stock as of immediately
prior to the Effective Time would result in a corresponding decrease in the
Conversion Number and, accordingly, in the number of shares of BMS Common Stock
to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
See "Risk Factors--Risk of Decline in Average Value of BMS Common Stock
Prior to the Effective Time" and "The Merger--Terms of the Merger
Agreement-Conversion of Axion Common Stock in the Merger" and
"--Conditions--Conditions to Obligations of Axion".
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
As of the Record Date, 1,606,651 shares of Axion Common Stock were
outstanding and 8,471,011 shares of Axion Common Stock were issuable upon
conversion of the Axion Preferred Stock and the exercise of Axion Options. The
approval of the Preferred Stock Proposal, the conversion of each issued and
outstanding share of Axion Preferred Stock into one fully paid and nonassessable
share of Axion Common Stock and the exercise or cancelation of all Axion
Options, in each case prior to the Effective Time, are each conditions to the
Merger. Michael D. Goldberg, the President and Chief Executive Officer of Axion,
has advised Axion that he does not intend to exercise his Axion Options to
purchase 100,000 shares of Axion Common Stock at a price of $10.00 per share
(the "Goldberg $10.00 Options"). Accordingly, the Goldberg $10.00 Options will
be canceled prior to the Effective Time, and assuming the conversion of each
issued and outstanding share of Axion Preferred Stock and the exercise of all
Axion Options other than the Goldberg $10.00 Options, it is anticipated that
there will be approximately 9,970,509 shares of Axion Common Stock issued and
outstanding on the Closing Date.
On the Closing Date, a portion of the BMS Common Stock to be received by
Former Axion Stockholders in the Merger, with a value of $5,000,000 (the
"Escrowed Shares"), will be placed in escrow on behalf of such Former Axion
Stockholders, and AHC will place $5,000,000 in cash (the "Escrowed Cash") in
escrow to secure certain obligations of such Former Axion Stockholders and AHC
and certain of its subsidiaries to indemnify the BMS Indemnified Parties (as
defined herein) under the Indemnification Agreement, the Tax Matters Agreement
and the Escrow Agreement (each as defined herein). The indemnification
obligations of each of the Former Axion Stockholders under the Indemnification
Agreement will be limited in amount to the Escrowed Shares, except in certain
circumstances involving fraud, intentional misrepresentation or intentional
breach of a covenant by any such Former Axion Stockholder. The indemnification
obligations of AHC and the 81% AHC Subsidiaries will not be limited in amount to
the Escrowed Cash. There can be no assurance as to whether all or any portion of
such Escrowed Shares will eventually be released to such Stockholders or as to
whether all or any portion of such Escrowed Cash will eventually be released to
AHC or that the indemnification obligations of AHC and its subsidiaries will not
exceed the Escrowed Cash. There can be no assurance that the failure to obtain
the release of all or a portion of such Escrowed Cash or the incurrence of
indemnification obligations in excess of the Escrowed Cash will not have a
material adverse effect on AHC. See "Risk Factors--Indemnification Obligations
of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries" and
"Indemnification Arrangements--Terms of the Indemnification Agreement", "--Terms
of the Tax Matters Agreement" and "--Terms of the Escrow Agreement".
Fractional Shares. No fractional shares of BMS Common Stock will be issued
in the Merger. The Merger Agreement provides that each Axion stockholder who
otherwise would have been entitled to receive a fraction of a share of BMS
Common Stock will receive, in lieu thereof, cash (without interest) in an
amount, less the amount of any withholding taxes which may be required thereon,
equal to such fractional part of a share of BMS Common Stock multiplied by the
per share closing price of BMS Common Stock as reported on the NYSE Tape on the
full NYSE trading day immediately preceding the Closing Date.
Effective Time; Closing. The Merger will become effective and the Effective
Time will occur immediately upon the filing of a certificate of merger (the
"Certificate of Merger") with the Delaware Secretary of State or at such time
thereafter as is provided in the Certificate of Merger. The Merger Agreement
provides that the closing (the "Closing") of the Merger will take place on a
date to be specified by the parties which date will be no later than the first
business day after satisfaction (or waiver by the party for whose benefit any
such condition exists) of the conditions to the Merger Agreement, unless another
date is agreed to in writing by BMS, BMS Sub and Axion. See "The
Merger--Effective Time; Closing".
Distribution of Merger Consideration; Exchange of Share Certificates. At or
immediately after the Closing Date, BMS will send each Former Axion Stockholder
a letter (the "Letter of Transmittal") notifying such stockholder of the
consummation of the Merger and setting forth instructions for the surrender of
certificates (the "Certificates")
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
that before the Effective Time represented Axion Common Stock. Promptly after
receipt by BMS's exchange agent (the "Exchange Agent") of any Certificates
surrendered in accordance with the instructions set forth in the Letter of
Transmittal, the Exchange Agent will distribute to the Former Axion Stockholder
entitled thereto the certificates representing whole shares of BMS Common Stock
and a check in lieu of fractional shares of BMS Common Stock into which the
shares of Axion Common Stock represented by the surrendered Certificates were
converted in the Merger. The new certificates shall not include the number of
Escrowed Shares deemed to have been placed in escrow by such Former Axion
Stockholder. AXION STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES REPRESENTING OUTSTANDING SHARES OF AXION COMMON STOCK FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM BMS. See "The Merger--Exchange
of Certificates in the Merger".
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder irrevocably
appointing AHC as his/her or its agent and attorney-in-fact to execute and
deliver on such Former Axion Stockholder's behalf, and thereby result in each
such Former Axion Stockholder becoming a party to and bound by, the
Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder, may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such indemnity; and will result in each such
Former Axion Stockholder ratifying and confirming any action taken by AHC in the
exercise of the power of attorney granted thereby. See "The Merger--Exchange of
Certificates in the Merger" and "--Indemnification Arrangements; Escrow;
Appointment of AHC as Representative" and "Indemnification Arrangements--Terms
of the Indemnification Agreement", "--Terms of the Tax Matters Agreement" and
"--Terms of the Escrow Agreement". Such agreements will, among other things,
subject each such Former Axion Stockholder as well as AHC and certain of its
subsidiaries to certain indemnity obligations to BMS and certain of its
subsidiaries and provide for the Escrowed Shares and the Escrowed Cash to be
placed in escrow to secure these obligations. See "Risk Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries".
Stock Exchange Listing. BMS has agreed in the Merger Agreement to use its
reasonable best efforts to cause the shares of BMS Common Stock issued in the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date. Such approval for listing is a condition to
the obligation of each of BMS, BMS Sub and Axion to consummate the Merger. See
"The Merger--Stock Exchange Listing" and "--Conditions--Conditions to Each
Party's Obligation to Effect the Merger".
Conditions. The Merger Agreement provides that the respective obligation of
each party to effect the Merger is subject to certain conditions, including the
approval of the Merger Proposal by the stockholders of Axion, the approval of
the Preferred Stock Proposal by holders of Axion Preferred Stock, the receipt
and reaffirmation of opinions with respect to the tax consequences of the Merger
and the Distribution, respectively, consummation of the Contributions and the
Distribution, the absence of certain material adverse changes, the receipt of
certain regulatory approvals and, in the case of BMS, the exercise or
cancelation of all outstanding Axion Options, the conversion of all shares of
Axion Preferred Stock into shares of Axion Common Stock, the absence of Axion
indebtedness in excess of specified levels and the absence of Dissenting Shares.
See "The Merger--Conditions".
- --------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of Axion: (a) by mutual written
consent of BMS, BMS Sub and Axion; (b) by either BMS or Axion: (i) if, upon a
vote at the Special Meeting or any adjournment thereof, any required approval of
the stockholders of Axion shall not have been obtained; (ii) if the Merger shall
not have been consummated on or before October 31, 1996, unless the failure to
consummate the Merger is the result of a wilful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for any part
thereof (but in no event beyond December 31, 1996) during which any party will
be subject to a nonfinal order, decree, ruling or action restraining, enjoining
or otherwise prohibiting the consummation of the Merger or the calling or
holding of the Special Meeting; or (iii) if any governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action will have become final and nonappealable; (c) by
Axion if BMS or BMS Sub shall have failed to comply in any material respect with
any of the covenants or agreements contained in the Merger Agreement or any of
the other Documents (as defined herein) to be performed by BMS or BMS Sub at or
prior to the time of termination, which breach will not have been cured within
30 days following written notice of such breach; or (d) by BMS if Axion or any
of its subsidiaries shall have failed to comply in any material respect with any
of the covenants or agreements contained in the Merger Agreement or any Document
to be performed by Axion or any of its subsidiaries at or prior to the time of
termination, which breach shall not have been cured within 30 days following
written notice of such breach.
Expenses. The Merger Agreement provides that (except as provided below)
whether or not the Merger is consummated, all out-of-pocket fees and expenses
incurred in connection with the Merger, the Distribution or the consummation of
any of the transactions contemplated by the Merger Agreement and the Documents
and the negotiation, preparation, review and delivery of the agreements
contemplated thereby, including all fees and expenses of accountants, legal
counsel, investment bankers and other advisors will be paid by the party
incurring such fees or expenses, except that expenses incurred in connection
with printing and mailing this Proxy Statement/Prospectus and the Form S-4 will
be shared equally by BMS and Axion. Expenses incurred in connection with the
Required AHC Documents (as defined herein) will be paid by Axion. At the
Closing, BMS will provide, or cause to be provided, to Axion funds in an amount
equal to the lesser of $2,000,000 and the aggregate amount of Axion Expenses (as
defined herein) set forth in a true and complete schedule to be submitted by
Axion to BMS not later than five business days prior to Closing, and Axion will
pay the Axion Expenses listed in such schedule.
Accounting Treatment. The Merger will be accounted for by BMS as a
"purchase" for financial accounting purposes in accordance with generally
accepted accounting principles ("GAAP"), whereby the purchase price will be
allocated based on the fair values of assets acquired and liabilities assumed.
See "The Merger--Accounting Treatment".
The Distribution Agreement
The Distribution Agreement provides for a series of asset and stock
transfers and liability assumptions, including the Contributions, between and
among Axion, AHC and certain of Axion's subsidiaries prior to the Distribution.
Such asset and stock transfers and liability assumptions, including the
Contributions, are designed to separate the Acquired Business, which is not
being acquired by BMS in the Merger, from the Retained Business prior to the
Time of Distribution. Accordingly, the Retained Business will constitute all the
business, assets and liabilities of Axion at the Effective Time. The purpose of
this complex structure is to permit the disposition of the Retained Business in
a transaction that should be tax free to Axion stockholders in which Axion
stockholders will receive BMS Common Stock and will also retain their
proportionate equity interests in the Acquired Business in the form of AHC
Preferred Stock to be received in the Distribution. In the event Axion
stockholders do not approve the
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
Merger, or if the Merger Agreement is otherwise terminated, Axion nonetheless
intends to consummate the Contributions. See "Risk Factors--Certain Federal
Income Tax Consequences" and "Certain Federal Income Tax Consequences" and "The
Distribution".
The Distribution will be effected by the distribution to each holder of
record of Axion Common Stock, as of the close of the stock transfer books on the
record date for the Distribution (the "Distribution Record Date"), of
certificates representing one share of AHC Preferred Stock for each share of
outstanding Axion Common Stock held of record by such holder and by the
distribution to each holder of Axion Preferred Stock, as of the Distribution
Record Date, of certificates representing one share of AHC Preferred Stock for
each share of Axion Preferred Stock held of record by such holder. See "The
Distribution--Terms of the Distribution Agreement".
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger, and
the AHC Preferred Stock to be received by holders of Axion Common Stock and
holders of Axion Preferred Stock in the Distribution does not constitute a part
of the consideration to be received by Axion stockholders in the Merger. Axion
stockholders are not being asked to approve the Distribution, which is not
subject to stockholder approval. Axion stockholders should review the
Information Statement attached as Appendix G hereto for additional information
with respect to the Distribution, the Acquired Business and the AHC Preferred
Stock. Consummation of the Distribution is a condition to the Merger.
BMS, Axion, BMS Sub, AHC and certain other parties will enter into certain
agreements, as applicable, designed to effectuate the separation of the Acquired
Business from the Retained Business and to facilitate the operation of AHC as a
separate entity. Each of the Former Axion Stockholders will also become a party
to certain of those agreements. See "The Distribution".
The Indemnification Agreement
AHC, the 81% AHC Subsidiaries (as defined herein) (including OPUS Sub), the
Former Axion Stockholders, BMS, the Surviving Corporation, OPUS, OTNC and the
Partnership will enter into a Post-Closing Covenants and Indemnification
Agreement, the form of which is attached as Appendix C to this Proxy
Statement/Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the
"Indemnification Agreement"), pursuant to which AHC, the 81% AHC Subsidiaries
(including OPUS Sub) and each Former Axion Stockholder (collectively, the "AHC
Indemnifying Parties") will indemnify BMS, the Surviving Corporation, OTNC,
OPUS, the Partnership and their respective subsidiaries and affiliates against
certain Indemnifiable Losses (as defined herein) relating to or arising from any
breach of any representation, warranty or covenant of Axion or any of its
subsidiaries in any Document; any material misstatements or omissions contained
in this Proxy Statement/Prospectus, the Information Statement or any Required
AHC Document (as defined herein) with respect to information related to Axion
and its subsidiaries (including OTN); the Acquired Assets, the Assumed
Liabilities and the Acquired Business and the business of AHC and OPUS Sub
(other than Retained Liabilities); the business of Axion and its subsidiaries
(including OTN) prior to the Merger (other than Retained Liabilities); claims of
stockholders and certain other persons to the extent relating to or arising from
the execution by Axion or any of its subsidiaries (including OTN) of any of the
Documents or the consummation of the transactions contemplated thereby
(including claims for indemnification by any officer or director of Axion or any
of its subsidiaries (including OTN)); Excess Axion Expenses (as defined herein);
any breach of terms, covenants or conditions, gross negligence or wilful
misconduct and certain liabilities related to the existing contractual
arrangements between BMS, on the one hand, and OTNC and the Partnership, on the
other hand; but excluding Indemnifiable Losses relating to tax liabilities,
which are the subject of the Tax Matters Agreement (as defined below). The
indemnification obligations of the Former Axion Stockholders will be secured by
the Escrowed Shares, and the indemnification obligations of AHC and its
subsidiaries will be secured by the Escrowed Cash, on the terms and conditions
set forth in the Escrow
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
Agreement described below. The indemnification obligations of each of the Former
Axion Stockholders under the Indemnification Agreement will be limited in amount
to the Escrowed Shares, except in certain circumstances involving fraud,
intentional misrepresentation or intentional breach of a covenant by any such
Former Axion Stockholder. The indemnification obligations of AHC and the 81% AHC
Subsidiaries will not be limited in amount to the Escrowed Cash. In addition,
AHC and each of the 81% AHC Subsidiaries has agreed for a period of six years
following the Closing Date (subject to extension in certain circumstances) to
certain restrictive covenants, including prohibitions on liquidation, payment of
dividends or other distributions (including by redemption or repurchase) with
respect to any of its capital stock and transactions with affiliates (including
OnCare) on a non-arms' length basis and restrictions related to mergers or sales
of all or substantially all their assets. These prohibitions and restrictions
are intended to prevent AHC and the 81% AHC Subsidiaries from engaging in
transactions that might have the effect of limiting the availability of assets
of AHC and the 81% AHC Subsidiaries to satisfy their indemnification obligations
under the Indemnification Agreement and the Tax Matters Agreement to the BMS
Indemnified Parties. BMS and its subsidiaries will also indemnify AHC and its
subsidiaries with respect to certain matters.
Indemnification liabilities for losses arising from or related to any
breach of any representation, warranty or covenant by Axion or any of its
subsidiaries (including OTN) in any Document or any losses directly related to
OTN or the OPUS Station Business are subject to a $500,000 threshold and a
$12,000,000 cap. Indemnification liabilities for losses relating to or arising
out of breaches of any representation, warranty or covenant that is directly
related to OTN are limited to 50% of the amount of such losses. All other
indemnification obligations are not subject to a threshold and are unlimited in
amount. Indemnification obligations for losses related to or arising from any
breach of representation or warranty of Axion or any of its subsidiaries
(including OTN) in any of the Documents terminate on March 31, 1998 (or in
certain limited circumstances, on the third anniversary of the Closing Date).
All other indemnification obligations survive in perpetuity. None of the
foregoing limitations will apply in certain circumstances involving fraud or any
misrepresentation or breach of which Axion, AHC or any 81% AHC Subsidiary or
their respective officers or directors had knowledge or any intentional breach
of any covenant by any such person.
See "Risk Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries" and "Indemnification
Arrangements--Terms of the Indemnification Agreement", "--Terms of the Tax
Matters Agreement" and "--Terms of the Escrow Agreement", "Relationship with
BMS--Indemnification Agreement; Escrow Agreement; Tax Matters Agreement".
The Tax Matters Agreement
BMS, the Surviving Corporation, the 81% AHC Subsidiaries (including OPUS
Sub) and AHC, on its own behalf and as representative of the 81% AHC
Subsidiaries and each of the Former Axion Stockholders, will enter into a Tax
Matters Agreement, the form of which is attached as Appendix D to this Proxy
Statement/Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Tax Matters
Agreement") which sets forth each party's rights and obligations with respect to
certain tax payments, tax refunds and control of contests relating to tax
matters and also provides for (i) AHC, the 81% AHC Subsidiaries and each of the
Former Axion Stockholders to indemnify BMS, the Surviving Corporation, OTNC,
OPUS, the Partnership and their respective subsidiaries and affiliates from
certain tax liabilities (including certain tax liabilities that will arise from
the Distribution and other tax liabilities that will arise if and to the extent
that the Contributions, the Distribution and related transactions generate
additional taxable income) and (ii) BMS, the Surviving Corporation, OPUS, OTNC,
and the Partnership to indemnify AHC, OPUS Sub and each of their respective
subsidiaries and affiliates from certain other tax liabilities. The
indemnification obligations of the Former
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
Axion Stockholders will be secured by the Escrowed Shares, and the
indemnification obligations of AHC and its subsidiaries will be secured by the
Escrowed Cash, on the terms and conditions set forth in the Escrow Agreement
described below. The indemnification obligations of each of the Former Axion
Stockholders will be limited to the Escrowed Shares, except in certain
circumstances involving fraud, intentional misrepresentation or intentional
breach of a covenant by any such Former Axion Stockholder. The indemnification
obligations of AHC and the 81% AHC Subsidiaries will not be limited in amount to
the Escrowed Cash. In addition, AHC and each of the 81% AHC Subsidiaries has
agreed for a period of six years following the Closing Date (subject to
extension in certain circumstances) to certain restrictive covenants, including
prohibitions on liquidation, payment of dividends or other distributions
(including by redemption or repurchase) with respect to any of its capital stock
and transactions with affiliates (including OnCare) on a non-arms' length basis
and restrictions related to mergers or sales of all or substantially all their
assets. These prohibitions and restrictions are intended to prevent AHC and the
81% AHC Subsidiaries from engaging in transactions that might have the effect of
limiting the availability of assets of AHC and the 81% AHC Subsidiaries to
satisfy their indemnification obligations under the Indemnification Agreement
and the Tax Matters Agreement to the BMS Indemnified Parties. See "Risk
Factors--Indemnification Obligations of the Former Axion Stockholders, AHC and
the 81% AHC Subsidiaries" and "--Certain Federal Income Tax Consequences",
"Indemnification Arrangements--Terms of the Tax Matters Agreement",
"Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement" and "Certain Federal Income Tax Consequences".
The Escrow Agreement
BMS, AHC, the 81% AHC Subsidiaries and the Former Axion Stockholders and an
escrow agent to be selected by BMS and Axion (the "Escrow Agent") will enter
into an Escrow Agreement, the form of which is attached hereto as Appendix E to
this Proxy Statement/Prospectus and is incorporated herein by reference (as it
may be amended, supplemented or otherwise modified from time to time, the
"Escrow Agreement") pursuant to which at the Closing the Former Axion
Stockholders will deposit the Escrowed Shares and AHC will deposit the Escrowed
Cash into escrow to secure the indemnity obligations of AHC, the 81% AHC
Subsidiaries and the Former Axion Stockholders under the Indemnification
Agreement and the Tax Matters Agreement. There can be no assurance as to whether
all or any portion of the Escrowed Shares will eventually be released to the
Former Axion Stockholders. The indemnification obligations of each of the Former
Axion Stockholders will be limited to the Escrowed Shares, except in certain
circumstances involving fraud, intentional misrepresentation or intentional
breach of a covenant by any such Former Axion Stockholder, and will terminate
one year after the Closing Date, subject to a holdback of Escrowed Shares for
any then Pending Claims (as defined herein). To the extent not previously paid
to BMS in respect of an indemnification loss, up to $4,000,000 of the Escrowed
Cash may be released to AHC on the second anniversary of the Closing Date and
the balance of such Escrowed Cash may be released to AHC on the sixth
anniversary of the Closing Date, in each case subject to a holdback for any then
Pending Claims. AHC and the 81% AHC Subsidiaries' indemnification obligations
are not limited to the Escrowed Cash. There can be no assurance as to whether
all or any portion of such Escrowed Cash will eventually be released to AHC or
that the indemnification obligations of AHC and the 81% AHC Subsidiaries will
not exceed the amount of the Escrowed Cash. Failure to obtain the release of
such Escrowed Cash or the incurrence of indemnification obligations in excess of
the Escrowed Cash (which AHC and the 81% AHC Subsidiaries may not have the
resources to pay) could have a material adverse effect on AHC's business,
financial condition or results of operations and, accordingly, the value of the
AHC Preferred Stock. There also can be no assurance that AHC and the 81% AHC
Subsidiaries will have sufficient resources or liquidity to meet their
indemnification obligations and, accordingly, there can be no assurance that the
value of the AHC Preferred Stock will not be materially adversely affected. See
"Risk Factors--Indemnification Obligations of the Former Axion Stockholders, AHC
and the 81% AHC Subsidiaries", "--Business of AHC after the Closing" and
"--Certain Federal Income Tax Consequences", "Indemnification
Arrangements--Terms of the Escrow Agreement", "--Terms of the
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
Indemnification Agreement" and "--Terms of the Tax Matters Agreement",
"Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement" and "Certain Federal Income Tax Consequences".
Recommendation of the Axion Board
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and the Axion stockholders. Accordingly, the Axion
Board has unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and unanimously recommends that the
stockholders of Axion vote FOR the adoption and approval of the Merger Proposal
and that the holders of Axion Preferred Stock vote FOR approval of the Preferred
Stock Proposal. See "The Merger--Background and Reasons for the Merger;
Recommendation of the Axion Board".
The Special Meeting
Time, Place and Date
The Special Meeting will be held on October 18, 1996, at 8:00 a.m., local
time, at the offices of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, legal counsel to Axion, located at 600 Hansen Way, Second Floor,
Palo Alto, California 94304.
Purpose of Special Meeting; Stockholders Entitled to Vote; Vote Required
At the Special Meeting, (i) stockholders of Axion of record as of the
Record Date will be asked to consider and vote upon the Merger Proposal and (ii)
holders of Axion Preferred Stock of record as of the Record Date will be asked
to consider and vote upon the Preferred Stock Proposal. Approval of the Merger
Proposal requires the affirmative vote of (i) at least a majority of the total
number of votes entitled to be cast by holders of Axion Common Stock and holders
of Axion Preferred Stock, voting together as a single class (with each share of
Axion Preferred Stock having voting power equivalent to one share of Axion
Common Stock) and (ii) at least a majority of the total number of votes entitled
to be cast by holders of Axion Preferred Stock, voting together as a single
class. Approval of the Preferred Stock Proposal requires the affirmative vote of
at least 66-2/3% of the total number of votes entitled to be cast by holders of
Axion Preferred Stock, voting together as a single class. It is a condition to
the respective obligations of each party to the Merger Agreement that the
Preferred Stock Proposal be approved. If the Merger is not consummated, the
Preferred Stock Conversion will not be implemented.
As of the Record Date, the total number of votes entitled to be cast by
holders of Axion Common Stock was 1,606,651, the total number of votes entitled
to be cast by holders of Axion Common Stock and Axion Preferred Stock, voting as
a single class (with each share of Axion Preferred Stock having voting power
equivalent to that of one share of Axion Common Stock) was 8,347,541 and the
total number of votes entitled to be cast by holders of Axion Preferred Stock,
voting as a single class, was 6,740,890. As of the Record Date, directors and
executive officers of Axion and their affiliates beneficially owned an aggregate
of 1,154,000 shares of Axion Common Stock, or approximately 71.8% of the shares
of Axion Common Stock outstanding on such date. As of the Record Date, directors
and executive officers of Axion and their affiliates beneficially owned an
aggregate of 4,682,322 shares of Axion Preferred Stock, or approximately 69.4%
of the shares of Axion Preferred Stock outstanding on such date. As of the
Record Date, directors and executive officers of Axion and their affiliates
beneficially owned shares of Axion Common Stock or Axion Preferred Stock
representing an aggregate of 69.9% of the total number of votes entitled to be
cast by all stockholders of Axion, voting as a single class. See "The Special
Meeting--Vote Required".
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
Stockholder Agreement
Certain stockholders of Axion which were the beneficial owners, as of the
Record Date, of 1,154,000 shares of Axion Common Stock and 5,741,839 shares of
Axion Preferred Stock have entered into the Stockholder Agreement dated as of
August 2, 1996 (as it may be amended, supplemented or otherwise modified from
time to time, the "Stockholder Agreement") with BMS and BMS Sub. Pursuant to the
Stockholder Agreement, each such stockholder agreed to vote all shares of Axion
Common Stock and/or Axion Preferred Stock beneficially owned or subsequently
acquired by such stockholder in favor of the Merger Proposal and the Preferred
Stock Proposal, and granted BMS an irrevocable proxy to so vote such shares.
Such shares represent 82.6% of the total number of votes entitled to be cast by
holders of Axion Common Stock and Axion Preferred Stock, voting together as a
single class, and 85.2% of the total number of votes entitled to be cast by
holders of Axion Preferred Stock, voting together as a single class.
Accordingly, the Merger Proposal and the Preferred Stock Proposal can be
approved by the affirmative vote of such shares even if all other stockholders
of Axion vote against the Merger Proposal and the Preferred Stock Proposal. See
"The Special Meeting--Vote Required". The Stockholder Agreement also prohibits
such stockholders from transferring their shares of Axion Common Stock or Axion
Preferred Stock until the Merger is consummated or the Merger Agreement is
terminated.
Certain Federal Income Tax Consequences
The Distribution
Ernst & Young LLP ("Ernst & Young"), certified public accountants to Axion,
have rendered an opinion to the effect that, based upon certain representations
of BMS, BMS Sub, Axion, AHC and certain of the Former Axion Stockholders, among
other things, the Distribution should qualify as a tax-free spinoff pursuant to
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), and,
as a result, holders of Axion Common Stock should recognize no gain or loss upon
the receipt of AHC Preferred Stock pursuant to the Distribution. Consummation of
the Distribution and the Merger is conditioned on a reaffirmation of that
opinion at the Time of Distribution by Ernst & Young. Such opinion is based on
Ernst & Young's interpretation as to how various requirements of Section 355 of
the Code should apply to the particular facts presented by the Distribution.
With respect to some of these interpretations, no direct legal precedents exist.
Accordingly, there can be no assurance that the IRS will agree with the
conclusions set forth in the Ernst & Young opinion. No rulings relating to the
Distribution have been sought or will be received from the Internal Revenue
Service (the "IRS"), and the Ernst & Young opinion is not binding on the IRS.
Moreover, no published rulings or cases squarely address the qualification under
Section 355 of the Code of a transaction identical to the Distribution. If the
IRS were to assert successfully that the Distribution did not qualify as a
tax-free spinoff under Section 355 of the Code, the Distribution would be a
taxable transaction to Axion and the Former Axion Stockholders for federal
income tax purposes. Stockholders are urged to consult their own tax advisors
regarding such tax consequences. Even if the Distribution does qualify as a
tax-free spinoff under Section 355 of the Code, the distribution of the AHC
Preferred Stock by Axion to Non-United States Holders (as defined herein) will
constitute a taxable transaction to Axion. See "Certain Federal Income Tax
Consequences".
To the extent of the tax liabilities to Axion that will arise from the
distribution of AHC Preferred Stock to Non-United States Holders, BMS will seek
indemnification from AHC, the 81% AHC Subsidiaries and the Former Axion
Stockholders pursuant to the Tax Matters Agreement and the Escrow Agreement. In
addition, if, notwithstanding receipt of such opinion and reaffirmation from
Ernst & Young, it is determined that the Distribution does not qualify as a
tax-free spinoff under Section 355 of the Code, then BMS may seek
indemnification from AHC, the 81% AHC Subsidiaries and the Former Axion
Stockholders pursuant to the terms of the Tax Matters Agreement and the Escrow
Agreement. Such events could result in failure by the Former Axion Stockholders
to
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
obtain the release of any of the Escrowed Shares, could result in AHC's failure
to obtain the release of any of the Escrowed Cash and could require AHC to
provide additional funds to indemnify BMS. Failure by AHC to obtain the release
of the Escrowed Cash, or the requirement of additional payments by AHC, could
have a material adverse effect on AHC or the value of the AHC Preferred Stock.
See "Indemnification Arrangements--Terms of the Tax Matters Agreement" and
"--Terms of the Escrow Agreement". See also "Risk Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries",
"--Business of AHC after the Closing" and "--Certain Federal Income Tax
Consequences".
The Merger
Axion has received an opinion of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, counsel for Axion, to the effect that, based upon
certain representations of BMS, BMS Sub, Axion and certain of the Former Axion
Stockholders, among other things, the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code. Provided the Merger does so
qualify, holders of Axion Common Stock will recognize no gain or loss upon the
conversion of shares of Axion Common Stock into shares of BMS Common Stock,
except for gain or loss recognized on receipt of cash in lieu of any fractional
share interest in BMS Common Stock. No rulings relating to the Merger have been
sought or will be received from the IRS, and such opinion is not binding on the
IRS. If the IRS were to assert successfully that the Merger did not qualify for
tax-free treatment, the receipt of BMS Common Stock in the Merger would be a
taxable transaction for federal income tax purposes and the Distribution would
not qualify as a tax-free spinoff. Stockholders are urged to consult their own
tax advisors regarding such tax consequences. See "Certain Federal Income Tax
Consequences".
Interests of Certain Persons in the Transactions
In considering the recommendation of the Axion Board, Axion stockholders
should be aware that certain members of Axion's management and the Axion Board
have certain interests in the Merger and the Distribution that are in addition
to the interests of Axion stockholders generally. These interests include the
following consequences under the Axion 1989 Plan (as defined herein) and the
Axion 1995 Plan (as defined herein) and pursuant to the Merger Agreement with
respect to Axion Options: (i) all Axion Options that had not previously become
exercisable and vested will become fully exercisable and vested in connection
with the Merger; (ii) Axion will extend Employee Loans (as defined below) to
each executive officer, in addition to each current employee or consultant, to
enable such individual to exercise in full his or her Axion Options; and (iii)
each officer, employee or consultant who exercises his or her Axion Options will
receive in the Merger shares of BMS Common Stock, which stock will be freely
tradable immediately following the consummation of the Merger, subject to
contractual restrictions on the officer's ability to resell the BMS Common Stock
and the limitations set forth under Rule 145 under the Securities Act. As of the
Record Date, options to purchase a total of 1,697,968 shares of Axion Common
Stock, at exercise prices ranging from $0.075 to $10.00 per share, were held by
91 Axion employees and consultants. It is anticipated that Axion will make loans
totaling approximately $6,500,000 (the "Employee Loans") to such holders of
Axion Options, who will use such proceeds to exercise Axion Options immediately
prior to the Time of Contribution. Michael D. Goldberg, the President and Chief
Executive Officer and a director of Axion, has advised Axion that he does not
intend to exercise the Goldberg $10.00 Options.
In addition, OTNC has entered into an employment agreement with David
Levison dated as of August 2, 1996, which agreement becomes effective on the
Closing Date and continues for a period of two years. Pursuant to this
agreement, David Levison will serve as President of OTNC. OTNC has entered into
employment agreements substantially similar to David Levison's (other than
compensation amounts) with Warren Dodge, Bret Brodowy, Michael Cunningham, Lynn
Hammerschmidt and James Adams.
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. See "The Merger--Interests of Certain Persons in the
Transactions" and "Effect of Transactions on Axion Employees and Axion Benefit
Plans". The Axion Certificate of Incorporation also provides for exculpation of
directors under certain circumstances. See "Comparison of Certain Rights of
Holders of BMS Common Stock, Holders of Axion Common Stock--Indemnification of
Officers and Directors and Holders of Axion Preferred Stock". In addition, it is
anticipated that AHC will enter into similar indemnification agreements with its
directors and officers, and that the AHC certificate of incorporation and
by-laws will provide, as applicable, for the indemnification of directors and
officers and the exculpation under certain circumstances of directors. See
"Executive Compensation Plans in Effect After the Distribution--AHC
Indemnification Agreements" in the Information Statement attached as Appendix G
hereto.
Relationship with BMS
Following the Merger, AHC and its subsidiaries will continue to have
certain relationships with BMS.
AHC, the 81% AHC Subsidiaries (including OPUS Sub), the Former Axion
Stockholders, BMS, the Surviving Corporation, OPUS, OTNC and the Partnership
will be parties to the Indemnification Agreement, the Tax Matters Agreement and
the Escrow Agreement. See "Indemnification Arrangements--Terms of the
Indemnification Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms
of the Escrow Agreement".
BMS has entered into separate Noncompetition Agreements with AHC and OnCare
and each of Michael D. Goldberg, the President and Chief Executive Officer and a
director of Axion, OnCare and AHC, and Garrett J. Roper, the Senior Vice
President and Chief Financial Officer of Axion, OnCare and AHC and the Secretary
and a director of AHC (the "Noncompetition Agreements") which will become
effective at Closing and will, for two years following the Closing Date,
prohibit such entities or persons and their affiliates, as the case may be,
from, as applicable, ownership, management, operation or control of, employment
by, holding certain equity interests in or serving as a director, advisor or
consultant to, or having certain other relationships with, any entity that
engages in the distribution of oncology drugs, supplies or biologics to certain
customers of OTN or the automated drug dispensing and inventory tracking systems
business in the United States. See "Relationship with BMS--Noncompetition
Agreements".
AHC has entered into the AHC Supply Agreement (the "AHC Supply Agreement")
with OTN and OnCare has entered into the OnCare Supply Agreement (the "OnCare
Supply Agreement") with OTN which will become effective at the Closing and which
provide that AHC and OnCare will use OTN as their exclusive provider of oncology
pharmaceutical products and supplies and that OTN will provide such products and
supplies at the lowest price it offers to a specified category of purchaser
(subject to certain conditions), provided that in the event AHC or OnCare, as
the case may be, receives an offer pricing products or supplies at a price of at
least 10% less than the lowest price offered by OTN and OTN chooses not to match
such lower offer, AHC or OnCare, as the case may be, may purchase such products
or supplies pursuant to such lower offer for a term to end upon the later of 30
days after the receipt of such lower offer and the term of such lower offer.
OTN's existing supply agreement with OnCare will be terminated on the Closing
Date. AHC has entered into the AHC Medstation Agreement (the "AHC Medstation
Agreement") and OnCare has entered into the OnCare Medstation Agreement (the
"OnCare Medstation Agreement") which will become effective at the Closing and
which provide that AHC and OnCare will use OPUS as their exclusive provider of
oncology drug dispensing machines and that OPUS will provide such
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
machines at the lowest price it offers to a specified category of purchaser
(subject to certain conditions). See "Relationship with BMS--AHC Supply
Agreement; OnCare Supply Agreement; AHC Medstation Agreement; OnCare Medstation
Agreement".
AHC and the Surviving Corporation will enter into a Trademark License
Agreement (the "License Agreement") pursuant to which AHC will grant an
exclusive, royalty-free license to the Surviving Corporation to use the "OPUS"
name in connection with the OPUS Station Business in the U.S. for a period of
one year. AHC and the Surviving Corporation will also enter into a Transitional
Services Agreement (the "Transitional Services Agreement") pursuant to which AHC
and the Surviving Corporation will provide certain services to each other
following the Merger. See "Relationship with BMS--License Agreement" and
"--Transitional Services Agreement".
Dissenters' Rights
Each holder of Axion Common Stock who (i) delivers to Axion a written
demand for appraisal to receive payment of the "fair value" of his or her shares
prior to the Special Meeting and (ii) votes against approval of the Merger
Agreement or who abstains from such vote is entitled to the rights and remedies
of dissenting stockholders upon complying with the procedures set forth in
Section 262 ("Section 262") of the Delaware General Corporate Law (the "DGCL"),
a copy of which is attached as Appendix F hereto. A vote against approval of the
Merger Agreement or abstention from such vote, by itself, will not constitute a
demand for appraisal within the meaning of Section 262. It is a condition to the
obligations of BMS to effect the Merger that no Dissenting Shares be outstanding
at the Effective Time. See "Risk Factors--Vote Required; Stockholder Agreement"
and "The Merger--Dissenters' Rights".
Certain Regulatory Approvals
The consummation of the Merger is subject to, among other approvals, the
expiration or termination of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Axion and BMS each filed notification and report forms under the HSR Act
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Justice Department (the "Antitrust Division") on July 10, 1996. The waiting
period expired on August 9, 1996, without further action by the FTC or the
Antitrust Division.
See "The Merger--Certain Regulatory Approvals".
Comparison of Certain Rights of Holders of BMS Common Stock, Holders of Axion
Common Stock and Holders of Axion Preferred Stock
See "Comparison of Certain Rights of Holders of BMS Common Stock, Holders
of Axion Common Stock and Holders of Axion Preferred Stock" for a summary of
certain significant differences among the rights of holders of BMS Common Stock,
the rights of holders of Axion Common Stock and the rights of holders of Axion
Preferred Stock. See "Comparison of Certain Rights of Holders of Common Stock"
in the Information Statement attached as Appendix G hereto for a summary of
certain significant differences among the rights of holders of AHC Preferred
Stock, the rights of holders of Axion Common Stock and the rights of holders of
Axion Preferred Stock.
Risk Factors
In deciding whether to approve and adopt the Merger Proposal, and, as
applicable, the Preferred Stock Proposal, stockholders should carefully evaluate
the matters set forth under "Risk Factors" herein and under "Special Factors" in
the Information Statement attached as Appendix G hereto, in addition to other
matters described herein and therein.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
Market Price and Dividend Data
Axion
There is no public market for Axion Common Stock. Axion has not declared or
paid any cash dividends on Axion Common Stock since its incorporation in 1987
and, except for the Distribution, does not intend to declare or pay any
dividends. See "Comparison of Certain Rights of Holders of BMS Common Stock,
Holders of Axion Common Stock and Holders of Axion Preferred Stock--Dividends".
Pursuant to the Merger Agreement, Axion has agreed that, during the period from
the date of Merger Agreement to the Effective Time, except for the Distribution,
Axion will not issue, declare, set aside, make or pay any dividends on or other
distributions with respect to its capital stock.
BMS
BMS Common Stock is listed and traded on the NYSE and the PSE under the
symbol "BMY". The table below sets forth, for the fiscal periods indicated, the
high and low market prices per share of BMS Common Stock and the dividends per
share declared on BMS Common Stock for such periods.
BMS Common Stock
High Low Dividends
Fiscal 1994
First Quarter .................. $59 7/8 $ 50 $ .73
Second Quarter ................. 56 1/4 50 1/8 .73
Third Quarter .................. 58 3/4 51 1/8 .73
Fourth Quarter ................. 61 55 3/4 .73
Fiscal 1995
First Quarter .................. 65 7/8 57 3/4 .74
Second Quarter ................. 69 7/8 61 7/8 .74
Third Quarter .................. 74 7/8 66 1/2 .74
Fourth Quarter ................. 87 1/8 72 .74
Fiscal 1996
First Quarter .................. 90 1/4 81 1/8 .75
Second Quarter ................. 90 1/4 78 .75
Third Quarter (through
September 18, 1996) .......... 96 7/8 83 .75
The closing price for BMS Common Stock on the NYSE on August 2, 1996, the
last full trading day prior to announcement of the proposed Merger, was $89 3/8
per share as reported on the Dow Jones News\Retrieval(R) Service. The closing
price for BMS Common Stock on the NYSE on September 18, 1996, the most recent
trading date available prior to printing this Proxy Statement/Prospectus, was
$95 3/8 per share as reported on the Dow Jones News\Retrieval(R) Service. For
current price information, Axion stockholders are urged to consult publicly
available sources.
Holders of BMS Common Stock are entitled to receive dividends when, as and
if declared by the BMS Board out of funds legally available therefor. The timing
and amount of any future dividends will depend on circumstances existing at the
time, including earnings, cash requirements, applicable federal and state laws
and regulations and policies and other factors deemed relevant by the BMS Board.
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
Comparative Per Share Data
The following table sets forth certain per share historical financial
information for BMS, Axion and the Retained Business, certain pro forma per
share information for the Retained Business giving effect to the Merger and the
transfer from Axion to AHC of the OnCare Preferred Stock, the Employee Loans and
cash and cash equivalents and short-term investments (other than Retained Cash,
which is assumed to equal zero) totaling approximately $16,100,000 at June 30,
1996, and equivalent pro forma per share information of Axion based on the
conversion of each share of Axion Common Stock (calculated on a fully diluted
basis reflecting the Diluted Share Assumption) into BMS Common Stock based on an
assumed Conversion Number of 0.094. See "The Merger--Terms of the Merger
Agreement". Pro forma financial statements for BMS giving effect to the Merger
are not included in this Proxy Statement/Prospectus because the Merger will not
have a material effect on BMS and, accordingly, pro forma per share information
for BMS giving effect to the Merger has not been included below.
The following information is based upon and should be read in conjunction
with and is qualified in its entirety by the respective audited and unaudited
financial statements of BMS, Axion and the Retained Business incorporated by
reference or included elsewhere in this Proxy Statement/Prospectus and the Pro
Forma Condensed Financial Statements of Axion and Axion HealthCare Inc. and the
notes thereto presented elsewhere herein. See "Incorporation of Certain
Information by Reference".
Retained Retained Axion
BMS Axion Business Business Pro Forma
Historical Historical Historical Pro Forma Equivalent(e)
---------- ---------- ---------- --------- -------------
Year ended December 31, 1995
Net income per common share ... $ 3.58(a) $ .90 $ 1.13 $ 1.13 $ .34
Cash dividends per common share 2.96 -- -- -- $ .28
Six months ended June 30, 1996
Net income per common share ... $ 2.75 $ .50 $ .65 $ .65 $ .26
Cash dividends per common share 1.50 -- -- -- $ .14
As of June 30, 1996
Book value per common share ... $12.10 $ 3.31(b) $ 3.22(c) $ (.33)(d) $ 1.14
(a) Including a special charge for pending and future product liability claims
of $950 million before taxes ($590 million after taxes, or $1.17 per
share), and a provision for restructuring of $310 million ($198 million
after taxes).
(b) Assuming conversion of all 6,740,890 shares of Axion Preferred Stock into
6,740,890 shares of Axion Common Stock. The historical book value of the
1,606,651 shares of Axion Common Stock outstanding as of June 30, 1996,
after deduction of the liquidation preferences of the various series of
Preferred Stock, is $1.86 per share. Per share liquidation preferences of
the various series of Axion Preferred Stock are as follows: Series A:
$0.75; Series B: $3.40; Series C: $4.79; Series D: $5.60; Series E: $7.25
and Series F: $10.00. Assumes no exercise of Axion Options. See Note 1 (Per
Share Data) to the Notes to Consolidated Financial Statements of Axion Inc.
for a description of the shares used in the calculation of net income per
common share.
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
(c) Assuming conversion of all shares of Axion Preferred Stock as set forth
above in note (b). Historical book value of the Retained Business at June
30, 1996, based on 1,606,651 shares of Axion Common Stock outstanding at
such date after deduction of the liquidation preferences of the various
series of Axion Preferred Stock is $1.38 per share. Assumes no exercise of
Axion Options. See Note 1 (Per Share Data) to the Notes to Consolidated
Financial Statements of Axion Inc. for a description of the shares used in
the calculation of net income per common share.
(d) Assuming conversion of all outstanding shares of Axion Preferred Stock as
set forth above in note (b). Assumes no exercise of Axion Options. After
giving effect to assumed exercise of all Axion Options outstanding at June
30, 1996 (other than the Goldberg $10.00 Options) to purchase 1,630,215
shares of Axion Common Stock, Retained Business pro forma book value per
common share is $(.27). See Note 1 (Per Share Data) to the Notes to
Consolidated Financial Statements of Axion Inc. for a description of the
shares used in the calculation of net income per common share.
(e) Reflects the pro forma equivalent of one share of Axion Common Stock
(excluding AHC Preferred Stock to be received by Axion stockholders in the
Distribution), calculated by multiplying BMS historical per share data by
an assumed Conversion Number of 0.094 (assuming an Average Value of BMS
Common Stock equal to the Maximum Price, based on the actual number of
shares of Axion Common Stock outstanding as of the Record Date and assuming
the conversion of all shares of Axion Preferred Stock and the exercise of
all Axion Options (other than the Goldberg $10.00 Options)). The actual
Conversion Number will depend on the Average Value of BMS Common Stock on
the Closing Date and the number of shares of Axion Common Stock outstanding
immediately prior to the Effective Time, and may be greater or less than
0.094. See "Risk Factors--Risk of Decline in Average Value of BMS Common
Stock Prior to the Effective Time" and "The Merger--Terms of the Merger
Agreement".
- --------------------------------------------------------------------------------
25
- --------------------------------------------------------------------------------
Selected Financial Information
Axion
The following table sets forth selected historical consolidated financial
data with respect to Axion for the periods and at the dates indicated. The
consolidated statements of operations data for the years ended December 31,
1993, 1994 and 1995 and the consolidated balance sheet data at December 31, 1994
and 1995 are derived from, and are qualified by reference to, Axion's
Consolidated Financial Statements and related notes thereto included elsewhere
herein. The consolidated statements of operations data for the years ended
December 31, 1991 and 1992 and the consolidated balance sheet data at December
31, 1991, 1992 and 1993 are derived from audited consolidated financial
statements of Axion not included herein. The consolidated statements of
operations data for the six months ended June 30, 1995 and 1996 and the
consolidated balance sheet data at June 30, 1996 have been derived from
unaudited consolidated financial statements that have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
Axion, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations for the unaudited interim periods. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the current year ending December 31, 1996. The following
selected historical consolidated financial data should be read in conjunction
with Axion's Consolidated Financial Statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Axion" included elsewhere herein.
Statements of Operations Data
Six Months Ended
June 30, Year Ended December 31,
---------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited)
(In Thousands, Except Per Share Amounts)
Net revenues $ 133,161 $ 89,377 $ 198,950 $ 126,369 $ 56,052 $ 36,115 $ 16,444
Costs and expenses:
Cost of revenues 119,235 80,010 176,292 112,606 51,006 33,566 15,612
Sales and marketing 1,163 1,147 2,007 1,922 1,635 1,156 686
General and administrative 5,495 4,723 11,442 8,409 5,734 2,274 1,480
Product development -- -- -- -- 1,607 630 --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses 125,893 85,880 189,741 122,937 59,982 37,626 17,778
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations 7,268 3,497 9,209 3,432 (3,930) (1,511) (1,334)
Other income and expense:
Interest income (expense), net (21) (22) (281) 941 375 414 161
Other nonoperating income (expense) -- -- 146 (2,945) (1,407) --
Minority interest -- -- -- -- 996 -- --
--------- --------- --------- --------- --------- --------- ---------
Total other income and expense, net (21) (22) (135) (2,004) (36) 414 161
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes 7,247 3,475 9,074 1,428 (3,966) (1,097) (1,173)
Provision for income taxes 2,825 300 1,187 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 4,422 $ 3,175 $ 7,887 $ 1,428 $ (3,966) $ (1,097) $ (1,173)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share (a) $ 0.50 $ 0.36 $ 0.90 $ 0.17 $ (2.52) $ (0.71) $ (0.98)
Number of shares used in above
computation(a) $ 8,910 8,799 8,807 8,190 1,573 1,552 1,197
- ----------
(a) Net income (loss) per share has been computed based on the weighted average
shares of Axion Common Stock outstanding and dilutive common equivalent shares
outstanding. Common equivalent shares represent shares of Axion Preferred Stock
outstanding (using the if converted method) and Axion Options outstanding (using
the treasury stock method). In 1991, 1992 and 1993, all common equivalent shares
were excluded from the per share computation due to their antidilutive effect as
a result of the net losses for such years. After 1993, common equivalent shares
have been included in the per share computation.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
Balance Sheet Data
June 30, December 31,
------------------- -----------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in Thousands)
Current assets $143,775 $124,493 $ 97,146 $ 48,442 $ 18,269 $ 8,317
Total assets 159,053 129,128 98,059 49,329 18,818 8,732
Payable to BMS-Sales Agency Agreement 55,429 47,755 36,508 28,880 -- --
Borrowings under bank lines of credit 40,616 35,617 -- -- 1,400 800
Loan payable to BMS -- -- 30,000 -- -- --
Total stockholders' equity 27,648 23,226 16,071 8,882 12,858 5,606
- --------------------------------------------------------------------------------
27
- --------------------------------------------------------------------------------
Retained Business
The following table sets forth selected historical financial data with
respect to the Retained Business for the periods and at the dates indicated. The
financial data of the Retained Business at and for the year ended December 31,
1995 are derived from the notes to the audited financial statements of Axion for
that year, and the financial data of the Retained Business at June 30, 1996 and
for the six-month periods ended June 30, 1995 and 1996 are derived from the
notes to the unaudited financial statements of Axion for those periods. The
following selected historical financial data of the Retained Business for the
four years ended December 31, 1994 are derived from the audited financial
statements of Axion. Prior to 1995, separate financial statements were not
maintained for the Retained Business, and any adjustments to Axion's historical
results to exclude the Acquired Business would be insignificant. Operating
results of the Retained Business for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996. The following selected historical financial data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information of Axion and the Retained Business
included herein.
Statements of Operations Data
Six Months Ended
June 30, Year Ended December 31,
---------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in Thousands)
Net revenues $ 133,057 $ 89,124 $ 195,335 $ 126,369 $ 56,052 $ 36,115 $ 16,444
Costs and expenses:
Cost of revenues 119,170 79,853 174,314 112,606 51,006 33,566 15,612
Sales and marketing 1,163 1,147 2,007 1,922 1,635 1,156 686
General and administrative 3,186 3,236 6,459 8,409 5,734 2,274 1,480
Product development -- -- -- -- 1,607 630 --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses 123,519 84,236 182,780 122,937 59,982 37,626 17,778
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations 9,538 4,888 12,555 3,432 (3,930) (1,511) (1,334)
Other income and expense:
Interest income (expense), net (21) (22) (220) 941 375 414 161
Other nonoperating income (expense) -- -- 146 (2,945) (1,407) -- --
Minority interest -- -- -- -- 996 -- --
--------- --------- --------- --------- --------- --------- ---------
Total other income and expense, net (21) (22) (74) (2,004) (36) 414 161
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes 9,517 4,866 12,481 1,428 (3,966) (1,097) (1,173)
Provision for income taxes 3,719 847 2,500 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 5,798 $ 4,019 $ 9,981 $ 1,428 $ (3,966) $ (1,097) $ (1,173)
--------- --------- --------- --------- --------- --------- ---------
Balance Sheet Data
June 30, December 31,
------------------- -----------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in Thousands)
Current assets $142,369 $124,181 $ 97,146 $ 48,442 $ 18,269 $ 8,317
Total assets 156,867 128,816 98,059 49,329 18,818 8,732
Payable to BMS-Sales Agency Agreement 55,429 47,755 36,508 28,880 -- --
Borrowings under bank lines of credit 40,616 35,617 -- -- 1,400 800
Loan payable to BMS -- -- 30,000 -- -- --
Stockholders' equity 26,885 23,078 16,071 8,882 12,858 5,606
- --------------------------------------------------------------------------------
28
- --------------------------------------------------------------------------------
Pro Forma Balance Sheet Data
The following unaudited pro forma balance sheet data of the Retained
Business at June 30, 1996 (dollars in thousands) give effect to the Merger and
to the Distribution, after the transfer from Axion to AHC of: (i) the cash
distribution from the Partnership to Axion of the Preference Amount of $13,615
(which would have required additional borrowings by the Partnership of $17,915
at June 30, 1996, which would have been used to fund the $13,615 payment and a
$5,000 reduction of borrowings under the bank line of credit) and $2,485 of
additional cash and cash equivalents and short-term investments, subject to
adjustment, (ii) the Employee Loans and (iii) $13,500 redemption and carrying
value of 2,700,000 shares of OnCare Preferred Stock. The pro forma data are
presented for illustrative purposes only, and are not necessarily indicative of
the results that actually would have been obtained had all the transactions
referred to above been completed as of the assumed date, and are not intended to
be a projection of future results or trends.
Current assets $ 139,184
Total assets 140,182
Payable to BMS-Sales Agency Agreement 55,429
Borrowings under bank line of credit 35,616
Additional borrowings 17,915
Stockholders' equity (net capital deficiency) (2,715)
No pro forma statements of operations data of the Retained Business are
shown because the pro forma adjustments referred to above would have no
statements of operations impact for the six-month period ended June 30, 1996,
other than loss of $894 income tax benefit.
- --------------------------------------------------------------------------------
29
- --------------------------------------------------------------------------------
BMS
The selected historical consolidated financial data of BMS set forth in the
table below have been derived from the audited financial statements of BMS for
each of the five fiscal years through the period ended December 31, 1995 and the
unaudited financial statements of BMS for the six-month periods ended June 30,
1996 and 1995. The selected historical consolidated financial data set forth
below should be read in conjunction with the historical consolidated financial
statements and the notes thereto contained in BMS's Annual Report on Form 10-K
for the year ended December 31, 1995 and BMS's Quarterly Report on Form 10-Q for
the six months ended June 30, 1996, which are incorporated by reference herein.
In BMS's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position and
results of operations for such six-month periods have been made. The results of
operations for the six-month period ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year 1996. See
"Incorporation of Certain Information by Reference" and "Available Information".
Pro forma financial statements for BMS giving effect to the Merger are not
included in this Proxy Statement/Prospectus because the Merger will not have a
material effect on BMS.
Six Months
Ended
June 30, Year Ended December 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in Millions, Except Per Share Amounts)
Income Statement Data
Net Sales ........................ $ 7,365 $ 6,746 $13,767 $11,984 $11,413 $11,156 $10,571
Net Earnings (a) ................. $ 1,381 $ 1,264 $ 1,812 $ 1,842 $ 1,959 $ 1,538 $ 1,991
Earnings per common share (a) .... $ 2.75 $ 2.49 $ 3.58 $ 3.62 $ 3.80 $ 2.97 $ 3.82
Dividends per common share ....... 1.50 1.48 2.96 2.92 2.88 2.76 2.40
Balance Sheet Data (as of end
of period)(b)
Current assets ................... 6,729 6,890 7,018 6,710 6,570 6,621 5,567
Property, plant and equipment,
net ........................... 3,798 3,744 3,760 3,666 3,374 3,141 2,936
Insurance recoverable ............ 934 966 959 968 1,000 -- --
Excess of cost over net
tangible assets received in ... 1,430
business acquisitions ......... 1,201 1,219 939 191 153 170
Total assets ..................... $13,750 $13,579 $13,929 $12,910 $12,101 $10,804 $ 9,416
Current liabilities .............. 4,766 4,399 4,806 4,274 3,065 3,300 2,752
Long-term debt ................... 572 679 635 644 588 176 135
Total liabilities ................ 7,685 7,368 8,107 7,206 6,161 4,784 3,621
Stockholders' equity ............. $ 6,065 $ 6,211 $ 5,822 $ 5,704 $ 5,940 $ 6,020 $ 5,795
(a) Includes a special charge for pending and future product liability claims
of $950 million before taxes, $590 million after taxes, or $1.17 per share,
in 1995, $750 million before taxes, $488 million after taxes, or $.96 per
share, in 1994 and $500 million before taxes, $310 million after taxes, or
$.60 per share, in 1993. Includes a provision for restructuring of $310
million before taxes, $198 million after taxes, in 1995 and $890 million
before taxes, $570 million after taxes, in 1992.
(b) Reference is made to Note 2 Special Charge, Note 3 Acquisitions and
Divestitures, Note 4 Restructuring and Note 17 Contingencies, appearing in
the Notes to Consolidated Financial Statements included in Part II, Item 8
of the BMS Form 10-K, which is incorporated herein by reference.
- --------------------------------------------------------------------------------
30
RISK FACTORS
In deciding whether to approve and adopt the Merger Proposal and, if
applicable, the Preferred Stock Proposal, stockholders should carefully evaluate
the following matters, in addition to the matters set forth under "Special
Factors" in the Information Statement attached hereto as Appendix G and other
matters described in this Proxy Statement/Prospectus and in the Information
Statement.
Indemnification Obligations of the Former Axion Stockholders, AHC and the 81%
AHC Subsidiaries
AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each Former Axion
Stockholder will become a party to the Indemnification Agreement, the Tax
Matters Agreement and the Escrow Agreement. Pursuant to these agreements, AHC,
the 81% AHC Subsidiaries and the Former Axion Stockholders will agree to
indemnify the BMS Indemnified Parties (including BMS, the Surviving Corporation,
OPUS, OTNC and the Partnership) against certain liabilities, including
liabilities relating to or arising from any breach of any representation,
warranty or covenant of Axion or any of its subsidiaries (including OTN) in any
Document; any material misstatements or omissions contained in this Proxy
Statement/Prospectus, the Information Statement or any Required AHC Document
with respect to information related to Axion and its subsidiaries; the Acquired
Assets, the Assumed Liabilities and the Acquired Business and the business of
AHC and OPUS Sub (other than Retained Liabilities); the business of Axion and
its subsidiaries (including OTN) prior to the Merger (other than Retained
Liabilities); claims of stockholders and certain other persons to the extent
relating to or arising from the execution by Axion or any of its subsidiaries
(including OTN) of any of the Documents or the consummation of the transactions
contemplated thereby (including claims for indemnification by any officer or
director of Axion or any of its subsidiaries (including OTN)); Excess Axion
Expenses; any breach of terms, covenants or conditions, gross negligence or
wilful misconduct and certain liabilities related to the existing contractual
arrangements between BMS, on the one hand, and OTNC and the Partnership, on the
other hand; certain pre-closing tax liabilities of Axion and its subsidiaries
(including OTN), including certain tax liabilities that will arise from the
distribution of AHC Preferred Stock to Non-United States Holders; and any tax
liabilities that will arise if and to the extent that the Contributions, the
Distribution and related transactions generate additional taxable income.
To secure these indemnification obligations, immediately following the
Effective Time, the Escrowed Shares, valued at $5,000,000, will be placed in
escrow and AHC will place the Escrowed Cash of $5,000,000 in escrow. In
addition, AHC and the 81% AHC Subsidiaries each have agreed for a period of six
years following the Closing Date (subject to extension in certain circumstances)
to certain restrictive covenants, including prohibitions on liquidation, payment
of dividends or other distributions (including by redemption or repurchase) with
respect to any of its capital stock and transactions with affiliates (including
OnCare) on a non-arms' length basis and restrictions related to mergers or sales
of all or substantially all their assets. These prohibitions and restrictions
are intended to prevent AHC and the 81% AHC Subsidiaries from engaging in
transactions that might have the effect of limiting the availability of assets
of AHC and the 81% AHC Subsidiaries to satisfy their indemnification obligations
under the Indemnification Agreement and the Tax Matters Agreement to the BMS
Indemnified Parties.
Certain of the AHC Indemnifying Parties' (as defined herein)
indemnification obligations are subject to agreed limitations. Indemnification
obligations for losses arising from or related to any breach of any
representation, warranty or covenant by Axion or any of its subsidiaries
(including OTN) in any Document or any losses directly related to OTN or the
OPUS Station Business are subject to a $500,000 threshold and a $12,000,000 cap.
Indemnification obligations for losses relating to or arising out of breaches of
any representation, warranty or covenant that is directly related to OTN are
limited to 50% of the amount of such losses. All other indemnification
obligations are unlimited in amount. Indemnification obligations for losses
related to or arising from any breach of
31
representation or warranty of Axion or any of its subsidiaries (including OTN)
in any of the Documents terminate on March 31, 1998 (or, in certain limited
circumstances, on the third anniversary of the Closing Date). All other
indemnification obligations survive in perpetuity. None of the foregoing
limitations will apply in certain circumstances involving fraud or any
misrepresentation or breach of which Axion, AHC or any 81% AHC Subsidiary or
their respective officers or directors had knowledge or any intentional breach
of any covenant by any such person.
The indemnification obligations of each Former Axion Stockholder will be
limited in amount to such Former Axion Stockholder's pro rata share of the
Escrowed Shares, except in certain circumstances involving fraud, intentional
misrepresentation or intentional breach of a covenant by any such Former Axion
Stockholder, and will terminate one year after the Closing Date, subject to a
holdback of Escrowed Shares for any then Pending Claims. During such period BMS
will recover indemnification from the Escrowed Shares even if Escrowed Cash is
also available in respect of an indemnifiable loss, subject to certain
exceptions. THERE CAN BE NO ASSURANCE AS TO WHETHER ALL OR ANY PORTION OF SUCH
ESCROWED SHARES WILL EVENTUALLY BE RELEASED TO FORMER AXION STOCKHOLDERS.
To the extent not previously paid to BMS in respect of an indemnifiable
loss, up to $4,000,000 of the Escrowed Cash may be released to AHC on the second
anniversary of the Closing Date and the balance of such Escrowed Cash may be
released to AHC on the sixth anniversary of the Closing Date, in each case
subject to a holdback for any then Pending Claims. AHC and the 81% AHC
Subsidiaries' indemnification obligations are not limited to the Escrowed Cash.
THERE CAN BE NO ASSURANCE AS TO WHETHER ALL OR ANY PORTION OF SUCH ESCROWED CASH
WILL EVENTUALLY BE RELEASED TO AHC OR THAT THE INDEMNIFICATION OBLIGATIONS OF
AHC AND THE 81% AHC SUBSIDIARIES WILL NOT EXCEED THE AMOUNT OF THE ESCROWED
CASH. Failure to obtain the release of such Escrowed Cash or the incurrence of
indemnification obligations in excess of the Escrowed Cash (which AHC and the
81% AHC Subsidiaries may not have the resources to pay) could have a material
adverse effect on AHC's business, financial condition or results of operations
and, accordingly, the value of the AHC Preferred Stock. THERE ALSO CAN BE NO
ASSURANCE THAT AHC AND THE 81% AHC SUBSIDIARIES WILL HAVE SUFFICIENT RESOURCES
OR LIQUIDITY TO MEET THEIR INDEMNIFICATION OBLIGATIONS AND, ACCORDINGLY, THERE
CAN BE NO ASSURANCES THAT THE VALUE OF THE AHC PREFERRED STOCK WILL NOT BE
MATERIALLY ADVERSELY AFFECTED.
In addition, the restrictive covenants referred to above and the existence
of potentially unlimited indemnification obligations may restrict the ability of
AHC to obtain financing or engage in certain transactions, including
acquisitions and strategic alliances. Failure to obtain financing or engage in
such transactions could have a material adverse effect on AHC's business,
financial condition or results of operation and, accordingly, the value of the
AHC Preferred Stock, independent of whether any indemnification payments are
actually made by or on behalf of AHC or the amount thereof.
See "--Certain Federal Income Tax Consequences", "Indemnification
Arrangements--Terms of the Indemnification Agreement", "--Terms of the Tax
Matters Agreement" and "--Terms of the Escrow Agreement", "Relationship with
BMS--Indemnification Agreement; Escrow Agreement; Tax Matters Agreement" and
"Certain Federal Income Tax Consequences".
Business of AHC After the Closing
The business, financial condition and results of operations of AHC after
the Closing and, accordingly, the value of the AHC Preferred Stock to be
received by stockholders of Axion in the Distribution could be materially
32
adversely affected by a number of factors involving several types of risks,
including risks associated with AHC's business and liquidity; with AHC's
contingent indemnification obligations to BMS and its subsidiaries and
associated restrictive covenants limiting AHC's ability to engage in certain
transactions; with the federal income tax consequences of the Distribution and
the Merger; and with certain characteristics of the AHC Preferred Stock and the
potential trading market therefor.
The business of AHC has not generated significant revenues or realized a
profit to date, and has operated and is expected to continue to operate at a
loss for the foreseeable future. AHC's prospects must be evaluated in light of
the risks, expenses and difficulties frequently encountered by recently formed
businesses. AHC has historically been dependent on Axion for funding, and AHC's
future development is dependent on its ability to obtain sufficient funding.
There can be no assurance that adequate funds for such development will be
available on acceptable terms, or at all. The cancer-specific managed care
business is characterized, Axion's management believes, by rapid change,
evolving standards and intense competition, and AHC's business is relatively
small and undiversified in nature. There can be no assurance that AHC will be
successful in developing and marketing its products and services, that AHC will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of such products and services, or that
AHC's new products and services and products and service enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance.
Pursuant to the Indemnification Agreement, AHC and the 81% AHC Subsidiaries
each have agreed for a period of six years following the Closing Date (subject
to extension in certain circumstances) to certain prohibitions on liquidation,
payment of dividends or other distributions (including by redemption or
repurchase) with respect to any of its capital stock and transactions with
affiliates (including OnCare) on a non-arms' length basis and to certain
restrictions related to mergers or sales of all or substantially all their
assets. These prohibitions and restrictions were designed to prevent AHC and the
81% AHC Subsidiaries from engaging in transactions that might have the effect of
limiting the availability of assets of AHC and the 81% AHC Subsidiaries to
satisfy their indemnification obligations to the BMS Indemnified Parties and may
restrict AHC's ability to obtain financing or engage in certain transactions,
including acquisitions and strategic alliances. There can be no assurance that
such restrictions will not have a material adverse effect on the business or
financial condition of AHC or the value of the AHC Preferred Stock.
As noted above, AHC and the 81% AHC Subsidiaries are subject to potential
indemnification obligations to BMS and its subsidiaries. The AHC Indemnifying
Parties' indemnification obligations for losses arising from or related to any
breach of any representation, warranty or covenant by Axion or any of its
subsidiaries (including OTN) in any Document or any losses directly related to
OTN or the OPUS Station Business are subject to a $500,000 threshold and a
$12,000,000 cap. Indemnification obligations for losses relating to or arising
out of breaches of any representation, warranty or covenant that is directly
related to OTN are limited to 50% of the amount of such losses. All other
indemnification obligations are unlimited in amount. Indemnification obligations
for losses related to or arising from any breach of representation or warranty
of Axion or any of its subsidiaries (including OTN) in any of the Documents
terminate on March 31, 1998 (or in certain limited circumstances, on the third
anniversary of the Closing Date). All other indemnification obligations survive
in perpetuity. None of the foregoing limitations will apply in certain
circumstances involving fraud or any misrepresentation or breach of which Axion,
AHC or any 81% AHC Subsidiary or their respective officers or directors had
knowledge or any intentional breach of any covenant by any such person. AHC and
the 81% AHC Subsidiaries' indemnification obligations are not limited to the
Escrowed Cash. There can be no assurance as to whether all or any portion of
such Escrowed Cash will eventually be released to AHC or that the
indemnification obligations of AHC and the 81% AHC Subsidiaries will not exceed
the amount of the Escrowed Cash. Failure to obtain the release of such Escrowed
Cash or the incurrence of indemnification obligations in excess of the Escrowed
Cash (which AHC and the 81% AHC Subsidiaries may not have the resources to pay)
could have a material adverse effect on AHC's business,
33
financial condition or results of operations and, accordingly, the value of the
AHC Preferred Stock. There also can be no assurance that AHC and the 81% AHC
Subsidiaries will have sufficient resources or liquidity to meet their
indemnification obligations and, accordingly, there can be no assurances that
the value of the AHC Preferred Stock will not be materially adversely affected.
Although the Distribution is intended to be a tax-free spinoff under
Section 355 of the Code, there is no assurance that the Internal Revenue Service
(or any state or local taxing authority) will agree with such characterization.
Certain tax liabilities to Axion will arise from the distribution of AHC
Preferred Stock to NonUnited States Holders, and to the extent of such tax
liabilities, BMS and the Surviving Corporation will seek indemnification under
the Tax Matters Agreement from AHC. In addition, if the Distribution is
determined to be taxable to Axion as a result of a failure to qualify as a
tax-free spinoff under Section 355 of the Code, BMS and the Surviving
Corporation have the right under the Tax Matters Agreement to seek
indemnification from AHC. Such indemnification may exceed the amount of Escrowed
Cash then remaining (if any), in which case AHC will be required to pay such
indemnification directly.
The Indemnification Agreement provides that for a period of six years
following the Effective Time (subject to extension in certain circumstances),
AHC may not declare any dividends on AHC's capital stock. In addition, there is
no existing trading market for AHC Preferred Stock. AHC has not sought and does
not intend to apply for listing of AHC Preferred Stock on a securities exchange
or seek approval for quotation through an automated quotation system. There can
be no assurance that any trading market will develop for AHC Preferred Stock. In
addition, the AHC certificate of incorporation will provide for various
restrictions on transfer of AHC Preferred Stock. The certificates evidencing the
AHC Preferred Stock will bear a legend referring to these restrictions on
transfer. Certain AHC officers also hold management positions in OnCare. There
can be no assurance that the responsibilities of such persons in their capacity
as officers of OnCare will not result in a conflict of interest with their
duties as AHC officers. Additional factors may also cause a potential conflict
of interest between AHC and OnCare, including the fact that AHC currently
conducts business with OnCare, AHC is a substantial stockholder in OnCare and
AHC and OnCare have a substantially overlapping stockholder base.
Immediately following the Distribution, directors and executive officers of
AHC will, subject to certain assumptions, beneficially own shares of AHC
Preferred Stock representing over 57.2% of the voting power of AHC's then
outstanding voting securities. See "Special Factors" in the Information
Statement attached as Appendix G hereto.
Risk of Decline in Average Value of BMS Common Stock Prior to the Effective Time
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options, resulting in an aggregate of
9,970,509 shares of Axion Common Stock outstanding), and assuming an Average
Value of BMS Common Stock equal to $92.83 (the average per share closing price
of BMS Common Stock for the 10 full NYSE trading days ending September 18, 1996,
the most recent full NYSE trading day available prior to printing this Proxy
Statement/Prospectus), in which event the Conversion Number would be calculated
based on an Average Value of BMS Common Stock equal to the Maximum Price of
$91.43, (a) the Conversion Number would be 0.094 and (b) assuming a market value
of the BMS Common Stock on the date received by holders of Axion Common Stock in
the Merger of $92.83, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger would be approximately
$87 million, or approximately $8.73 per share of Axion Common Stock. There can
be no assurance that these assumptions will be true as of the Effective Time.
34
The Average Value of BMS Common Stock is determined as of five full NYSE
trading days immediately preceding the Effective Time (which date may be after
the date of the Special Meeting), at which time the Average Value of BMS Common
Stock may be less than the assumed $92.83 Average Value of BMS Common Stock
referred to above and indeed may be less than the Minimum Price. If the Average
Value of BMS Common Stock at such time is between the Minimum Price ($82.73) and
the Maximum Price ($91.43), the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be $86 million, or
approximately $8.63 per share of Axion Common Stock (based on the Diluted Share
Assumption and assuming exercise of all Axion Options other than the Goldberg
$10.00 Options). If the Average Value of BMS Common Stock at such time is less
than the Minimum Price, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be less, and may be
substantially less, than $86 million, or approximately $8.63 per share of Axion
Common Stock (based on the Diluted Share Assumption and assuming exercise of all
Axion Options other than the Goldberg $10.00 Options). The foregoing statements
in this paragraph assume that the market value of BMS Common Stock on the
Closing Date is equal to the Average Value of the BMS Common Stock used to
calculate the Conversion Number. However, the actual market value of BMS Common
Stock on the Closing Date may be substantially less than the Average Value of
BMS Common Stock used to calculate the Conversion Number. The actual aggregate
market value on the Closing Date of BMS Common Stock received by holders of
Axion Common Stock in the Merger will be equal to the number of shares of BMS
Common Stock issued in the Merger multiplied by the market value of the BMS
Common Stock on the Closing Date.
Under the terms of the Merger Agreement, Axion does not have the right to
decline to consummate the Merger solely because either the Average Value of BMS
Common Stock used to calculate the Conversion Number is less than the Minimum
Price or because the actual market value of BMS Common Stock on the Closing Date
is less than the Average Value of BMS Common Stock used to calculate the
Conversion Number. Therefore, if the Merger Proposal is adopted and approved and
all other conditions to the Merger are satisfied (or waived by the party for
whose benefit any such condition exists) at or prior to the Effective Time,
Axion stockholders will assume the risk of a decline in the market value of BMS
Common Stock below the Minimum Price and the risk that the actual market value
of BMS Common Stock on the Closing Date is less than the Average Value of BMS
Common Stock used to calculate the Conversion Number and, accordingly, the risk
that the aggregate market value of BMS Common Stock to be received by the
holders of Axion Common Stock in the Merger will be substantially less than $86
million or approximately $8.63 per share (based on the Diluted Share Assumption
and assuming exercise of all Axion Options other than the Goldberg $10.00
Options).
In addition, the number of assumed outstanding shares of Axion Common Stock
for the purpose of calculating the Conversion Number is determined as of
immediately prior to the Effective Time (which date may be after the date of the
Special Meeting), at which time the actual number of outstanding shares of Axion
Common Stock may be greater than the assumed 9,970,509 shares referred to above.
Each share of Axion Common Stock will be converted in the Merger into the right
to receive the Conversion Number of shares of BMS Common Stock. Any increase in
the actual number of outstanding shares of Axion Common Stock as of immediately
prior to the Effective Time would result in a corresponding decrease in the
Conversion Number and, accordingly, in the number of shares of BMS Common Stock
to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
See "The Merger--Terms of the Merger Agreement--Conversion of Axion Common
Stock in the Merger" and "--Conditions--Conditions to Obligations of Axion".
35
Certain Federal Income Tax Consequences
Although each party to the Documents intends to treat the Distribution as a
tax-free spinoff for purposes of Section 355 of the Code and to treat the Merger
as a tax-free reorganization for purposes of Section 368 of the Code, and
although tax opinions have been rendered by Ernst & Young (as to the tax-free
nature of the Distribution under Section 355 of the Code and the Merger) and by
Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian, LLP (as to the
tax-free nature of the Merger) to such effect, such opinions are not binding on
the IRS, and there is no assurance that the IRS (or any state or local taxing
authority) will agree with such opinions. Ernst & Young's opinion is based on
its interpretation as to how various requirements of Section 355 of the Code
should apply to the particular facts presented by the Distribution. With respect
to some of these interpretations, no direct legal precedents exist. Accordingly,
there can be no assurance that the IRS will agree with the conclusions set forth
in the Ernst & Young opinion. No ruling has been sought or will be received from
the IRS. Moreover, no published rulings or cases squarely address the
qualification as a tax-free spinoff under Section 355 of the Code of a
transaction identical to the Distribution. If the IRS were to assert
successfully that the Distribution did not qualify as a tax-free spinoff under
Section 355 of the Code, the receipt of AHC Preferred Stock in the Distribution
would be a taxable transaction to Axion and the Former Axion Stockholders for
federal income tax purposes. Even if the Distribution does qualify as a tax-free
spinoff under Section 355 of the Code, the distribution of the AHC Preferred
Stock by Axion to Non-United States Holders will constitute a taxable
transaction to Axion.
If the Distribution fails to qualify as a tax-free spinoff under Section
355 of the Code, the Former Axion Stockholders will realize gain or loss on the
receipt of AHC Preferred Stock in the Distribution. Stockholders are urged to
consult their own tax advisors regarding such tax consequences. If the
Distribution is determined to be taxable to Axion as a result of a failure to
qualify as a tax-free spinoff under Section 355 of the Code, BMS and the
Surviving Corporation have the right under the Tax Matters Agreement to seek
indemnification from AHC, the Former Axion Stockholders and the other AHC
Indemnifying Parties (as defined herein). Certain tax liabilities to Axion will
arise from the distribution of AHC Preferred Stock to Non-United States Holders,
and to the extent of such tax liabilities, BMS and the Surviving Corporation
will seek indemnification under the Tax Matters Agreement from AHC, the Former
Axion Stockholders and the other AHC Indemnifying Parties. In each case, such
indemnification may exceed the amount of Escrowed Cash and Escrowed Shares then
remaining (if any), in which case AHC will be required to pay such
indemnification directly. Payment of such indemnification may materially
adversely affect AHC and, if AHC or the AHC Indemnifying Parties are unable to
pay such amounts, payment of such tax claims may materially adversely affect
Axion.
If the Merger is determined to be taxable, the Former Axion Stockholders
will realize gain or loss on the receipt of BMS Common Stock in the Merger and
on the receipt of AHC Preferred Stock in the Distribution, and Axion will
recognize gain on the distribution of AHC Preferred Stock to Axion stockholders
(to the extent such gain has not previously been recognized by Axion in
connection with the distribution of AHC Preferred Stock to Non-United States
Holders). Certain tax liabilities will result from such gain, and to the extent
of such tax liabilities, BMS and the Surviving Corporation will seek
indemnification under the Tax Matters Agreement from AHC, the Former Axion
Stockholders and the other AHC Indemnifying Parties. In each case, such
indemnification may exceed the amount of Escrowed Cash and Escrowed Shares then
remaining (if any), in which case AHC will be required to pay such
indemnification directly. Payment of such indemnification may materially
adversely affect AHC and, if AHC or the AHC Indemnifying Parties are unable to
pay such amounts, payment of such tax claims may materially adversely affect
Axion. See "Certain Federal Income Tax Consequences".
In connection with the tax opinions rendered with respect to certain tax
consequences of the Distribution or of the Merger, certain of the Former Axion
Stockholders have signed or will sign letters representing that they have no
plan or intention to sell or otherwise dispose of any of their holdings of (i)
Axion capital stock prior to the
36
Merger, (ii) the AHC Preferred Stock received in the Distribution or (iii) the
BMS Common Stock received in the Merger (the "Continuity of Interest Letters").
In the event that a Former Axion Stockholder knowingly made a misrepresentation
in a Continuity of Interest Letter that resulted in the Merger failing to
qualify as a tax-free reorganization under Section 368 of the Code or the
Distribution failing to qualify as a tax-free spinoff under Section 355 of the
Code, such stockholder would be individually liable for all tax liability
resulting therefrom (which could include the failure of the Distribution and/or
the Merger to be tax-free to the extent described herein). See "Certain Federal
Income Tax Consequences".
Vote Required; Stockholder Agreement
Certain stockholders of Axion which were the beneficial owners, as of the
Record Date, of shares representing 82.6% of the total number of votes entitled
to be cast by holders of Axion Common Stock and Axion Preferred Stock, voting
together as a single class, and 85.2% of the total number of votes entitled to
be cast by holders of Axion Preferred Stock, have entered into the Stockholder
Agreement with BMS and BMS Sub. Pursuant to the Stockholder Agreement, each such
stockholder agreed to vote all of such shares in favor of the Merger Proposal
and the Preferred Stock Proposal, and in each case granted BMS an irrevocable
proxy to so vote such shares. Accordingly, the Merger Proposal and the Preferred
Stock Proposal can be approved by the affirmative vote of such shares even if
all other stockholders of Axion vote against the Merger Proposal and the
Preferred Stock Proposal. The Stockholder Agreement also prohibits such
stockholders from transferring their shares of Axion Common Stock or Axion
Preferred Stock until the Merger is consummated or the Merger Agreement is
terminated. It is therefore expected that the Merger Proposal and the Preferred
Stock Proposal will be approved regardless of the vote of other Axion
stockholders.
In addition, it is a condition to the obligation of BMS to effect the
Merger that no Dissenting Shares be outstanding at the Effective Time. See "The
Merger--Dissenters' Rights" and "--Conditions--Conditions to Obligations of BMS
and BMS Sub".
Rights of Stockholders Following the Merger and Distribution
Upon consummation of the Merger and the Distribution, the Former Axion
Stockholders will become stockholders of BMS and AHC. Certain differences exist
between the rights of holders of Axion Common Stock and the rights of holders of
BMS Common Stock and AHC Preferred Stock, respectively, resulting from
differences in the respective Axion, BMS and AHC certificates of incorporation
and by-laws. See "The Transactions" and "Comparison of Certain Rights of Holders
of BMS Common Stock, Holders of Axion Common Stock and Holders of Axion
Preferred Stock" herein and "Comparison of Certain Rights of Holders" in the
Information Statement attached as Appendix G hereto.
Interests of Certain Persons in the Transactions
In considering the recommendation of the Axion Board, Axion stockholders
should be aware that certain members of Axion's management and the Axion Board
have certain interests in the Merger and the Distribution that are in addition
to the interests of Axion stockholders generally. These interests include the
following consequences under the Axion 1989 Plan (as defined herein) and the
Axion 1995 Plan (as defined herein) and pursuant to the Merger Agreement with
respect to Axion Options: (i) all Axion Options that had not previously become
exercisable and vested will become fully exercisable and vested in connection
with the Merger; (ii) Axion will extend Employee Loans to each executive
officer, in addition to each current employee or consultant, to enable such
individual to exercise in full his or her Axion Options; and (iii) each officer,
employee or consultant who exercises his or her Axion Options will receive in
the Merger shares of BMS Common Stock, which stock will be freely tradable
37
immediately following the consummation of the Merger, subject to contractual
restrictions on the officer's ability to resell the BMS Common Stock and the
limitations set forth under Rule 145 under the Securities Act. As of the Record
Date, options to purchase a total of 1,697,968 shares of Axion Common Stock, at
exercise prices ranging from $0.075 to $10.00 per share, were held by 91 Axion
employees and consultants. It is anticipated that Axion will extend Employee
Loans totaling approximately $6,500,000 to such holders of Axion Options, who
will use such proceeds to exercise Axion Options immediately prior to the Time
of Contribution. Michael D. Goldberg, the President and Chief Executive Officer
and a director of Axion, has advised Axion that he does not intend to exercise
the Goldberg $10.00 Options.
In addition, OTNC has entered into an employment agreement with David
Levison dated as of August 2, 1996, which agreement becomes effective on the
Closing Date and continues for a period of two years. Pursuant to this
agreement, David Levison will serve as President of OTNC. OTNC has entered into
employment agreements substantially similar to David Levison's (other than
compensation amounts) with Warren Dodge, Bret Brodowy, Michael Cunningham, Lynn
Hammerschmidt and James Adams.
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. See "The Merger--Interests of Certain Persons in the
Transactions" and "Effect of Transactions on Axion Employees and Axion Benefit
Plans". The Axion Certificate of Incorporation also provides for exculpation of
directors under certain circumstances. See "Comparison of Certain Rights of
Holders of BMS Common Stock, Holders of Axion Common Stock and Holders of Axion
Preferred Stock--Indemnification of Officers and Directors". In addition, it is
anticipated that AHC will enter into similar indemnification agreements with its
directors and officers, and that the AHC certificate of incorporation and
by-laws will provide, as applicable, for the indemnification of directors and
officers and the exculpation under certain circumstances of directors. See
"Executive Compensation Plans in Effect After the Distribution--AHC
Indemnification Agreements" in the Information Statement attached as Appendix G
hereto.
38
THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to stockholders of Axion
in connection with the solicitation of proxies on behalf of the Axion Board for
use at the Special Meeting.
At the Special Meeting, (i) stockholders of Axion of record as of the
Record Date will be asked to consider and vote upon the Merger Proposal and (ii)
holders of Axion Preferred Stock of record as of the Record Date will be asked
to consider and vote upon the Preferred Stock Proposal.
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and the Axion stockholders. Accordingly, the Axion
Board has unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and unanimously recommends that the
Axion stockholders vote FOR adoption and approval of the Merger Proposal and
that the holders of Axion Preferred Stock vote FOR approval of the Preferred
Stock Proposal. See "The Merger--Background and Reasons for the Merger;
Recommendation of the Axion Board".
Each copy of this Proxy Statement/Prospectus mailed to stockholders of
Axion is accompanied by a form of proxy for use at the Special Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO AXION IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
This Proxy Statement/Prospectus is also being furnished to stockholders of
Axion as the prospectus of BMS relating to the issuance by BMS of shares of BMS
Common Stock in connection with the Merger.
Time, Place and Date
The Special Meeting will be held on October 18, 1996, at 8:00 a.m., local
time at the office of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, legal counsel to Axion, located at 600 Hansen Way, Second Floor, Palo Alto,
California 94304.
Record Date
The Axion Board has fixed the close of business on August 31, 1996, as the
record date (the "Record Date") for determining the Axion stockholders entitled
to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. A complete list of the stockholders entitled to vote at
the Special Meeting will be available during the 10 days prior to the Special
Meeting at Axion's principal executive offices located at 1111 Bayhill Drive,
Suite 125, San Bruno, California 94066 for examination by any stockholder and
will also be available for inspection at the Special Meeting. At the close of
business on the Record Date, 1,606,651 shares of Axion Common Stock were
outstanding and held by 43 holders of record and 6,740,890 shares of Axion
Preferred Stock were outstanding and held by 36 holders of record.
39
Vote Required
Approval of the Merger Proposal requires the affirmative vote of (i) at
least a majority of the total number of votes entitled to be cast by holders of
Axion Common Stock and holders of Axion Preferred Stock, voting together as a
single class and (ii) at least a majority of the total number of votes entitled
to be cast by holders of Axion Preferred Stock, voting together as a single
class. Approval of the Preferred Stock Proposal requires the affirmative vote of
least 66-2/3 percent of the total number of votes entitled to be cast by holders
of Axion Preferred Stock, voting together as a single class. It is a condition
to the respective obligations of each party to the Merger Agreement that the
Merger Proposal and the Preferred Stock Proposal be approved. If the Merger is
not consummated, the Preferred Stock Conversion will not be implemented.
As of the Record Date, the total number of votes entitled to be cast by
holders of Axion Common Stock was 1,606,651, the total number of votes entitled
to be cast by holders of Axion Common Stock and Axion Preferred Stock, voting as
a single class (with each share of Axion Preferred Stock having voting power
equivalent to that of one share of Axion Common Stock) was 8,347,541 and the
total number of votes entitled to be cast by holders of Axion Preferred Stock,
voting as a single class, was 6,740,890.
As of the Record Date, directors and executive officers of Axion and their
affiliates beneficially owned an aggregate of 1,154,000 shares of Axion Common
Stock, or approximately 71.8% of the shares of Axion Common Stock outstanding on
such date. As of the Record Date, directors and executive officers of Axion and
their affiliates beneficially owned an aggregate of 4,682,322 shares of Axion
Preferred Stock, or approximately 69.4% of the shares of Axion Preferred Stock
outstanding on such date. As of the Record Date, directors and executive
officers of Axion and their affiliates beneficially owned shares of Axion Common
Stock or Axion Preferred Stock representing an aggregate of 69.9% of the total
number of votes entitled to be cast by all stockholders of Axion, voting as a
single class.
As of the Record Date, directors and executive officers of BMS did not
beneficially own any shares of Axion Common Stock or Axion Preferred Stock.
Certain stockholders of Axion which were the beneficial owners, as of the
Record Date, of 1,154,000 shares of Axion Common Stock and 5,741,839 shares of
Axion Preferred Stock have entered into the Stockholder Agreement with BMS and
BMS Sub. Pursuant to the Stockholder Agreement, each such stockholder agreed to
vote all shares of Axion Common Stock and/or Axion Preferred Stock beneficially
owned or subsequently acquired by such stockholder in favor of the Merger
Proposal and the Preferred Stock Proposal, and granted BMS an irrevocable proxy
to so vote such shares. Such shares represent 82.6% of the total number of votes
entitled to be cast by holders of Axion Common Stock and Axion Preferred Stock,
voting together as a single class, and 85.2% of the total number of votes
entitled to be cast by holders of Axion Preferred Stock, voting together as a
single class. Accordingly, the Merger Proposal and the Preferred Stock Proposal
can be approved by the affirmative vote of such shares even if all other
stockholders of Axion vote against the Merger Proposal and the Preferred Stock
Proposal. The Stockholder Agreement also prohibits such stockholders from
transferring their shares of Axion Common Stock or Axion Preferred Stock until
the Merger is consummated or the Merger Agreement is terminated.
In addition, it is a condition to the obligation of BMS to effect the
Merger that no Dissenting Shares be outstanding at the Effective Time. See "Risk
Factors--Vote Required; Stockholder Agreement" and "The Merger--Dissenters'
Rights" and "--Conditions--Conditions to Obligations of BMS and BMS Sub".
40
Voting and Revocation of Proxies
A majority of the shares entitled to vote at the Special Meeting,
represented in person or by proxy, constitutes a quorum; provided that with
respect to matters submitted at the Special Meeting solely to a vote of holders
of Axion Preferred Stock, voting as a single class, a majority of shares of
Axion Preferred Stock entitled to vote at the Special Meeting, represented in
person or by proxy, constitutes a quorum. Under the DGCL, in determining whether
the Merger Proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against such proposal. Holders of record of Axion Common Stock at the
close of business on the Record Date are entitled to one vote at the Special
Meeting per share of Axion Common Stock held. When voting with holders of Axion
Common Stock, each holder of record of any series of Axion Preferred Stock is
entitled to the number of votes equal to the number of shares of Axion Common
Stock into which such holder's shares of such series of Axion Preferred Stock
could be converted at the close of business on the Record Date. As a result,
each share of Axion Preferred Stock will in effect have the voting power of one
share of Axion Common Stock. When voting as a class with other holders of Axion
Preferred Stock, holders of any series of Axion Preferred Stock are entitled to
one vote per share of Axion Preferred Stock held.
Shares of Axion Common Stock or Axion Preferred Stock represented by
properly executed proxies in the form enclosed with this Proxy
Statement/Prospectus will, unless such proxies have previously been revoked, be
voted in accordance with the instructions indicated in such proxies. To the
extent instructions are not indicated, shares will be voted FOR the Merger
Proposal and, if applicable, FOR the Preferred Stock Proposal and in the
discretion of the proxy holder as to any other matter that may properly come
before the Special Meeting. The Axion Board knows of no business that will be
presented at the Special Meeting other than the matters described in this Proxy
Statement/Prospectus. An Axion stockholder who has given a proxy may revoke such
proxy at any time prior to its exercise at the Special Meeting by (i) giving
written notice of revocation bearing a later date than the proxy to the
Secretary of Axion, (ii) properly submitting to Axion a duly executed proxy card
relating to the same shares bearing a later date or (iii) attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in and
of itself revoke a proxy. All written notices of revocation and other
communications with respect to revocation of proxies by stockholders should be
addressed as follows: Axion Inc., c/o Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 600 Hansen Way, Second Floor, Palo Alto, California
94304, Attention: Steven M. Spurlock, Esq., or hand-delivered to Mr. Spurlock at
the foregoing address, before the vote is taken at the Special Meeting.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD. IF THE MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE SENT A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR SURRENDERING THEIR CERTIFICATES REPRESENTING
SHARES OF AXION COMMON STOCK. See "The Merger--Exchange of Certificates in the
Merger".
Solicitation of Proxies
Officers and regular employees of Axion may, without being additionally
compensated, solicit proxies by mail, telephone, telegram or personal contact.
Estimated proxy solicitation expenses of $5,000 will be paid by Axion in
connection with the solicitation of proxies for the Special Meeting. Axion does
not currently intend to employ any other party to assist in the solicitation
process.
41
Dissenters' Rights
Holders of Axion Common Stock will be entitled to dissenters' rights in
connection with the Merger. It is a condition to the obligation of BMS to
consummate the Merger that no Dissenting Shares be outstanding at the Effective
Time. See "Risk Factors--Vote Required, Stockholder Agreement" and "The
Merger--Dissenters' Rights" and "--Conditions--Conditions to Obligations of BMS
and BMS Sub".
THE TRANSACTIONS
Pursuant to the transactions described in this Proxy Statement/Prospectus,
BMS will acquire the Retained Business, which consists of (i) OTNC, including
its interest in the Partnership, which distributes oncology drugs and related
supplies to office-based oncologists, and (ii) OPUS, which at the Effective Time
will contain only the OPUS Station Business, which furnishes automated drug
dispensing and inventory tracking systems to office-based oncology practices.
The proposals to be submitted to Axion stockholders at the Special Meeting
relate to the acquisition by BMS from Axion of the Retained Business. The
acquisition of the Retained Business by BMS will be effected through a series of
sequential transactions, including the Contributions, the Distribution and the
Merger, all as set forth in the Merger Agreement and the Distribution Agreement.
Prior to the Effective Time, the Acquired Business will be transferred to AHC
and OPUS Sub, and the AHC Preferred Stock will be distributed to the
stockholders of Axion in the Distribution. After the Distribution and at the
Effective Time, Axion will hold the Retained Business, so that BMS will
effectively acquire the Retained Business in the Merger. The purpose of this
complex structure is to permit the disposition of the Retained Business in a
transaction that should be tax free to Axion's stockholders in which
stockholders of Axion will receive BMS Common Stock and will also retain their
proportionate equity interests in the Acquired Business in the form of AHC
Preferred Stock to be received in the Distribution. See "Risk Factors--Certain
Federal Income Tax Consequences" and "Certain Federal Income Tax Consequences".
For information regarding the Acquired Business and the AHC Preferred Stock, see
the Information Statement attached as Appendix G hereto.
42
The current corporate structure of Axion and its subsidiaries and (to the
extent relevant) BMS and its subsidiaries is as follows:
[Graphic depicting corporate structure of Axion]
Chart depicting the corporate structure of the Acquired Business and the
Retained Business, following the Contributions, the Distribution and the Merger,
as follows: Axion Stockholders will own 100% of the Preferred Stock of AHC and
will own BMS Common Stock received in the Merger constituting approximately
0.02% of the outstanding shares of BMS Common Stock. AHC will be the parent
corporation of OPUS, which will contain the OPUS Matrix Business. BMS will be
the parent corporation of Axion, which in turn will be the parent corporation of
(i) OPUS, which will contain the OPUS Station Business and (ii) OTNC, which will
be the general partner of OTN. BMS will also be the parent corporation of BMOTN,
which will be the limited partner of OTN.
43
The significant sequential transactions that will be effected in order to
accomplish the Contributions, the Distribution and the Merger, all of which will
take place at or shortly before the Effective Time, are as follows:
First, pursuant to the Distribution Agreement, the Partnership will
distribute to OTNC, and OTNC will distribute to Axion, an amount in cash
equal to $13,615,147 (the "Preference Amount");
Second, the Employee Loans will be made and all Axion Options will be
exercised or canceled;
Third, pursuant to the Distribution Agreement, OPUS will contribute
the OPUS Sub Assets (as defined herein) (consisting primarily of assets
related to the OPUS Matrix Business) to OPUS Sub and OPUS Sub will assume
the OPUS Sub Liabilities (as defined herein) (consisting primarily of
Liabilities (as defined herein) relating to the OPUS Matrix Business);
Fourth, pursuant to the Distribution Agreement, OPUS will distribute
all of the stock of OPUS Sub to Axion;
Fifth, pursuant to the Distribution Agreement, Axion will contribute
the stock of OPUS Sub and certain other tangible and intangible assets of
Axion and its subsidiaries, including the OnCare Preferred Stock, the
Employee Loans and an amount in cash equal to the Preference Amount (net of
Retained Cash), but excluding the Retained Assets (as defined herein)
(consisting of assets relating to the OTN Business and the OPUS Station
Business), to AHC, and AHC will assume all the Liabilities of Axion and its
subsidiaries other than the OPUS Sub Liabilities (which will remain
Liabilities of OPUS Sub) and the Retained Liabilities (consisting of
Liabilities relating to the OTN Business and the OPUS Station Business);
Sixth, pursuant to the Distribution Agreement, the issued and
outstanding shares of AHC Common Stock, par value $.0001 per share, all of
which are held by Axion, will be converted into the requisite number of
shares of AHC Preferred Stock to effect the Distribution;
Seventh, pursuant to the Distribution Agreement, in the Distribution
Axion will distribute to each holder of Axion Common Stock one share of AHC
Preferred Stock in respect of each share of Axion Common Stock held by such
holder on the Distribution Record Date and to each holder of Axion
Preferred Stock one share of AHC Preferred Stock in respect of each share
of Axion Preferred Stock held by such holder on the Distribution Record
Date;
Eighth, immediately after the Distribution and immediately prior to
the Merger, each issued and outstanding share of Axion Preferred Stock will
be converted into one fully paid and nonassessable share of Axion Common
Stock; and
Ninth, immediately after the Distribution, the Merger will be
consummated pursuant to the Merger Agreement.
44
Following the Contributions, the Distribution and the Merger, the corporate
structure of Acquired Business and the Retained Business will be as follows:
[Graphic depicting the corporate structure and the
Acquired Business and the Retained Business*]
Chart depicting the current corporate structure of Axion and its subsidiaries
and (to the extent relevant) BMS and its subsidiaries as follows: Axion
stockholders own stock of Axion. Axion is the parent corporation of (i) AHC,
(ii) OPUS, which contains the OPUS Matrix Business and the OPUS Station Business
and (iii) OTNC, the general partner of OTN. BMS is the parent corporation of
BMOTN, which is the limited partner of OTN.
- ----------
* To be approximately 0.02% of the outstanding shares of BMS Common Stock
45
THE COMPANIES
Axion
General
Axion was incorporated under the laws of the State of Delaware on July 30,
1987. Axion is a holding company with three direct wholly owned subsidiaries,
OTNC, AHC and OPUS. OTNC is the general partner of the Partnership, which
distributes oncology drugs and related supplies to office-based oncologists (the
"OTN Business"). Axion's investment in the Partnership constitutes Axion's
principal business, representing 98.2% and 99.9%, respectively, of Axion's
consolidated total revenues and all of Axion's consolidated income from
operations during 1995 and for the six months ended June 30, 1996, and
representing approximately 98.5% of Axion's consolidated total assets at June
30, 1996.
AHC expects that the AHC Business, its principal business, will consist of
providing cancer-specific managed care services to cancer care payers and
providers. The AHC Business has generated limited revenues, and has incurred
losses since AHC's formation in 1994. AHC was formed to carry on the clinical
studies programs which Axion began in 1987 and to continue the development of
oncology disease management programs arising from such clinical studies
programs. OPUS consists of the OPUS Station Business and the OPUS Matrix
Business. The OPUS Station Business furnishes automated drug dispensing and
inventory tracking systems to office-based oncology practices. The OPUS Station
Business has not generated significant revenues, and has operated at a loss
since its inception in 1994. The OPUS Matrix Business consists of (i) computer
software which provides office-based oncology practices with access to drug and
treatment information and (ii) the management information systems currently used
to support Axion's businesses. The OPUS Matrix Business has incurred losses
since its inception in 1994.
Axion is also the beneficial owner of 2,700,000 shares of OnCare Preferred
Stock. OnCare is an oncology physician practice management company formed by
Axion in June 1995. On December 31, 1995, Axion distributed to holders of Axion
Common Stock, holders of Axion Options and holders of Axion Preferred Stock all
Axion's holdings of shares of common stock of OnCare (representing 88.8% of the
common stock of OnCare then outstanding). At the time of such distribution Axion
acquired 700,000 of the shares of OnCare Preferred Stock it currently holds in
exchange for cancellation of a $3.5 million portion of a loan previously made by
Axion to OnCare. In February and March of 1996, Axion spent an additional $10
million to acquire the other 2,000,000 shares of OnCare Preferred Stock it
currently holds.
As a result of the distribution of the Preference Amount, the Contributions
and the Distribution, OTNC, including its interest in the Partnership, and the
OPUS Station Business, including the assets and certain of the liabilities
relating thereto (collectively, the "Retained Business"), will constitute all
the business, assets and liabilities of Axion at the Effective Time. The
Acquired Business, which will include, among other things, the AHC Business, the
OPUS Matrix Business, the OnCare Preferred Stock, all cash and cash equivalents
of Axion and its subsidiaries (other than Retained Cash) and the Employee Loans,
will be distributed to Axion's stockholders in the Distribution immediately
prior to the Merger, and, accordingly, is not described in the remainder of this
section (except as the Acquired Business relates to matters discussed under
"--Facilities", "--Employees" and "--Trademarks" herein).
At June 30, 1996, Axion and its consolidated subsidiaries had total assets
of approximately $159.1 million and stockholders' equity of approximately $27.6
million, and the Retained Business had total assets of approximately $156.9
million, or approximately 98.6% of Axion's consolidated total assets, and
stockholders' equity of $26.7 million, or approximately 98.6% of Axion's
consolidated stockholders' equity. For the six months ended
46
June 30, 1996, and the year ended December 31, 1995, the Retained Business
accounted for approximately $133.1 million, or approximately 99.9%, and $195.3
million, or approximately 98.2%, respectively, of Axion's consolidated net
revenues.
The Acquired Business has not, to date, realized significant revenues, and
has operated and continues to operate at a loss, with funding provided by Axion.
For further information about the Acquired Business, see the Information
Statement attached as Appendix G hereto.
Oncology Therapeutics Network
OTN is a distributor of oncology drugs and related supplies to office-based
oncologists. OTN provides a range of oncology products and supplies from a
variety of manufacturers, reducing the need for its customers to interact with
multiple suppliers. OTN's product catalog has over 700 line items from over 45
manufacturers. In addition, OTN is BMS's exclusive sales agent for sales of BMS
oncology products to U.S. office-based oncologists. A small number of products
account for a majority of OTN's net revenues. Specifically, sales of Kytril(TM),
Zofrank(R) and Neupogenk(R), supportive care medicines manufactured by
SmithKline Beecham PLC, Glaxo-Wellcome PLC and Amgen, Inc., respectively,
accounted for approximately 10%, 16%, and 24% of OTN's net revenues in 1995.
Since the launch of the Oncology Therapeutics Network in September 1990, the
annual dollar volume of products shipped by it has grown from approximately
$16.4 million in 1991 to approximately $459 million (including $274 million in
shipments of BMS oncology products by OTN as exclusive sales agent for BMS
oncology products, which are not included in net revenues of the Partnership) in
1995 and the number of customers served has grown from approximately 370 in 1991
to over 2,200 in 1995.
The wholesale market for cancer pharmaceuticals has grown rapidly over
recent years, according to industry estimates. The industry has seen a shift
from the administration of chemotherapy almost exclusively in the hospital
setting to increased administration of chemotherapy in physicians' offices
outside the hospital, primarily, in Axion management's view, as a result of cost
containment pressures and improvements in the management of the severe side
effects of chemotherapy through the use of supportive care pharmaceuticals.
Hospital-based oncologists are typically served by drug wholesalers, who provide
daily deliveries of large quantities of pharmaceutical products, including
oncology drugs and related supplies, to hospital pharmacies. Hospital-based
oncologists rely on hospital pharmacies to order, receive and inventory drugs as
well as to maintain clinical drug information. Office-based oncologists, lacking
a hospital pharmacy and related services and support, generally face significant
administrative burdens when ordering, stocking and paying for oncology drugs and
related supplies. OTN's objective is to address the cost containment needs and
reduce the administrative burdens of office-based oncologists by attempting to
serve as a convenient, cost-effective, single source of supply of oncology drugs
and related supplies, to reduce inventory and other associated carrying costs,
to increase the productivity of the oncology office, and to provide reliable,
customer-oriented service as well as clinical information regarding cancer
pharmaceuticals and related topics.
OTN believes that its extensive customer base, coupled with what OTN
considers its overall competitive pricing and customer service, also makes it
attractive to drug manufacturers that wish to serve the fragmented office-based
oncologist community through a focused distribution channel. OTN provides
services to manufacturers that include support for product launch,
customer-specific marketing programs, product sampling and market research. OTN
believes that these services are of particular interest to new manufacturer
entrants who are interested in selling products to office-based oncologists but
have not yet established relationships with the medical oncology community.
OTN Strategy. OTN's strategy is to expand its distribution business by
attracting new customers and increasing sales of both BMS and other
manufacturers' oncology products to existing accounts through coordinated sales
and marketing efforts with the BMS oncology sales forces and by expanding its
relationships with other manufacturers
47
of cancer pharmaceuticals. In addition, OTN intends to continue to integrate its
services with the capabilities of OPUS Station units in order to promote, and
capitalize on, the growth of the OPUS Station Business. As discussed below, due
to such integration, in order to realize the full benefits of OPUS Stations,
such as automatic reordering of inventory and data reports, OPUS Station
customers need to order most of their oncology drugs from OTN.
OTN Operations. The majority of OTN's staff is based at OTN's headquarters
in South San Francisco, California. OTN generates sales principally through
telephone sales, a field sales organization and direct mail. Customers can place
orders through a toll-free number from 5:30 a.m. to 5:30 p.m. Pacific time.
Orders are electronically transmitted to one of two warehouse sites, located in
Delaware and southern California, where orders are picked up, packaged and
shipped. These warehouses are operated by a third-party warehousing services
company. OTN maintains inventory levels at these sites intended to be sufficient
to meet anticipated demand.
OTN Sales, Marketing and Customer Support. OTN's internal sales force and
customer service personnel consist of approximately 37 individuals who service
and solicit customers primarily through telephone sales, direct customer contact
and direct mail efforts. In addition, OTN has four national account managers
working in the field whose responsibilities include establishing and maintaining
relationships with OTN's largest customer accounts. OTN's internal sales and
service operations build upon and are coordinated with those of the BMS oncology
sales forces. The BMS oncology sales forces and OTN's sales force together
provide nationwide coverage of over 2,200 customers and sites via telephone
sales and in-person contacts.
EDS Contract. Axion contracted with Electronic Data Systems Corporation
("EDS") in July, 1993 to provide information technology services. EDS provides
dedicated personnel and supplies the hardware and software identified by Axion
and EDS as necessary to meet Axion's information technology needs including
sales, service, finance and accounting functions as well as electronic links to
Axion's partners and customers.
Sales Agency Agreement. Pursuant to a Sales Agency Agreement between BMS
and OTN (the "Sales Agency Agreement"), OTN is BMS's exclusive sales agent for
sales of BMS oncology drugs and biologics to U.S. office- based oncologists. The
Sales Agency Agreement does not, however, prevent other distributors from
reselling BMS oncology products to U.S. office-based oncologists, although BMS
is precluded from selling its oncology products to such distributors at prices
below those charged by BMS for BMS oncology products sold through OTN. OTN
facilitates BMS's sales of oncology products by providing distribution services
at competitive prices to office-based oncologists. Unlike OTN's oncology product
distribution arrangements with other manufacturers, OTN does not purchase
oncology products from BMS for resale. Instead, OTN receives a commission for
BMS oncology products distributed by OTN and, as a result, does not record
product revenues from sales of such products. BMS retains the right to control
pricing and product-related decisions. Currently, OTN is responsible for
collecting (and financing) payments from sales of BMS oncology products for up
to 180 days, and, within 60 days after shipment, remits to BMS the amount of the
receivable for such shipment less commissions. BMS reimburses OTN for the
portion of OTN's financing costs that relate to the sale of BMS oncology
products. BMS ultimately retains the collection risk of receivables arising from
its product sales.
OTN Partnership Agreement. Axion formed the Oncology Therapeutics Network
in September 1990 to distribute oncology drugs and related supplies and to
provide clinically oriented services to office-based oncologists. In July 1993,
the Partnership was formed pursuant to a Limited Partnership Agreement (the
"Partnership Agreement") between Axion's wholly owned subsidiary, OTNC, as
general partner and BMS's wholly owned subsidiary, BMOTN, as limited partner.
Axion contributed its Oncology Therapeutics Network business (excluding any
debts or obligations) to the Partnership and agreed to provide all
administrative, operational and other services necessary to support the
Partnership, subject to reimbursement for its costs by the Partnership. Pursuant
to the Sales Agency Agreement, BMS appointed the Partnership as its exclusive
sales agent for BMS oncology products (and
48
any other oncology products that BMS has the right to sell) to U.S. office-based
oncologists and agreed to promote the Partnership's business with its oncology
sales forces. Each partner also contributed cash to the Partnership and BMS
contributed certain customer lists.
OTNC manages the day-to-day operations of the Partnership and a management
committee retains authority for major Partnership business decisions. Such
management committee currently consists of six members, two designated by the
general partner, two designated by the limited partner and two designated by
mutual agreement of the general partner and the limited partner. Pursuant to an
amendment to the Partnership Agreement dated as of August 2, 1996, BMOTN may, at
any time prior to October 31, 1996, designate a seventh member of the management
committee who, until October 31, 1996, shall have the deciding vote in the event
of any deadlock of such committee.
All obligations of each partner to the other under the Partnership
Agreement are unconditionally guaranteed by their respective parent
corporations. Additional capital contributions by the partners are not required.
The Partnership has a term of 20 years, but can be terminated on either
January 1, 2003 or January 1, 2008 at BMS's option upon at least one year's
prior notice. In addition, the right to terminate the Partnership Agreement and
the Sales Agency Agreement arises under certain circumstances, including
material breach of either agreement, bankruptcy, insolvency or a Change in
Control of Axion. A "Change in Control" for purposes of the Partnership
Agreement and the Sales Agency Agreement includes the sale or other transfer,
directly or indirectly, of a person or substantially all its assets and
business, or a controlling interest therein (including in connection with a
merger or by operation of law). In addition, a Change of Control of OTN or OTNC
is treated under the Sales Agency Agreement as an assignment requiring BMS's
consent, which BMS may withhold in its sole discretion. Such an assignment
without BMS's consent constitutes a material breach of the Agreement, and would
entitle BMS (or BMOTN, as applicable) to terminate the Sales Agency Agreement
and the Partnership Agreement.
In the event the Partnership Agreement is terminated because of a material
breach of the Partnership Agreement or Sales Agency Agreement, the non-breaching
partner is required to elect either to purchase the other partner's interest or
to cause the other partner to purchase the non-breaching partner's interest in
the Partnership, at fair market value as determined by a nationally recognized
investment banking firm selected by the partners. Under certain circumstances
involving bankruptcy or insolvency, upon termination of the Partnership
Agreement, the terminating partner may, but is not required to, elect to
purchase the other partner's interest or to cause the other partner to purchase
the terminating partner's interest in the Partnership, at fair market value
determined as set forth above. In addition, in the event that the Sales Agency
Agreement is terminated as a result of a change in control of Axion, or BMS
exercises its right to terminate the Sales Agency Agreement in 2003 or 2008, BMS
is required to sell, and Axion is required to buy, BMS's interest in the
Partnership, at fair market value determined as set forth above.
Under certain circumstances, upon termination of the Sales Agency
Agreement, either party may elect to extend the Sales Agency Agreement for
varying periods specified in such Agreement; provided that during the term of
such extension the agency granted to OTN thereunder will no longer be exclusive.
OTNC receives an annual preferential allocation of profits during the first
several years of the term of the Partnership as follows: in 1993, the first
$900,000 in profits would have been allocated to OTNC if the Partnership had
earned profits, with the balance allocated 80% to OTNC and 20% to BMOTN; in
1994, this preference was $4.9 million with the balance allocated 80:20 in favor
of OTNC; in 1995, the preference was $10.2 million with the balance allocated
80:20; in 1996, the preference is $18.75 million with the balance allocated
80:20; and in 1997 and thereafter, the preference is zero, with profits
allocated 70:30 in favor of OTNC in 1997, 60:40 in favor of
49
OTNC in 1998, and 50:50 in 1999 and thereafter. The preferences due are
cumulative; any unallocated preference is carried forward for allocation in
later years, together with interest at the prime rate on the accumulated unpaid
preference. The aggregate preference of OTNC over the term of the Partnership,
excluding interest, is $34.75 million, of which approximately $11.9 million has
been paid through June 30, 1996, including $4.8 million paid for the year ended
December 31, 1995 and $7.1 million paid for the six months ended June 30, 1996.
Immediately prior to the Merger, the Preference Amount, totaling $13,615,147 in
cash, will be paid by OTN to OTNC. Losses are allocated equally among the
partners, but losses are not allocated to BMOTN to the extent that such
allocation would take BMOTN's capital account to less than zero.
OPUS Station Business
The OPUS Station Business consists of a computerized drug dispensing and
inventory tracking system that provides secure medication and supply storage,
captures billing information at the time of care, and produces practice-specific
reports on drug usage for office-based oncology practices. The system dispenses
medication stored in the OPUS Station unit ("OPUS Station"), automatically
reorders inventory when integrated with OTN's ordering system and produces
billing records and other reports based on patient and drug selection
information input by office staff. The reports generated by the OPUS Stations
provide information on drug usage by physician, patient, diagnosis, and
treatment regimen and can assist practices in evaluating the relative costs of
chemotherapy regimens used within the practice. The OPUS Station Business has
not generated significant revenues, and has operated at a loss since its
inception in 1994.
The OPUS Station is based on technology licensed from the Pyxis Corporation
("Pyxis") pursuant to an agreement dated May 5, 1995 (the "Pyxis Agreement").
Under the terms of the Pyxis Agreement, OPUS acquired the exclusive right from
Pyxis to promote and market its point-of-use systems, or components that make up
the OPUS Station units, for use in out-patient oncology practices. In addition,
the agreement provides that OPUS must lease a minimum number of OPUS Station
units, from Pyxis on the terms set forth therein and Pyxis must provide OPUS
with service for such units. Pyxis has the right to change the rental rates and
service fees it charges for units leased by OPUS upon 60 days' prior written
notice, but must honor the rental rates and service fees in effect under
existing OPUS Station rental agreements and OPUS Station service agreements for
the duration of their terms. The Pyxis Agreement terminates on December 31, 1997
unless mutually extended by the parties thereto.
As of June 30, 1996, a total of 91 OPUS Stations were in active use at 68
different oncology practices, including eight OPUS Stations in use at six
different oncology practices operated by OnCare. When an oncology practice
orders an OPUS Station, OPUS Station technicians travel to the installation
site, install the machines, and train the office staff. The OPUS Station units
are typically leased to customers on a month-to-month basis or for an extended
term with a 30- or 60-day notice of cancellation; lease payments typically
include the rental cost of the equipment and all service.The OPUS Station
Business has not had significant revenues from the rental of equipment and has
operated at a loss since inception.
In order to realize the full benefits of OPUS Station (automatic reordering
of inventory and data reports), OPUS Station customers need to order most of
their oncology drugs from OTN. Purchases of oncology drugs from OTN by OPUS
Station customers typically exceed 80% of their total oncology drug purchases.
Competition
In Axion's opinion, the environment in which OTN operates is intensely
competitive, and OTN has a number of current and potential competitors,
including drug manufacturers and drug wholesalers that are members of the
National Wholesale Druggists Association ("NWDA"), a significant number of which
have substantially greater
50
financial, technical marketing and human resources capabilities than OTN and
some of which distribute BMS and other manufacturers' oncology products to
office-based oncologists. Established NWDA distributors to hospitals are also
engaging in distributing oncology products to office-based oncologists. Axion
expects additional competition from other established and emerging companies,
particularly if the community of office-based oncologists continues to develop
and expand. Increased competition could result in price reductions, reduced
margins and loss of market share, any of which could materially and adversely
affect OTN and Axion. Axion believes that the principal competitive factors in
the distribution of oncology drugs and related supplies are price, quality of
customer service, technical support and reputation. There can be no assurance
that OTN will be able to compete successfully against current or future
competitors or that competitive pressures faced by OTN, including exclusive
marketing arrangements with respect to key products or superior marketing
capabilities possessed by competitors, will not materially and adversely affect
Axion's business, financial condition and results of operations.
Government Regulation
Various federal and state statutes and regulations govern or influence the
labeling, storage, recordkeeping, reporting, distribution, promotion and
marketing of oncology products. Any failure of OTN or its agents or suppliers to
comply with these and other regulatory requirements could subject Axion to
regulatory and judicial enforcement actions, including but not limited to
product recalls or seizures, injunctions and civil and criminal penalties.
Moreover, if products OTN distributes are withdrawn from the market, Axion's
business, financial condition and results of operations could be materially and
adversely affected.
As a marketer and distributor of pharmaceutical products, OTN is directly
subject to Food and Drug Administration ("FDA") administered laws and
regulations pertaining to the promotion and distribution of such products. The
FDA regulates these matters rigorously, and its enforcement policies and
practices in these areas undergo periodic review and modification. Were the FDA
to apply these laws and regulations in such a manner as to require alterations
in OTN's current practices, Axion's business, financial condition and results of
operations could be adversely affected. OTN may also be affected by government
regulation of the products it distributes and of the manufacturers of such
products.
Even if regulatory approvals have been obtained by a manufacturer for a
product, a marketed drug and its manufacturer are subject to ongoing review by
the FDA, and later discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the product or its manufacturer,
including withdrawal of the product from the market. In addition, there can be
no assurance that review or actions by the FDA or other regulatory authorities
will not involve delays adversely affecting the marketing and sales of products
sold and proposed to be sold by OTN.
OTN's marketing activities are also regulated under federal and state laws
and regulations governing sales practices, including discounting, for health
care products and services (so-called "anti-kickback" laws). These laws and
regulations are broad in scope and are subject to frequent modification and
reinterpretation. Any application of such laws and regulations by a governmental
authority to OTN's marketing practices so as to require alteration of those
practices could have an adverse effect on Axion's business, financial condition
and results of operations. There can be no assurance that OTN's marketing
activities will be determined to be in compliance with applicable laws and
regulations. Noncompliance with such laws and regulations could materially
adversely affect Axion's business, financial condition and results of
operations.
51
Facilities
The Partnership currently leases approximately 18,600 square feet of office
space in a building in South San Francisco, California. This facility is leased
through October 2001 and will continue to be leased by the Partnership after the
Merger.
AHC currently occupies office space at 1111 Bayhill Drive, Suite 125, San
Bruno, California. This office space is leased from OnCare, which has an
informal sublease arrangement with AHC. Such office space will continue to be
leased by AHC from OnCare after the Merger.
The principal executive offices of Axion are located at 1111 Bayhill Drive,
Suite 125, San Bruno, California 94066, and its telephone number at such offices
is (415) 589-5900.
Employees
As of June 30, 1996, Axion and its subsidiaries had approximately 115
employees. Following the Merger, approximately 46% of these employees will be
employees of AHC or OnCare and approximately 54% of these employees will be
employees of the Surviving Corporation and its subsidiaries. None of the
employees of Axion or its subsidiaries is represented by a labor union or is
party to a collective bargaining agreement. Axion and its subsidiaries have not
experienced any work stoppages and consider their relations with their employees
to be good.
Trademarks
Oncology Therapeutics Network(R), Axion(R), and the Axion logo are
registered trademarks of Axion, and Axion HealthCare(TM), OnCare Practice
Utilization System(TM), OPUS(TM), and OPUS Health Systems(TM) are trademarks of
Axion. Further, the Axion HealthCare, OnCare Practice Utilization System and
OPUS trademarks are pending applications at the United States Patent and
Trademarks Office. Following the Effective Time, AHC and its subsidiaries will
retain all rights to the Axion trademark and tradename, as well as trademarks
and tradenames containing the "OPUS" name, and the Surviving Corporation will
amend its Certificate of Incorporation to change its name. Pursuant to the
License Agreement, at the Effective Time AHC will grant the Surviving
Corporation licenses to use certain trademarks and trade names and other
intellectual property to be owned by AHC and its subsidiaries. See "Relationship
with BMS--License Agreement". Pursuant to a Trademark License Agreement, BMS has
licensed to the Partnership the use of certain BMS trademarks and tradenames.
This Trademark License Agreement will terminate at the Effective Time.
Litigation
In the ordinary course of its business, Axion may be subject from time to
time to claims and legal actions. Axion has no history of claims or actions
which have had a material effect on its business, financial condition or results
of operations.
In the ordinary course of its business, Axion (through its subsidiaries)
purchases and resells pharmaceutical products and related medical supplies. As a
result, Axion faces the risk of product liability claims and there can be no
assurance that it will avoid significant product liability exposure. Axion does
not have product liability insurance, and there can be no assurance that a
product liability claim, whether ultimately successful or not, would not have a
material adverse effect on the business, financial condition and results of
operations of Axion.
52
BMS
BMS was incorporated under the laws of the State of Delaware in August 1933
under the name Bristol-Myers Company as successor to a New York business started
in 1887. In 1989, the Bristol-Myers Company changed its name to Bristol-Myers
Squibb Company, as a result of a merger. BMS, through its divisions and
subsidiaries, is a major producer and distributor of pharmaceutical products,
medical devices, nonprescription health products, toiletries and beauty aids. At
June 30, 1996, BMS had total assets of approximately $13,750 million and
stockholders' equity of approximately $6,065 million.
BMS's principal executive offices are located at 345 Park Avenue, New York,
New York 10154-0037 and its telephone number at such offices is (212) 546-4000.
To obtain additional information concerning the business of BMS, including
audited and unaudited financial information, see "Available Information" and
"Incorporation of Certain Information by Reference".
53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AXION
(in thousands of dollars)
The following discussion contains forward-looking statements. Axion's
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Proxy
Statement/Prospectus, particularly in "Risk Factors" herein and in "Special
Factors" in the Information Statement attached as Appendix G hereto.
Overview
Axion's principal business is the OTN Business. Axion formed the Oncology
Therapeutics Network in September 1990 to distribute oncology drugs and related
supplies (collectively, "oncology products") and to provide clinically oriented
services to office-based oncologists. In July 1993, to expand the OTN Business,
Axion formed the Partnership with BMS. Axion contributed its existing
distribution business to the Partnership and BMS agreed to provide the
promotional support of its oncology products sales forces and also appointed the
Partnership the exclusive sales agent to U.S. office-based oncologists for BMS
oncology products. Unlike OTN's oncology product distribution arrangements with
other manufacturers, OTN does not purchase oncology products from BMS for
resale. Instead, OTN receives a commission for BMS oncology products distributed
by OTN and, as a result, does not record product revenues from sales of such
products. BMS retains the right to control pricing and product-related decisions
with respect to BMS oncology products. Currently, OTN is responsible for
collecting (and financing) payments from sales of BMS oncology products for up
to 180 days, and, within 60 days after shipment, remits to BMS the amount of the
receivable for such shipment less commissions. BMS reimburses OTN for the
portion of OTN's financing costs that relate to the sale of BMS oncology
products. BMS ultimately retains the collection risk of receivables arising from
its product sales.
Axion consolidates the Partnership in the Axion financial statements. The
Partnership represents the most significant portion of Axion's consolidated
total assets and revenues and accounts for all of Axion's consolidated income
from operations.
Since its formation in 1987, Axion has engaged in several other
oncology-focused businesses. None of those businesses has achieved substantial
revenues or operated profitably to date. Those businesses include: its oncology
clinical studies programs started in 1987; its oncology drug development
activities started in 1992 and terminated in 1993; the development of its
oncology disease management programs begun in 1994 arising from its oncology
clinical studies programs; its oncology information systems activities, begun in
1994; and its oncology physician practice management business started in June
1995 and distributed (except for the OnCare Preferred Stock held by Axion) to
Axion's stockholders in December 1995.
AHC was formed in late 1994 to carry on the clinical studies programs begun
by Axion in 1987 and to continue the development of oncology disease management
programs arising from such clinical studies programs. AHC expects that the AHC
Business, its principal business, will consist of providing cancer-specific
managed care services to cancer care payers and providers. The AHC Business has
generated limited revenues and has incurred losses since AHC's formation and is
not expected to operate profitably in the foreseeable future.
OPUS was formed in late 1994 to own and operate all of Axion's information
technology assets and resources. OPUS consists of the OPUS Station Business and
the OPUS Matrix Business. The OPUS Station Business furnishes automated drug
dispensing and inventory tracking systems to office-based oncology practices.
The OPUS Station
54
Business has not generated significant revenues, and has operated at a loss
since its inception in 1995, and is not expected to operate profitably in the
foreseeable future. The OPUS Matrix Business consists of (i) computer software
which provides office-based oncology practices with access to drug and treatment
information and (ii) the management information systems to support Axion's
businesses. Pursuant to an agreement with EDS, OPUS has an irrevocable,
perpetual, worldwide exclusive license for the computer software used in the
OPUS Matrix Business. The OPUS Matrix Business has incurred losses since its
inception in 1994, and is not expected to operate profitably in the foreseeable
future.
OnCare was formed in June 1995 to acquire and manage oncology physician
practices. On December 31, 1995, Axion distributed to holders of Axion Common
Stock, holders of Axion Options and holders of Axion Preferred Stock all Axion's
holdings of shares of common stock of OnCare (representing 88.8% of the common
stock of OnCare then outstanding). At the time of such distribution Axion
acquired 700,000 shares of OnCare Preferred Stock in exchange for cancellation
of a $3,500 portion of a loan previously made by Axion to OnCare. In February
and March of 1996, Axion spent an additional $10,000 to acquire 2,000,000
additional shares of OnCare Preferred Stock.
The comments which follow relate to Axion's consolidated results of
operations and liquidity and capital resources. Included in the consolidated
operating results are combined amounts for OnCare in 1995 and AHC and OPUS
(including the OPUS Station and OPUS Matrix Businesses) for the year ended
December 31, 1995 and the six months ended June 30, 1995 and 1996. Net revenues
and net loss amounts for combined OnCare, AHC and the OPUS Matrix Business for
the year ended December 31, 1995 are $3,615 and $2,094, respectively. Net
revenues and net loss amounts for AHC and the OPUS Matrix Business for the
six-month period ended June 30, 1995 are $253 and $844, respectively. Net
revenues and net loss amounts for AHC and the OPUS Matrix Business for the
six-month period ended June 30, 1996 are $104 and $1,376, respectively.
Results of Operations
Three years ended December 31, 1995
Net revenues increased in excess of $70,000 annually in each of the past
two years, from $56,052 in 1993 to $126,369 in 1994 to $198,950 in 1995.
Substantially all of these net revenues arose from the OTN Business. Net
revenues included commissions from BMS to the Partnership of $1,440 in 1993,
$6,527 in 1994 and $9,412 in 1995 as compensation for the Partnership's services
as exclusive sales agent for BMS oncology products. No product sales revenues
are recorded by the Partnership in connection with its role as agent for the
sale of BMS oncology products. The substantial increases in net revenues,
including the increases in BMS commissions, in each of 1994 and 1995 were
attributable principally to a continued increase in product shipments as a
result of increased penetration of existing customer accounts and, to a lesser
degree, to an increase in the number of OTN's customers. The balance of such
increases was attributable to increases in the prices of the oncology products
distributed by OTN, which typically reflect a pass-through of manufacturers'
price increases to the Partnership. There can be no assurance that net revenues
will continue to grow, if at all, at the same rate achieved in the past two
years.
Total costs and expenses increased from $59,982 in 1993 to $122,937 in 1994
to $189,741 in 1995, representing 107%, 97% and 95% of net revenues in 1993,
1994 and 1995 respectively. Cost of revenues, which represent the principal
component of total costs and expenses, represented 91.0%, 89.1% and 88.6% of net
revenues in 1993, 1994 and 1995, respectively. The principal component of cost
of revenues is the purchase cost of oncology products, which remained relatively
constant as a percentage of net revenues during the three-year period due to the
Partnership's efforts to maintain relatively stable mark-up percentages over
purchase cost in establishing selling prices. The decline in cost of revenues
during the three-year period is primarily attributable to a decrease in
55
warehouse and distribution costs as greater shipment volumes have allowed the
Partnership to achieve economies of scale with respect to its warehouse and
distribution costs.
Sales and marketing costs and general and administrative costs declined as
a percentage of net revenues over the three-year period due to the OTN
Business's ability to leverage its existing infrastructure over greater shipment
volumes. Sales and marketing expenses as a percentage of net revenues decreased
from 3% in 1993 to 2% in 1994 and 1% in 1995. General and administrative
expenses as a percentage of net revenues decreased from 10% in 1993 to 7% in
1994 and 6% in 1995.
Axion incurred costs of $1,607 in connection with its product development
program in 1993. These activities were terminated in August 1993. See Note 6 of
Notes to Consolidated Financial Statements on F-13.
In 1993, Axion incurred a loss from operations of $3,930. The substantial
increase in net revenues in each of 1994 and 1995, together with the beneficial
effects on total costs and expenses resulting from an increasing scale of
operations, resulted in income from operations of $3,432 in 1994 and $9,209 in
1995. All of the income from operations in each of 1994 and 1995 was
attributable to the OTN Business. Axion's other businesses operated at a loss
during the three-year period.
Other expense, net was $36 in 1993, $2,004 in 1994 and $135 in 1995. Other
expense, net consists principally of amounts related to the financing of the
Partnership's accounts receivable under various arrangements. From August 1993
until September 1994, to facilitate the provision of credit to OTN customers and
to reduce the requirement for other working capital financing, the Partnership
and BMS entered into agreements with General Electric Capital Corporation
("GECC") for the sale of eligible accounts receivable (both BMS and non-BMS
oncology product related), subject to a 25% cash holdback by GECC of the
uncollected balance. Proceeds from the sale of BMS and non-BMS oncology
product-related accounts receivable were remitted directly by GECC to the
Partnership, less the holdback. Also included in the $36 of other expense, net
in 1993 was income of $996, classified as minority interest and representing
BMOTN allocated share (50%) of the Partnership's net loss for the period from
inception of the joint venture in August 1993 through December 31, 1993. The
Partnership operated profitably after 1993 and all of those profits were
allocated to Axion's interest (none to BMS) under the preferential allocation
formula in the Partnership Agreement. See "The Companies--Axion--Oncology
Therapeutics Network--OTN Partnership Agreement".
Because the Partnership is not required to pay BMS for BMS oncology product
sales for 60 days, during the one-year period that the GECC arrangements were in
effect, the Partnership had net funds available for investment and recognized
interest income. Axion reported interest income of $490 in 1993, $1,306 in 1994
and $756 in 1995. Interest income varies from year to year as a result of the
amount of cash invested from operations, typically on a short-term basis. GECC
fees, less reimbursements from BMS of a portion thereof, were $1,407 in 1993 and
$2,945 in 1994. These fees were reported as other nonoperating expense in those
years. Axion reported interest expense of $115 in 1993, $365 in 1994 and $1,037
in 1995. Interest expense increased significantly from 1994 to 1995 as a result
of the termination of the GECC agreements and the replacement thereof with, for
the period from September 1994 through January 1995, bridge loans, initially
from both Axion and BMS but eventually from BMS alone, and then in January 1995
a revolving bank credit facility for up to $50,000, which financed increased
borrowings to fund working capital requirements arising from increased product
shipments and revenue levels.
In 1993, Axion incurred a loss before provision for income taxes of $3,966.
In 1994, Axion reported $1,428 of income before provision for income taxes and
the same amount of net income, due to a $7,362 increase in income from
operations, which resulted from growth in revenues. No income tax provision was
necessary in 1994 because of the availability of previously unrecognized net
operating loss carryovers. In 1995, income before
56
provision for income taxes increased $7,646 to $9,074, due to a $5,777 increase
in income from operations, which resulted from growth in revenues and associated
economies of increased scale of operations and a $1,869 reduction in other
expense, net primarily due to the termination of the arrangements for sale of
receivables to GECC. A $1,187 provision for income taxes in 1995 reduced net
income in 1995 to $7,887. The 13% effective rate of the income tax provision in
1995 reflected the remaining benefit from previously unrecognized net operating
loss carryovers which were fully utilized in 1995.
Six months ended June 30, 1996 and 1995
Net revenues increased from $89,377 in the 1995 period to $133,161 in the
1996 period. Substantially all of these net revenues arose from the
Partnership's distribution of non-BMS oncology products and from commissions
($4,122 in the 1995 period; $5,544 in the 1996 period) as exclusive sales agent
for BMS oncology products. The increase in revenues (including the increase in
BMS commissions) is attributable principally to a continued increase in product
shipments as a result of increased penetration of existing customer accounts
and, to a lesser degree, an increase in the number of OTN's customers. The
balance of such increases was attributable to increases in the prices of the
oncology products distributed by OTN, which typically reflect a pass-through of
manufacturers' price increases to the Partnership.
Total costs and expenses, consisting primarily of the cost of revenues,
increased in the 1996 period, as a result of the significant increase in net
revenues. Sales and marketing expense was stable in the 1995 and 1996 periods.
General and administrative expense increased from $4,723 in the 1995 period to
$5,495 in the 1996 period due to a number of factors including increase in
personnel. Total costs and expenses were $85,880 in the 1995 period and $125,893
in the 1996 period representing 96% and 95% of net revenues in the 1995 and the
1996 periods, respectively. Cost of revenues, which represent the principal
component of total costs and expenses, represented 89.5% in the 1995 and 1996
periods.
Income from operations increased from $3,497 in the 1995 period to $7,268
in the 1996 period. The increase was attributable primarily to the substantial
increase in revenues of the OTN Business for non-BMS oncology products.
Other income, net and other expense, net were nominal in each period.
Income before provision for income taxes increased from $3,475 in the 1995
period to $7,247 in the 1996 period. The increase was attributable primarily to
the substantial increase in revenues of the OTN Business for non-BMS oncology
products.
Net income increased from $3,175 in the 1995 period (after provision for
income taxes at a 9% effective rate, which reflects the remaining benefit of
unrecognized net operating loss carryovers) to $4,422 in the 1996 period (after
provision for income taxes at a 39% effective rate). No further previously
unrecognized net operating loss carryovers were available in 1996, causing the
increase in the effective rate of the income tax provision in the 1996 period.
Recent Developments
Axion's preliminary consolidated net revenues for July and August of
1996 have been better than those for recent months, due primarily to the
addition of sales of four new oncology drugs approved by the Food and Drug
Administration in May and June of 1996. Such net revenues are not necessarily
indicative of the results that may
57
be expected for the full year ending December 31, 1996, and are not intended to
be a projection of future net revenues or trends.
Liquidity and Capital Resources
Prior to the formation of the Partnership in July 1993, Axion financed its
operating activities primarily through the issuance of five series of Axion
Preferred Stock, which resulted in an aggregate of $17,248 in net proceeds to
Axion. Axion also had borrowed moderate amounts from time to time under various
bank credit facilities to meet its financing needs. In 1993, Axion increased its
borrowings under its then existing bank credit lines from $1,400 to $3,939 in
connection with increased activities relating to entry into the Partnership, and
then repaid the entire $3,939. Axion operated at a loss through 1993, with a
loss of $3,966 in 1993 increasing the accumulated deficit to $8,709 at December
31, 1993.
With the formation of the Partnership in July 1993, there was a need for
substantially increased financial resources, including additional borrowing
capacity, both to grow the OTN Business and to finance OTN's receivables with
respect to sales of BMS oncology products under the Sales Agency Agreement.
Under the Sales Agency Agreement, unlike OTN's oncology product distribution
arrangement with other manufacturers, OTN does not purchase oncology products
from BMS for resale. Instead, OTN receives a commission for BMS oncology
products distributed by OTN and, as a result, does not record product revenues
from sales of such products. OTN is responsible for collecting (and financing)
payments from sales of BMS oncology products for up to 180 days, and, within 60
days after shipment, remits to BMS the amount of the receivable for such
shipment less commissions. BMS reimburses OTN for the portion of OTN's financing
costs that relate to the sale of BMS oncology products. BMS ultimately retains
the collection risk of receivables arising from its product sales. See "The
Companies--Axion--Oncology Therapeutics Network--Sales Agency Agreement".
From August 1993 until September 1994, to facilitate the provision of
credit to OTN customers and to reduce the requirement for other working capital
financing, the Partnership and BMS entered into agreements to sell both BMS and
non-BMS product receivables to GECC, subject to a 25% cash holdback of the
uncollected balance. In September 1994, the arrangement with GECC was
terminated, and BMS provided interim financing under a short-term $30,000
secured note agreement. Also in 1994, Axion received $5,744 in net proceeds
through the issuance of a sixth series of Axion Preferred Stock. In January
1995, the Partnership arranged for a revolving bank credit facility of $50,000,
subject to renewal annually, with borrowings secured by, among other things, the
Partnership's accounts receivable and inventories, its rights under the Sales
Agency Agreement and certain other tangible and intangible collateral. The
$30,000 BMS short-term note was repaid from borrowings under the $50,000
revolving bank credit facility. From January 1995 to date, the ongoing financing
needs of the Partnership have been provided by the $50,000 revolving bank credit
facility. At December 31, 1995, borrowings under the revolving bank credit
facility totaled $35,617. At December 31, 1995 and June 30, 1996, the
Partnership also had available in excess of $14,000 and $9,000, respectively,
which had not been drawn upon under the $50,000 revolving credit line. The
revolving bank credit facility expires December 31, 1996.
Axion has been profitable since 1994 with net income of $1,428 in 1994,
$7,887 in 1995 and $4,422 in the six months ended June 30, 1996. At December 31,
1995, cash, cash equivalents and short-term investments amounted to $13,522. At
June 30, 1996, these same items amounted to $3,186 reflecting the use of $10,000
during the first quarter for the acquisition of additional OnCare Preferred
Stock. Preference payments received by Axion from the Partnership total
approximately $11,900, including approximately $4,800 in 1995 and $7,100 in the
six months ended June 30, 1996.
58
THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference. As
used in this Proxy Statement/Prospectus, the "Retained Company" or the "Retained
Companies", as the case may be, means Axion, together with its subsidiaries,
OTNC, OPUS and the Partnership, which collectively will own and conduct the
Retained Business at the Effective Time. All Axion stockholders are urged to
read the Merger Agreement in its entirety.
Background and Reasons for the Merger; Recommendation of the Axion Board
Axion's management regularly reviews its current business strategies and
evaluates new opportunities.
In 1994, Axion determined that there were significant opportunities to
build on its relationships with oncologists to develop a cancer disease
management services business (combined with oncology information services).
In early 1995, certain customers of the OTN oncology drug and related
supplies distribution business (the "OTN Business") reduced their purchases from
OTN due to such customers' perception that a conflict existed between the OTN
Business, on the one hand, and Axion's developing cancer disease management
services business, on the other hand. Concerns about this perceived conflict
were manifested most strongly by oncology physician practice management ("PPM")
groups, who indicated that they viewed Axion as a competitor or potential
competitor.
As a result, Axion management became increasingly concerned that any
conflict or perceived conflict between the OTN Business and Axion's cancer
disease management services business would prove detrimental to the business and
prospects of OTN. In the third quarter of 1995, the Axion Board instructed
management to consider strategic alternatives to address the conflict issue.
In October 1995, Axion engaged Alex. Brown & Sons Incorporated ("Alex.
Brown") to assist Axion in exploring and effecting strategic alternatives for
the OTN Business. In consultation with Alex. Brown, Axion management recommended
separating the OTN Business from Axion's other businesses. Three alternatives
for accomplishing this separation were recommended: (1) an initial public
offering of OTNC's common stock; (2) a sale of Axion's interest in OTN to
another company; and (3) a sale of Axion's interest in OTN to its joint venture
partner, BMS. Each of these alternatives would have alleviated the conflict
issue. Axion decided to attempt to move forward simultaneously on each of these
three recommended alternatives in an effort to determine which path would result
in the maximum return to Axion's stockholders. Axion did not consider it
desirable to discontinue its cancer disease management business (principally AHC
and OnCare) in light of the significant investments that Axion had made at that
time in such business and its view of the opportunities associated with such
business.
As part of the original negotiation and establishment of the Partnership in
1993, BMS and BMOTN were granted certain rights with respect to the management
and operations of the Partnership, as well as certain protections against a
change in control of Axion, OTNC or the Partnership. The change of control
protections contained in the Partnership Agreement and the Sales Agency
Agreement (pursuant to which OTN was appointed by BMS as its exclusive sales
agent for sales of oncology drugs and biologics to U.S. office-based
oncologists) give BMS the right to terminate the OTN Partnership Agreement and
the Sales Agency Agreement in the event of a Change of Control of Axion. A
Change of Control of OTNC or the Partnership is treated under the Sales Agency
Agreement as an assignment requiring BMS's consent, which BMS is entitled to
withhold in its sole discretion. Such an assignment without BMS's consent would
constitute a material breach of the Agreement, and would entitle BMS
59
to terminate the Sales Agency Agreement and the Partnership Agreement.
Accordingly, implementation of any of Axion's proposed alternatives to separate
the OTN Business from Axion's other businesses required the consent of BMS. In
October 1995, Axion commenced discussions with BMS regarding the prospect of an
initial public offering of OTNC's common stock or, alternatively, the sale of
Axion's interest in the Partnership.
In October 1995, Axion and Alex. Brown began preparation of a registration
statement for a public offering of OTNC's common stock. BMS was willing to
consider a public offering of OTNC's common stock only if BMOTN would retain its
existing contractual rights with respect to the management and operations of the
Partnership. Alex. Brown advised Axion that it would be necessary for BMOTN to
give up certain of such existing contractual rights in order to obtain the
desired valuation from public market investors. As a result, Axion concluded,
based upon advice from Alex. Brown, that a public offering was not feasible
under the existing circumstances. The public offering was abandoned in late
1995.
In December 1995, BMS provided Axion with an oral non-binding indication of
interest with respect to the acquisition of Axion's interest in the Partnership.
Based on discussions with Alex. Brown, Axion concluded that the purchase price
involved was below the value of Axion's interest in the Partnership.
Concerns related to the perceived conflict between the OTN Business and
Axion's cancer disease management business continued during the second half of
1995, particularly because during that period OnCare progressed from the
development stage to the commencement of operations through the acquisition in
August 1995 of an oncology practice group. As a result, Axion determined to
distribute all its holdings of OnCare common stock to stockholders of Axion,
retaining an interest of $3.5 million in OnCare Preferred Stock. The
distribution was completed effective as of December 31, 1995. In February and
March of 1996, Axion spent an additional $10 million to acquire additional
shares of OnCare Preferred Stock. The perception of a conflict by OTN's
customers continued due to Axion's continuing development of AHC's
cancer-specific managed care services business, Axion's significant economic
stake in OnCare and Axion and OnCare's substantially overlapping stockholders
and senior management.
In January 1996, on behalf of Axion, Alex. Brown initiated contacts with a
number of potential acquirors of Axion's interest in the Partnership. Over the
next several months, these contacts resulted in preliminary non-binding
indications of interest from several potential third-party acquirors. During the
first and second quarters of 1996, Axion engaged in preliminary discussions, and
exchanged due diligence materials, with several potential third-party acquirors.
Acquisition discussions also continued in 1996 with BMS. In January 1996,
the discussions with BMS were expanded to include purchasing both Axion's
interest in OTN and the OPUS Station Business.
On April 1, 1996, BMS made a written non-binding proposal to acquire both
Axion's interest in OTN and the OPUS Station Business on terms significantly
more favorable to Axion and its stockholders than had been previously indicated
by BMS. Negotiations ensued during April and May 1996, during which time Axion
also received other non-binding indications of interest from several potential
third-party acquirors. As discussed above, however, any sale of Axion's interest
in OTN to a third party would have triggered the right of BMS or BMOTN, as
applicable, to terminate the OTN Partnership Agreement and/or the Sales Agency
Agreement, and all proposals received by Axion were made subject to or
predicated on the continuation of the Partnership Agreement and Sales Agency
Agreement. Axion believed that none of the potential third-party acquirors would
be willing to acquire its interest in OTN without the benefit of the existing
contractual arrangements with BMS. During the course of these negotiations, BMS
indicated to Axion that it was BMS's intent to acquire Axion's interest in OTN
and that BMS was not willing to commit that it would not exercise its right to
terminate the Partnership Agreement and Sales Agency Agreement in the event of a
sale of Axion's interest in OTN to a third party unless BMOTN would retain
60
its existing negotiated rights with respect to the management and operations of
the Partnership. In late May 1996, BMS again increased its proposed purchase
price and agreed to a transaction structure proposed by Axion designed to make
the proposed sale tax-free to Axion and its stockholders. BMS also agreed to
increase the amount of cash BMS had initially proposed be distributed from the
Partnership to Axion which would be available to fund the development and growth
of the Acquired Business to be distributed to Axion's stockholders. Axion and
BMS entered into a letter of intent on June 20, 1996, and the Merger Agreement
was signed on August 2, 1996. The Amended and Restated Merger Agreement was
signed on September 19, 1996
In evaluating the proposed Merger, the Axion Board discussed and considered
a variety of factors in order to make a determination of what is in the best
interests of Axion and its stockholders. Specifically, the Axion Board
considered:
The continuing need to take action to alleviate the perceived conflict
between the OTN Business and Axion's cancer disease management
services business (including Axion's continued relationship with and
interest in OnCare) in order that such conflict not be detrimental to
the business and prospects of OTN.
The Axion Board's desire to pursue Axion's cancer disease management
services business, including Axion's continued relationship with and
interest in OnCare, particularly in light of the significant
investments made to date by Axion in this business and the Axion
Board's view of the opportunities associated with this business.
The value to be provided to Axion's stockholders as a result of their
receipt of shares of BMS Common Stock in the Merger, including the
anticipated tax-free nature of the proposed transaction to Axion's
stockholders and the liquidity that would be afforded to Axion's
stockholders by an investment in BMS Common Stock.
The indemnification obligations that Axion's stockholders would have
to BMS in connection with the proposed transaction and the limitation
of such obligations, except in certain limited circumstances, to the
$5,000,000 of BMS Common Stock to be held in escrow.
The opportunity for Axion's stockholders to continue to participate on
an equity basis in the growth and development of the cancer disease
management services business, including through Axion's interest in
the OnCare Preferred Stock, as a result of Axion's stockholders'
receipt of shares of AHC Preferred Stock in the Distribution.
o The cash to be provided to AHC in connection with the transaction to
support AHC's operations and development after giving effect to the
$5,000,000 in cash to be held in escrow to secure the indemnification
obligations of Axion's stockholders, AHC and certain of its
subsidiaries to BMS in connection with the proposed transaction and
the uncapped nature of certain of those obligations.
o The viability of other alternatives or potential transactions in light
of the terms of the Partnership Agreement and the Sales Agency
Agreement and the history of Axion's discussions with BMS and other
potential third-party acquirors, including BMS's willingness to
consider an initial public offering of OTNC's common stock only if
BMOTN would retain its existing negotiated rights with respect to the
management and operations of the Partnership and BMS's expressed
intent to acquire Axion's interest in OTN and its unwillingness to
commit that it would not exercise its right to terminate the
Partnership Agreement and the Sales Agency Agreement in the event of a
sale of Axion's interest in OTN to a third
61
party and the likely unwillingness of third parties to proceed with
any transaction if the existing contractual arrangements with BMS were
not in place.
Based on the foregoing, the Axion Board concluded that a sale of its
interest in OTN was necessary to alleviate the ongoing conflict issue and permit
the continued development and growth of its cancer disease management services
business and that the proposed transaction with BMS was the best alternative
available to Axion and its stockholders and represented a fair price to Axion's
stockholders.
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and Axion's stockholders. The Axion Board has
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, and recommends that Axion stockholders vote FOR
approval of the Merger Proposal and that the holders of Axion Preferred Stock
vote FOR approval of the Preferred Stock Proposal.
BMS's Reasons for the Merger
BMS believes that the separation of the OTN Business from Axion's other
businesses will protect and enhance the value of BMS's existing investment in
the Partnership by eliminating any conflict that may have been perceived by
office-based oncology practices or by PPMs that manage (and control purchasing
for) office-based oncology practices. BMS believes that the acquisition of
Axion's interest in OTN will allow BMS to expand the quality of services
provided by BMS to office-based oncology practices and enhance BMS's core
oncology franchise.
Terms of the Merger Agreement
The Merger
At the Effective Time, BMS and Axion will consummate the Merger, in which
BMS Sub will be merged with and into Axion. Axion will be the Surviving
Corporation in the Merger, and the separate existence of BMS Sub will cease.
Certificate of Incorporation and By-Laws
The Amended and Restated Certificate of Incorporation of Axion (the "Axion
Certificate of Incorporation") will be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law. The By-laws of Axion, as amended and restated (the "Axion
By-laws"), in effect at the Effective Time will be the by-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
Directors and Officers
The directors of BMS Sub at the Effective Time will be the directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
The officers of BMS Sub at the Effective Time will be the officers of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
62
Conversion of Axion Common Stock in the Merger
At the Effective Time, each issued and outstanding share of Axion Common
Stock (other than any shares of Axion Common Stock owned by Axion or any
subsidiary of Axion or BMS or any wholly owned subsidiary of BMS and any
Dissenting Shares) will be converted into the right to receive the Conversion
Number of fully paid and nonassessable shares of BMS Common Stock (the "Merger
Consideration"). The "Conversion Number" will be equal to the quotient of (a)(i)
$86,000,000 divided by (ii) the Average Value of BMS Common Stock divided by (b)
the number of shares of Axion Common Stock outstanding immediately prior to the
Effective Time (calculated on a fully diluted basis assuming each share of Axion
Preferred Stock outstanding immediately prior to the Effective Time has been
converted in accordance with its terms into one share of Axion Common Stock and
all Axion Options outstanding immediately prior to the Effective Time have been
exercised or canceled and the related subject shares (other than any subject
shares related to any portion of any Axion Option that shall have been canceled
and not exercised) of Axion Common Stock are outstanding (collectively, the
"Diluted Share Assumption")). The term "Average Value of BMS Common Stock" means
an amount equal to the average of the per share closing prices of BMS Common
Stock as reported on the NYSE Tape for the 10 consecutive full NYSE trading days
ending on the fifth full NYSE trading day immediately preceding the Effective
Time; provided that (A) if the BMS Board declares a cash dividend on the
outstanding shares of BMS Common Stock having a record date after the Effective
Time but an ex-dividend Ex-Date that occurs during the averaging period, then
for purposes of computing the Average Value of BMS Common Stock, the closing
price on the Ex-Date and any trading day in the averaging period after the
Ex-Date will be adjusted by adding thereto the amount of such dividend and (B)
if the BMS Board declares a cash dividend on the outstanding shares of BMS
Common Stock having a record date before the Effective Time and an Ex-Date that
occurs during the averaging period, then for purposes of computing the Average
Value of BMS Common Stock, the closing price on any trading day before the
Ex-Date will be adjusted by subtracting therefrom the amount of such dividend.
Notwithstanding anything to the contrary contained in the Merger Agreement, in
the event that as of the Closing Date the Average Value of BMS Common Stock is
less than the Minimum Price ($82.73), then for the purposes of calculating the
Merger Consideration, the Average Value of BMS Common Stock will be deemed to be
the Minimum Price, and in the event that as of the Closing Date the Average
Value of BMS Common Stock is greater than the Maximum Price ($91.43), then for
the purposes of calculating the Merger Consideration, the Average Value of BMS
Common Stock will be deemed to be the Maximum Price. If, prior to the Effective
Time, the BMS Board declares a stock split, stock combination, stock dividend or
other non-cash distribution on the outstanding shares of BMS Common Stock, then
the Minimum Price and Maximum Price (and if the Ex- Date for such event occurs
during the averaging period, the Average Value of BMS Common Stock) will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options (as defined herein), resulting in
an aggregate of 9,970,509 shares of Axion Common Stock outstanding), and
assuming an Average Value of BMS Common Stock equal to $92.83 (the average per
share closing price of BMS Common Stock for the 10 full NYSE trading days ending
September 18, 1996, the most recent full NYSE trading day available prior to
printing this Proxy Statement/Prospectus), in which event the Conversion Number
would be calculated based on an Average Value of BMS Common Stock equal to the
Maximum Price of $91.43, (a) the Conversion Number would be 0.094 and (b)
assuming a market value of the BMS Common Stock on the date received by holders
of Axion Common Stock in the Merger of $92.83, the aggregate market value of BMS
Common Stock to be received by holders of Axion Common Stock in the Merger would
be approximately $87 million, or approximately $8.73 per share of Axion Common
Stock. There can be no assurance that these assumptions will be true as of the
Effective Time.
63
The Average Value of BMS Common Stock is determined as of five full NYSE
trading days immediately preceding the Effective Time (which date may be after
the date of the Special Meeting), at which time the Average Value of BMS Common
Stock may be less than the assumed $92.83 Average Value of BMS Common Stock
referred to above and indeed may be less than the Minimum Price. If the Average
Value of BMS Common Stock at such time is between the Minimum Price ($82.73) and
the Maximum Price ($91.43), the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be $86 million, or
approximately $8.63 per share of Axion Common Stock (based on the Diluted Share
Assumption and assuming exercise of all Axion Options other than the Goldberg
$10.00 Options). If the Average Value of BMS Common Stock at such time is less
than the Minimum Price, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be less, and may be
substantially less, than $86 million, or approximately $8.63 per share of Axion
Common Stock (based on the Diluted Share Assumption and assuming exercise of all
Axion Options other than the Goldberg $10.00 Options). The foregoing statements
in this paragraph assume that the market value of BMS Common Stock on the
Closing Date is equal to the Average Value of the BMS Common Stock used to
calculate the Conversion Number. However, the actual market value of BMS Common
Stock on the Closing Date may be substantially less than the Average Value of
BMS Common Stock used to calculate the Conversion Number. The actual aggregate
market value on the Closing Date of BMS Common Stock received by holders of
Axion Common Stock in the Merger will be equal to the number of shares of BMS
Common Stock issued in the Merger multiplied by the market value of the BMS
Common Stock on the Closing Date.
Under the terms of the Merger Agreement, Axion does not have the right to
decline to consummate the Merger solely because either the Average Value of BMS
Common Stock used to calculate the Conversion Number is less than the Minimum
Price or because the actual market value of BMS Common Stock on the Closing Date
is less than the Average Value of BMS Common Stock used to calculate the
Conversion Number. Therefore, if the Merger Proposal is adopted and approved and
all other conditions to the Merger are satisfied (or waived by the party for
whose benefit any such condition exists) at or prior to the Effective Time,
Axion stockholders will assume the risk of a decline in the market value of BMS
Common Stock below the Minimum Price and the risk that the actual market value
of BMS Common Stock on the Closing Date is less than the Average Value of BMS
Common Stock used to calculate the Conversion Number and, accordingly, the risk
that the aggregate market value of BMS Common Stock to be received by the
holders of Axion Common Stock in the Merger will be substantially less than $86
million or approximately $8.63 per share (based on the Diluted Share Assumption
and assuming exercise of all Axion Options other than the Goldberg $10.00
Options).
In addition, the number of assumed outstanding shares of Axion Common Stock
for the purpose of calculating the Conversion Number is determined as of
immediately prior to the Effective Time (which date may be after the date of the
Special Meeting), at which time the actual number of outstanding shares of Axion
Common Stock may be greater than the assumed 9,970,509 shares referred to above.
Each share of Axion Common Stock will be converted in the Merger into the right
to receive the Conversion Number of shares of BMS Common Stock. Any increase in
the actual number of outstanding shares of Axion Common Stock as of immediately
prior to the Effective Time would result in a corresponding decrease in the
Conversion Number and, accordingly, in the number of shares of BMS Common Stock
to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
64
Cash in Lieu of Fractional Shares
No fractional shares of BMS Common Stock will be issued in the Merger. Each
Axion stockholder who otherwise would have been entitled to receive a fraction
of a share of BMS Common Stock (after taking into account all Certificates (as
defined herein) registered to such holder) will receive, in lieu thereof, cash
(without interest) in an amount, less the amount of any withholding taxes which
may be required thereon, equal to such fractional part of a share of BMS Common
Stock multiplied by the per share closing price of BMS Common Stock as reported
on the NYSE Tape on the full NYSE trading day immediately preceding the Closing
Date.
Effective Time; Closing
As soon as practicable following the satisfaction (or waiver by the party
for whose benefit any such condition exists) of the conditions of the Merger
Agreement, BMS, BMS Sub and Axion will file the Certificate of Merger executed
in accordance with the relevant provisions of the DGCL and will make all other
filings or recordings required under the DGCL. The Merger will become effective
and the Effective Time will occur immediately following the Distribution, upon
the filing of the Certificate of Merger with the Delaware Secretary of State or
at such time thereafter as is provided in the Certificate of Merger. The Closing
will take place on a date to be specified by the parties which date will be no
later than the first business day after satisfaction of the conditions to the
Merger Agreement, unless another date is agreed to in writing by BMS, BMS Sub
and Axion.
Exchange of Certificates in the Merger
As soon as reasonably practicable after the Effective Time, BMS will cause
the exchange agent to mail to each holder of record of a certificate or
certificates whose shares were converted into the right to receive shares of BMS
Common Stock (i) the Letter of Transmittal and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of BMS Common Stock. Upon surrender of a Certificate for
cancellation to the exchange agent, together with the Letter of Transmittal,
duly executed, and such other documents as may reasonably be required by the
exchange agent, the holder of such Certificate will be entitled to receive in
exchange therefor a certificate representing that number of whole shares of BMS
Common Stock which such holder has the right to receive pursuant to the
provisions of the Merger Agreement (which, for the avoidance of doubt, will not
include the number of shares of BMS Common Stock that will be deemed to have
been deposited in escrow by such holder in accordance with the provisions of the
Merger Agreement), and the surrendered Certificate will be canceled. AXION
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES REPRESENTING
OUTSTANDING SHARES OF AXION COMMON STOCK FOR EXCHANGE UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL FROM BMS. EXECUTION AND DELIVERY OF THE LETTER OF
TRANSMITTAL BY EACH FORMER AXION STOCKHOLDER WILL RESULT IN EACH SUCH FORMER
AXION STOCKHOLDER BECOMING A PARTY TO AND BOUND BY THE INDEMNIFICATION
AGREEMENT, THE TAX MATTERS AGREEMENT AND THE ESCROW AGREEMENT AND WILL RESULT IN
THE IRREVOCABLE APPOINTMENT OF AHC AS EACH SUCH FORMER AXION STOCKHOLDER'S AGENT
AND ATTORNEY-IN-FACT TO TAKE ANY AND ALL ACTIONS ON BEHALF OF EACH SUCH FORMER
AXION STOCKHOLDER THAT MAY BE NECESSARY IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY SUCH AGREEMENTS. SEE "--INDEMNIFICATION ARRANGEMENTS; ESCROW;
APPOINTMENT OF AHC AS REPRESENTATIVE".
In the event of a transfer of ownership of Axion Common Stock which is not
registered in the transfer records of Axion, a certificate representing the
proper number of shares of BMS Common Stock may be issued
65
to a person other than the person in whose name the Certificate so surrendered
is registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the issuance of shares of BMS
Common Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of BMS that such tax has been paid or is not
applicable. Until surrendered, each Certificate will be deemed at any time after
the Effective Time to represent only the right to receive upon surrender the
certificate representing shares of BMS Common Stock and cash in lieu of any
fractional shares of BMS Common Stock. No interest will be paid or will accrue
on any cash payable in lieu of any fractional shares of BMS Common Stock.
No dividends or other distributions with respect to BMS Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of BMS Common Stock
represented thereby, and no cash payment in lieu of fractional shares will be
paid to any such holder until the surrender of such Certificate in accordance
with the provisions of the Merger Agreement. Following surrender of any such
Certificate, there will be paid to the holder of the Certificate representing
whole shares of BMS Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of cash payable in lieu of any
fractional shares of BMS Common Stock to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of BMS Common
Stock, less the amount of any withholding taxes which may be required thereon,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of BMS Common Stock, less the amount of any withholding
taxes which may be required thereon.
There may be deducted and withheld from the consideration otherwise payable
pursuant to the Merger Agreement to any holder of Axion Common Stock such
amounts as may be required to be deducted and withheld with respect to the
making of such payment under the Code, or under any provision of state, local or
foreign tax law. To the extent that amounts are so withheld and paid over to the
appropriate taxing authority, such withheld amounts shall be treated for all
purposes of the Merger Agreement as having been paid to the holder of Axion
Common Stock in respect of which such deduction and withholding was made.
See "Risk Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries" for a discussion of certain
other matters relating to the Letter of Transmittal.
After the Effective Time, there will be no further transfers on the stock
transfer books of Axion.
Indemnification Arrangements; Escrow; Appointment of AHC as Representative
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder irrevocably
appointing AHC as his/her or its agent and attorney-in-fact to execute and
deliver on such Former Axion Stockholder's behalf, and thereby result in each
such Former Axion Stockholder becoming a party to and bound by, the
Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which
66
each such former Axion Stockholder may be obligated to indemnify any person
pursuant to such agreements or may be entitled to indemnification pursuant to
such agreements or which may be brought by BMS against each such Former Axion
Stockholder to enforce such indemnity; and will result in each such Former Axion
Stockholder ratifying and confirming any action taken by AHC in the exercise of
the power of attorney granted thereby. See "Risk Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries".
Immediately following the Effective Time the Escrowed Shares and the Escrowed
Cash will be placed in escrow to secure certain obligations of such Former Axion
Stockholders and AHC and certain of its subsidiaries to indemnify BMS and its
subsidiaries. There can be no assurance as to whether all or any portion of such
Escrowed Shares will eventually be released to such Former Axion Stockholders or
as to whether all or any portion of such Escrowed Cash will eventually be
released to AHC. See "Indemnification Arrangements--Terms of the Indemnification
Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms of the Escrow
Agreement".
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
Axion as to: the corporate organization, standing and power of Axion, AHC and
each subsidiary of the Retained Company and AHC; the subsidiaries of Axion, the
Retained Company and AHC; the capitalization of Axion and its subsidiaries; the
authorization of the Merger Agreement, the Distribution Agreement, the
Indemnification Agreement, the Tax Matters Agreement, the Escrow Agreement, the
Transitional Services Agreement, the AHC Supply Agreement, the OnCare Supply
Agreement, the License Agreement, the AHC Medstation Agreement, the OnCare
Medstation Agreement and each of the Non-Competition Agreements (collectively,
the "Documents"); required consents and approvals; the noncontravention of any
contract, law, or charter or by-law provision by the Documents or the
consummation of transactions contemplated thereby; the absence of the need,
except as specified in the Merger Agreement, for governmental consents to the
Merger to be obtained by Axion or any of its subsidiaries; the accuracy of the
financial statements provided by Axion and its subsidiaries, the Retained
Company and its subsidiaries and AHC and its subsidiaries; the accuracy of
information supplied by Axion for use in the Form S-4, this Proxy
Statement/Prospectus and the Information Statement attached as Appendix G
hereto, and the other Required AHC Documents; the absence of certain changes or
events having an Axion Material Adverse Effect (as defined in the Merger
Agreement), a Retained Company Material Adverse Effect or an AHC Material
Adverse Effect; certain employee benefit matters; absence of changes in Benefit
Plans; certain tax matters; the absence of excess parachute payments; the
non-applicability of Section 203 of the DGCL or any state or federal
anti-takeover statute to the Merger Agreement and the other Documents and the
transactions contemplated thereby; obligations to brokers and finders; certain
matters relating to the Distribution Agreement including the Retained Assets,
the assets and liabilities of OTNC and intercompany receivables and payables
between Axion and its subsidiaries; compliance by Axion and its subsidiaries
with applicable laws and environmental laws; permits held by Axion and its
subsidiaries and the Retained Company and its subsidiaries; the rights of Axion
and its subsidiaries in certain property or assets that are used in the business
of the Retained Company or any of its subsidiaries, intellectual property,
assets other than real property interests, real property, insurance, accounts
receivable and inventory; pending or threatened litigation against Axion or any
of its subsidiaries; lack of labor controversies relating to Axion or any of its
subsidiaries; absence of certain contracts; bank and savings accounts, safe
deposit boxes, powers of attorney and officers and directors of Axion and its
subsidiaries; transactions with affiliates; effect of the transactions
contemplated by the Merger Agreement and the other Documents on business
relationships of the Retained Company and its subsidiaries; the accuracy of
information furnished; the relationship of Axion and its subsidiaries with
suppliers and customers and absence of any material adverse change in such
relationships; and the accuracy of representations and warranties.
67
As used in the Merger Agreement, any reference to any event, change,
circumstance or development having a material adverse effect on or with respect
to the Retained Company and its subsidiaries taken as a whole (a "Retained
Company Material Adverse Effect") means such event, change, circumstance or
development is materially adverse to the business, operation, assets,
liabilities (including contingent liabilities), results of operations, financial
condition or prospects of such group of entities taken as a whole, or on the
ability of such group of entities taken as a whole to consummate the
transactions contemplated by the Merger Agreement or by any other Document,
including the Contributions, the Distribution and the Merger, or to perform its
obligations under the Merger Agreement or any other Document to which it is or
will be a party; provided that a Retained Company Material Adverse Effect will
not include any changes to the Retained Business occurring directly as a result
of the pendency, announcement or consummation of the Merger. As used in the
Merger Agreement, any reference to any event, change, circumstance or
development having a material adverse effect on or with respect to AHC and its
subsidiaries taken as a whole (an "AHC Material Adverse Effect") means such
event, change, circumstance or development is materially adverse to the
business, operations, assets, liabilities (including contingent liabilities),
results of operations, financial condition or prospects of such group of
entities taken as a whole, or on the ability of such group of entities taken as
a whole to consummate the transactions contemplated by the Merger Agreement or
by any other Document, including the Contributions, the Distribution and the
Merger, or to perform its obligations under the Merger Agreement or any other
Document to which it is or will be a party; provided that the fact that the
business of AHC and its subsidiaries as currently conducted and as proposed to
be conducted immediately following the Effective Time is operating and is
projected to operate on a loss basis to the extent previously disclosed to BMS
in writing will not be deemed to constitute an AHC Material Adverse Effect.
The Merger Agreement also includes representations and warranties by BMS as
to: the corporate organization, standing and corporate power of BMS and BMS Sub;
the valid issuance of BMS Common Stock; the authorization of the Merger
Agreement and the other Documents; the noncontravention of any agreement, law or
charter or by-law provision by the Documents or the consummation by BMS or BMS
Sub of any transactions contemplated thereby; the accuracy of BMS's reports and
financial statements filed with the Commission; the absence of certain changes
or events having a BMS Material Adverse Effect, other than any BMS Material
Adverse Effect arising out of, relating to or resulting from changes in the
economy in general or the pharmaceutical industry or consumer products industry
in general and not relating to BMS or any of its subsidiaries in particular
including any BMS Material Adverse Effect arising out of, relating to or
resulting from any developments in the pharmaceutical industry with respect to
any existing or proposed regulation or legislation related to health care or
health care reform (including, but not limited to, any such regulation or
legislation relating to the pricing or marketing of pharmaceutical products) or
the adoption, enactment or application of any such regulation or legislation, or
any BMS Material Adverse Effect arising out of, relating to or resulting from
matters disclosed in the documents filed by BMS with the Commission on or prior
to the date of the Merger Agreement (or that could reasonably be foreseen to
arise out of, relate to or result from such matters) specified in the Merger
Agreement; pending or threatened litigation against BMS; the accuracy of
representations and warranties; the accuracy of information supplied by BMS for
inclusion in this Proxy Statement/Prospectus; voting requirements; interim
operations of BMS Sub; and obligations to brokers and finders. As used in the
Merger Agreement, "BMS Material Adverse Effect" means a material adverse effect
on the business, operations, assets, liabilities (including contingent
liabilities), results of operations, financial condition or prospects of BMS and
its subsidiaries taken as a whole.
68
Covenants
Ordinary Conduct of Axion and its Subsidiaries
Pursuant to the Merger Agreement, Axion has agreed that during the period
from the date of the Merger Agreement until the Effective Time, except for the
Contributions, the Distribution, the Merger and the other transactions expressly
provided for in the Documents, as expressly contemplated or permitted by the
Merger Agreement or to the extent that BMS otherwise consents in writing (it
being understood that BMS shall be deemed to have consented to any action or
failure to act that would constitute a breach of any of the covenants described
below if and to the extent such action or failure to act was taken pursuant to
the express written direction of the Deciding Member (as defined in the First
Amendment dated as of August 2, 1996 to the Partnership Agreement) in accordance
with the provisions of Section 7.7 of the Partnership Agreement, as amended)
with such consent to be within BMS's sole discretion:
(a) Axion and its subsidiaries will each carry on their respective
businesses in the usual, regular and ordinary course in substantially the
same manner as presently conducted consistent with past practice and will
make all reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with
the Retained Business with the goal that the goodwill and ongoing
businesses of the Retained Business will be unimpaired at the Effective
Time, it being understood that the failure of any employee of the Retained
Company to be an employee of the Retained Company or its subsidiaries at
the Effective Time (other than James W. Adams, Michael B. Cunningham,
Warren M. Dodge, Lynn B. Hammerschmidt and David L. Levison) will not
constitute a breach of this covenant; provided, that no employee of the
Retained Company may be terminated by Axion or any of its subsidiaries
prior to the Effective Time except with cause or with the prior written
consent of BMS which consent will not be unreasonably withheld; provided
further, that the satisfaction of any Pre-JV Sales Taxes and JV Sales Taxes
(each such term as defined in the Tax Matters Agreement) will not
constitute a breach of this covenant. Axion, its subsidiaries and their
respective directors, officers or employees will each continue to use their
respective reasonable best efforts to promote the interests of Axion and
its subsidiaries, and Axion will not, nor will it permit any of its
subsidiaries or any of their respective directors, officers or employees
to, take any action that would conflict with the business of Axion or any
of its subsidiaries or that would have or could reasonably be expected to
have, a Retained Company Material Adverse Effect or an AHC Material Adverse
Effect.
(b) Axion will not, nor will it permit any of its subsidiaries to, (i)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (ii) repurchase, redeem or
otherwise acquire any shares of capital stock of Axion or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities except as disclosed
in the schedules to the Merger Agreement; (iii) transfer or sell, or
authorize or propose or agree to the issuance, transfer or sale by Axion or
any such subsidiary of any shares of its capital stock of any class or
other equity interests, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than the issuance, transfer, sale or disposition of Axion
Common Stock upon the exercise of Axion Options outstanding as of the date
of the Merger Agreement in accordance with their terms on the date of the
Merger Agreement or (iv) issue, declare, set aside, make or pay any
dividends on or other distributions with respect to its capital stock.
69
(c) Axion will not, nor will it permit any of its subsidiaries to,
amend or propose to amend its certificate of incorporation or by-laws or
other comparable charter or organizational documents.
(d) Axion will not, nor will it permit any of its subsidiaries to,
make any change in the lines of business engaged in by (i) the Retained
Company or any of its subsidiaries as of the date of the Merger Agreement
or (ii) AHC or any of its subsidiaries as of the date of the Merger
Agreement that would, based on the facts and circumstances and conduct of
the particular business, materially increase the potential liability of the
Retained Company or any of its subsidiaries under statutes or legal
doctrines permitting the imposition of liability on a parent corporation in
respect of the liabilities of its subsidiaries.
(e) Axion will not, nor will it permit any of its subsidiaries to, (i)
acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any material assets except
as provided in paragraph (h) below or purchases of inventory in the
ordinary course of business consistent with past practice or (ii) make or
agree to make any other investment in any person (whether by means of loan,
capital contribution, purchase of capital stock, obligations or other
securities, purchase of all or any integral part of the business of the
person or any commitment or option to make an investment or otherwise)
(other than loans to Axion employees to fund the purchase of Axion Common
Stock in connection with the exercise of such employee's respective Axion
Options).
(f) Axion will not, nor will it permit any of its subsidiaries to,
sell, lease, license or otherwise dispose of any of its material assets,
except sales of inventory in the ordinary course of business consistent
with past practice.
(g) Axion will not, nor will it permit any of its subsidiaries to, (i)
incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Axion or such
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice
under the Loan Agreement dated as of December 2, 1994, between Bank of
America National Trust and Savings Association and the Partnership, as
amended (the "Loan Agreement"), (ii) permit, allow or suffer to exist any
mortgage, lien, encumbrance, easement, covenant, right-of-way or other
similar restriction of any nature whatsoever which would have been required
to be set forth in schedules to the Merger Agreement if existing on the
date of the Merger Agreement or (iii) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value.
(h) Axion will not, nor will it permit any of its subsidiaries to,
make or agree to make any capital expenditure or expenditures which, in the
aggregate, are in excess of $3,000,000 other than capital expenditures that
will constitute part of the Acquired Assets.
(i) Axion will not, nor will it permit any of its subsidiaries to, (i)
adopt or amend any Benefit Plan or collective bargaining agreement, (ii)
grant to any executive officer or employee any increase in compensation or
benefits or (iii) amend the Oncology Therapeutics Network Corporation
Officers Severance Plan to add any additional participants to such Plan;
provided, however, that Axion may, and may permit its subsidiaries to,
grant an executive officer or employee of AHC an increase in compensation
(but not
70
including benefits) so long as immediately following the Effective Time
neither the Retained Company nor any of its subsidiaries has any direct or
indirect liability whatsoever resulting from such change or increase.
(j) Axion will not, nor will it permit any of its subsidiaries to,
change any of its accounting principles, practices, policies or procedures,
except such changes as may be required by GAAP.
(k) Except as scheduled in the Merger Agreement and except for (i) the
Preference Amount to be distributed pursuant to the Distribution Agreement
and (ii) the intercompany transactions between Axion and its current
subsidiaries in the ordinary course of business consistent with past
practice of the types identified as such in a schedule to the Merger
Agreement, Axion will not, nor will it permit any of its subsidiaries to,
pay, loan or advance any amount to, or sell, transfer or lease any of its
assets or enter into any agreement with Axion or any of its subsidiaries or
affiliates (including OnCare and its subsidiaries).
(l) Axion will, and will cause the Retained Company and its
subsidiaries to, maintain and preserve, consistent with past practice, in
good repair, working order and condition all property material to the
Retained Business and will timely make or cause to be timely made all
appropriate repairs, renewals and replacements thereof, consistent with
past practice.
(m) Except as scheduled in the Merger Agreement, Axion will not, nor
will it permit any of its subsidiaries to, (i) enter into any lease of real
property, except any renewals of existing leases in the ordinary course of
business with respect to which BMS will have the right to participate and
the terms and conditions of which will be approved by BMS (which approval
will not be unreasonably withheld) or (ii) modify, amend, terminate or
permit the lapse of any lease of, or reciprocal easement agreement,
operating agreement or other material agreement relating to, real property
(except modifications or amendments associated with renewals of existing
leases in the ordinary course of business with respect to which BMS will
have the right to participate).
(n) Axion will not, nor will it permit any of its subsidiaries to, (i)
enter into any contract that is required to be assigned to any of the
Retained Companies or to AHC or OPUS Sub in connection with the
transactions contemplated in the Distribution Agreement unless such
contract may be so assigned without any liability to the Retained Company
or any of its subsidiaries or the consent of any third party or (ii) enter
into, terminate or modify in any material respect any material contract
other than in the ordinary course of business consistent with past
practice.
(o) Axion will not, nor will it permit any of its subsidiaries to,
agree, whether in writing or otherwise, to take any of the actions
prohibited by the above.
Additional Covenants of Axion
Pursuant to the Merger Agreement, Axion has agreed as to itself and its
subsidiaries that, except as expressly provided for in the Documents, during the
period from the date of the Merger Agreement and continuing to the Effective
Time:
(a) Notwithstanding the fact that such action might otherwise be
permitted pursuant to the Merger Agreement, Axion will not, nor will it
permit any of its subsidiaries to, take any action that would or is
reasonably likely to result in (i) any of the conditions to the Merger set
forth in the Merger Agreement not being satisfied, (ii) any of the
representations and warranties of Axion set forth in the Merger Agreement
that are qualified as to materiality becoming untrue or (iii) any of such
representations and warranties that
71
are not so qualified becoming untrue in any material respect, or that would
materially impair the ability of Axion to consummate the Contributions or
the Distribution in accordance with the terms of the Distribution Agreement
or the Merger in accordance with the terms of the Merger Agreement or would
materially delay such consummation or that would, to the knowledge of
Axion, disqualify the Distribution as a tax-free spinoff within the meaning
of Section 355 of the Code or disqualify the Merger as a tax-free
reorganization under Section 368(1)(B) of the Code.
(b) Axion will (i) not engage in or allow transfers of assets or
liabilities or engage or enter into other transactions between (A) the
Retained Company and its subsidiaries, on the one hand, and (B)(I) AHC and
its subsidiaries, (II) OnCare and its subsidiaries or (III) any affiliate
of AHC or OnCare, on the other hand, except as expressly contemplated by
the Merger Agreement and by the other Documents, (ii) abide and cause AHC
and its subsidiaries to abide by their respective obligations under the
Documents and (iii) not terminate or amend, or waive compliance with any
obligations under, the Documents (other than the waiver by Axion of the
conditions to its obligations to close under the Merger Agreement and other
than by termination of the Merger Agreement by Axion in accordance with
certain provisions of the Merger Agreement) without the consent of BMS
which consent can be withheld in its sole discretion.
(c) Axion will promptly advise BMS orally and in writing of any change
or development or combination of changes or developments that would cause
the representation with respect to the absence of certain changes or events
to be untrue. Axion will promptly provide BMS (or its counsel) copies of
all filings made by Axion with any Federal, state or foreign Governmental
Entity in connection with the Documents and the transactions contemplated
by the Merger Agreement and the other Documents.
(d) Axion will keep, or cause to be kept, all insurance policies set
forth in the schedules to the Merger Agreement, or suitable replacements
therefor, in full force and effect through the close of business on the
Closing Date. Axion will, and will cause its subsidiaries to, use its
reasonable best efforts to renew the insurance policies set forth in the
schedules to the Merger Agreement, or suitable replacements therefor,
maintained with respect to Axion and its subsidiaries and their respective
assets and properties upon expiration or termination of such policies on a
month-to-month basis.
(e) On the Closing Date, Axion will cause to be delivered to BMS duly
signed resignations (from the applicable board of directors), effective
immediately after the Closing, of all directors of the Retained Company and
each of its subsidiaries and will take such other action as is necessary to
accomplish the foregoing.
(f) (i) From the date of the Merger Agreement through the Closing,
Axion will give prompt notice to BMS of (A) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause
any representation or warranty contained in the Merger Agreement or any
other Document to be untrue or inaccurate in any material respect and (B)
any material failure of Axion or any of its subsidiaries or affiliates, or
of any of its stockholders or holders of Axion Options, to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it under the Merger Agreement or any other Document; provided,
however, that such disclosure will not be deemed to cure any breach of a
representation, warranty, covenant or agreement or to satisfy any
condition. Axion will promptly notify BMS of any default, the threat or
commencement of any action, or any development that occurs before the
Closing that could in any way materially affect the Retained Business, the
Retained Company and its subsidiaries or AHC and its subsidiaries. Axion
will have the continuing obligation until the Closing to supplement or
amend the schedules to the Merger Agreement on a monthly basis with the
final supplement or amendment to such schedules to occur not later than two
business days prior to the Closing.
72
(ii) Axion will promptly notify BMS of and furnish BMS any information
it may reasonably request with respect to, the occurrence to Axion's actual
knowledge of any event or condition or the existence to Axion's actual
knowledge of any fact that would cause any of the conditions to BMS's
obligation to consummate the Merger and the other transactions contemplated
by the Merger Agreement not to be fulfilled.
(g) (i) Axion will, and will direct and use its best efforts to cause
its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may
be ongoing with respect to an Acquisition Proposal (as defined below).
Axion will not, nor will it permit any of its subsidiaries to, nor will it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (A) solicit, initiate or knowingly encourage (including by way
of furnishing information), or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (B) participate in any discussions or negotiations regarding
any Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding sentence
by any director or executive officer of Axion or any of its subsidiaries,
whether or not such person is purporting to act on behalf of Axion or any
of its subsidiaries or otherwise, will be deemed to be a breach of this
covenant by Axion. For purposes of the Merger Agreement, "Acquisition
Proposal" means any inquiry, proposal or offer from any person with respect
to a merger, acquisition, consolidation or similar transaction involving,
or any purchase of all or any significant portion of the assets or any
equity securities of, the Retained Business, other than the transactions
contemplated by the Merger Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would reasonably be
expected to dilute materially the benefits to BMS of the transactions
contemplated by the Merger Agreement and the other Documents.
(ii) Neither the Axion Board nor any committee thereof will (A)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to BMS, the approval or recommendation by such Board or such
committee of the Merger or the Merger Agreement, (B) approve or recommend,
or propose publicly to approve or recommend, any Acquisition Proposal or
(C) cause Axion to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Acquisition
Proposal.
(iii) In addition to the obligations of Axion set forth in paragraphs
(i) and (ii) above, Axion will immediately advise BMS orally and in writing
of any request for information or of any Acquisition Proposal, the material
terms and conditions of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal. Axion
will keep BMS fully informed of the status and details (including
amendments or proposed amendments) of any such request or Acquisition
Proposal.
Covenants of BMS
During the period from the date of the Merger Agreement and continuing to
the Effective Time, BMS agrees as to itself and its subsidiaries, except to the
extent that Axion otherwise consents in writing with such consent to be within
Axion's sole discretion, that, notwithstanding the fact that such action might
otherwise be permitted pursuant to the Merger Agreement, BMS will not, nor will
it permit any of its subsidiaries to, take any action that would or could
reasonably be likely to result in (i) any of the conditions to the Merger set
forth in the Merger Agreement not being satisfied, (ii) any of the
representations and warranties of BMS set forth in the Merger Agreement that are
qualified as to materiality becoming untrue or (iii) any of such representations
73
and warranties that are not so qualified becoming untrue in any material respect
or materially impairing the ability of BMS to consummate the Merger in
accordance with the terms of the Merger Agreement.
Other Agreements of BMS and Axion
Each of BMS and Axion will, subject to certain conditions, use its
reasonable best efforts to cause the Closing to occur and will use its
reasonable best efforts to cause the Closing to occur by September 30, 1996.
Immediately prior to the Time of Contribution, all Axion Options shall be
fully vested, and all such Axion Options shall have been exercised or canceled.
No Axion Options shall be assumed by the Surviving Corporation.
As of the date of the Merger Agreement, BMS and Axion caused the OTN
Partnership Agreement to be amended. See "The Companies--Axion--Oncology
Therapeutic Network--OTN Partnership Agreement".
Each of BMS and Axion will use its reasonable best efforts to negotiate and
enter into (or cause to be entered into) separate agreements for each of the
Retained Business and the Acquired Business with EDS to supersede and replace
the EDS Contract, on substantially the same terms as are set forth in the EDS
Contract.
Certain Regulatory Approvals
The Merger is subject to review under the HSR Act by the FTC and the
Antitrust Division. The Merger is subject to the expiration or earlier
termination of the waiting period under the HSR Act. Axion and BMS each filed
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on July 10, 1996. The waiting period expired on August 9, 1996, without
further action by the FTC or the Antitrust Division.
Stock Exchange Listing
BMS has agreed in the Merger Agreement to use its reasonable best efforts
to cause the shares of BMS Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date. Such approval for listing on the NYSE is a condition to
each party's obligation to consummate the Merger. See "-- Conditions--Conditions
to Each Party's Obligation To Effect the Merger".
Conditions
Conditions to Each Party's Obligation To Effect the Merger
The Merger Agreement provides that the respective obligation of each party
to effect the Merger is subject to the satisfaction or waiver on or prior to the
Closing of the following conditions:
(a)(i) The holders of not less than 66-2/3% of the outstanding shares
of Axion Preferred Stock voting together as a single class will have
elected (A) to convert all outstanding Axion Preferred Stock into Axion
Common Stock in accordance with the Axion Certificate of Incorporation and
(B) that the Merger, the Distribution and related transactions shall not be
deemed to be a liquidation, dissolution or winding up of Axion under the
Certificate of Incorporation of Axion, (ii) the holders of not less than
66-2/3% of the outstanding shares of Axion Preferred Stock voting together
as a single class shall have elected to waive the
74
right of holders of Axion Preferred Stock to receive any dividend
preference that holders of Axion Preferred Stock may otherwise be entitled
to receive pursuant to the Certificate of Incorporation of Axion prior to
any distribution (as defined in the Certificate of Incorporation of Axion)
to holders of Axion Common Stock between a date no later than the date on
which the Form S-4 is declared effective and December 31, 1996, (iii) at
least a majority of the total number of votes entitled to be cast by
holders of Axion Common Stock and holders of Axion Preferred Stock voting
together as a single class will have approved and adopted the Merger
Agreement and (iv) at least a majority of the total number of votes
entitled to be cast by holders of Axion Preferred Stock voting together as
a single class will have approved and adopted the Merger Agreement, in each
case in accordance with the DGCL, other applicable law, the Axion
Certificate of Incorporation and the Axion By-laws.
(b) The shares of BMS Common Stock issuable to Axion's stockholders
pursuant to the Merger Agreement will have been approved for listing on the
NYSE, subject to official notice of issuance.
(c) The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act will have been terminated or will have expired.
(d) All filings required to be made prior to the Closing Date with,
and all consents, approvals and authorizations required to be obtained
prior to the Closing Date from, any governmental entity in connection with
the execution, delivery and performance of the Documents or the
consummation of the Contributions, the Distribution, the Merger and the
other transactions contemplated by the Documents will have been made or
obtained.
(e) (i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger will be in effect; provided, however, that each of the parties will
have used its reasonable best efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any such
injunction or other order that may be entered and (ii) no action, suit or
other proceeding will be pending or, to the knowledge of Axion and BMS,
threatened by any governmental entity that, if successful, would restrict
or prohibit the consummation of the transactions contemplated in the Merger
Agreement or other Documents.
(f) The Form S-4 will have become effective under the Securities Act
and will not be the subject of any stop order or proceedings seeking a stop
order.
(g) Axion's No-Action Request will have been granted by the
Commission.
(h) The pre-Merger transactions contemplated by the Merger Agreement,
including the Contributions and the Distribution, will have become
effective in accordance with the terms of the Distribution Agreement and
each of the agreements contemplated thereby.
Conditions to Obligations of BMS and BMS Sub
The obligations of BMS and BMS Sub to effect the Merger are further subject
to each of the following conditions prior to the Closing, unless waived by BMS:
(a) The representations and warranties of Axion set forth in the
Merger Agreement and the other Documents that are qualified as to
materiality will be true and correct, and the representations and
75
warranties of Axion set forth in the Merger Agreement that are not so
qualified will be true and correct in all material respects, in each case
as of the date of the Merger Agreement and as of the Closing Date as though
made on and as of the Closing Date, except that the accuracy of
representations and warranties that by their terms speak as of the date of
the Merger Agreement or some other date will be determined as of such date
and BMS will have received a certificate signed on behalf of Axion by the
chief executive officer and the chief financial officer of Axion to such
effect.
(b) Each of Axion and its subsidiaries will have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement and the other Documents at or prior to the Closing Date
and BMS will have received a certificate signed on behalf of Axion by the
chief executive officer and the chief financial officer of Axion to such
effect.
(c) Since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to
have, a Retained Company Material Adverse Effect or an AHC Material Adverse
Effect.
(d) Each of the Documents will have been executed substantially in the
forms attached as exhibits to the Merger Agreement or, if not included as
exhibits, in the form mutually agreed to by the parties thereto and BMS, as
the case may be, by the applicable parties thereto (other than BMS and its
affiliates) and will have become effective in accordance with its terms and
be in full force and effect. Axion will have delivered to BMS true, correct
and complete copies of each Document to which BMS is not a party.
(e) BMS will have received (i) a letter of its counsel, Cravath,
Swaine & Moore, to the effect that they reaffirm the opinion they furnished
pursuant to the Merger Agreement to the effect that the Merger will be
treated for Federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Code and (ii) a letter of Axion's
advisors, Ernst & Young, to the effect that they reaffirm the opinion
furnished pursuant to the Merger Agreement concerning the qualification of
the Distribution as a tax-free spinoff under Section 355 of the Code,
except in the case of each of the letters referred to in clauses (i) and
(ii) of this paragraph (e), the specified date referred to will be a date
not more than five days prior to Closing.
(f) There will not be pending or threatened any suit, action or
proceeding by any governmental entity or any other person, or before any
court or governmental authority, agency or tribunal, domestic or foreign,
in each case that has a reasonable likelihood of success, (i) challenging
the acquisition by BMS or BMS Sub of any shares of Axion Common Stock,
seeking to restrain or prohibit the consummation of the Merger, the
Contributions and the Distribution or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from Axion, BMS
or BMS Sub any damages that are material in relation to the Retained
Company and its subsidiaries taken as a whole or AHC and its subsidiaries
taken as a whole, (ii) seeking to prohibit or limit the ownership or
operation by BMS or BMS Sub, or to compel BMS or BMS Sub to dispose of or
hold separate any material portion, of the Retained Business, (iii) seeking
to impose limitations on the ability of BMS or BMS Sub to acquire or hold,
or exercise full rights of ownership of, any shares of Axion Common Stock,
including the right to vote the Axion Common Stock purchased by it on all
matters properly presented to the stockholders of Axion, (iv) seeking to
prohibit BMS or any of its subsidiaries from effectively controlling in any
material respect the Retained Business or (v) which otherwise would have,
or could reasonably be expected to have a Retained Company Material Adverse
Effect or an AHC Material Adverse Effect.
76
(g) Since the effective date of the Form S-4 or the date of this Proxy
Statement/Prospectus or the date of the Information Statement, as
applicable, no event with respect to Axion, any subsidiary of Axion or any
security holder of Axion has occurred which should have been set forth in
an amendment to the Form S-4 or the Form S-1 or a supplement to this Proxy
Statement/Prospectus or the Information Statement or the Application or an
amendment or supplement to any Required AHC Document which has not been set
forth in such an amendment or supplement.
(h) All consents and approvals of all persons (other than governmental
entities) required to be obtained prior to the Closing Date in connection
with the execution, delivery and performance of the Documents and the
consummation of the Contributions, the Distribution, the Merger and the
other transactions contemplated by the Documents and all releases referred
to in the Merger Agreement will have been obtained and will be in full
force and effect.
(i) No involuntary proceeding will be commenced or an involuntary
petition will be filed in a court of competent jurisdiction seeking (i)
relief in respect of Axion or any of its subsidiaries, or of a substantial
part of the property or assets of Axion or any of its subsidiaries, under
Title 11 of the United States Code (the "U.S.C."), as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Axion or any
of its subsidiaries or for a substantial part of their respective property
or assets or (iii) the winding up or liquidation of Axion or any of its
subsidiaries; and such proceeding or petition will continue undismissed for
30 days or an order or decree approving or ordering any of the foregoing
will be entered. None of Axion or any of its subsidiaries will have (i)
voluntarily commenced any proceeding or file any petition seeking relief
under Title 11 of the U.S.C., as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar
law, (ii) consented to the institution of, or failed to contest in a timely
and appropriate manner, any proceeding or the filing of any petition
described above, (iii) applied for or consented to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for Axion or any of its subsidiaries or for a substantial part of the
property or assets of Axion or any of its subsidiaries, (iv) filed an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) made a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or failed
generally to pay its debts as they become due or (vii) taken any action for
the purpose of effecting any of the foregoing.
(j) All existing arrangements between the Surviving Corporation and
its subsidiaries on the one hand and OnCare and AHC and their respective
subsidiaries and affiliates on the other hand will be terminated,
including, but not limited to, termination of the Supply Agreement dated
January 1, 1996, between the Partnership and OnCare but excluding the AHC
Supply Agreement and OnCare Supply Agreement and the AHC Medstation
Agreement and OnCare Medstation Agreement.
(k) Each issued and outstanding share of Axion Preferred Stock will
have been converted into fully paid and nonassessable shares of Axion
Common Stock pursuant to and in accordance with the terms of such Axion
Preferred Stock.
(l) No Dissenting Shares will be outstanding.
(m) All Axion Options will have been exercised or canceled prior to
the Time of Contribution, and no Axion Options will be assumed by the
Surviving Corporation.
77
(n) Immediately prior to the Effective Time, there will not be
outstanding any indebtedness for borrowed money, or any guarantees in
respect of any indebtedness for borrowed money of any third party, in
respect of which the Retained Company or any of its subsidiaries is
obligated, other than indebtedness in an aggregate principal amount of
$35,617,000, consisting only of outstandings under the Loan Agreement and
BMS will have received a certificate signed on behalf of Axion by the chief
executive officer and chief financial officer of Axion to such effect.
Immediately prior to the Effective Time, (i) a certificate of a vice
president of Bank of America National Trust and Savings Association will be
executed and delivered to BMS certifying that the aggregate principal
amount outstanding under the Loan Agreement as of such date does not exceed
$35,617,000 and (ii) an amendment or waiver of the Loan Agreement will be
executed and delivered permitting the Merger and the other transactions
contemplated by the Documents.
(o) (i) BMS and BMS Sub will have received an opinion dated the
Closing Date of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Axion, with respect to such matters as BMS and its counsel
shall reasonably request in form and substance reasonably satisfactory to
BMS and its counsel; and (ii) BMS and BMS Sub will have received an opinion
dated the Closing Date of Shearman & Sterling, special counsel to Axion, in
form and substance reasonably satisfactory to BMS and its counsel, that
after giving effect to the Contributions, the Distribution and the Merger,
AHC is not an "investment company", as such term is defined in Section 3 of
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), which opinion shall include a statement to the effect that it is
Shearman & Sterling's view that a court, properly presented with the
question, would conclude that the 2,700,000 shares of Series A Preferred
Stock of OnCare owned by AHC do not constitute a "security", as such term
is defined in Section 2(a)(36) of the Investment Company Act.
Conditions to Obligations of Axion
The obligations of Axion to effect the Merger are further subject to each
of the following conditions prior to the Closing, unless waived by Axion:
(a) The representations and warranties of BMS set forth in the Merger
Agreement and the other Documents that are qualified as to materiality will
be true and correct, and the representations and warranties of BMS set
forth in the Merger Agreement that are not so qualified will be true and
correct, in all material respects, in each case as of the date of the
Merger Agreement and as of the Closing Date as though made on and as of the
Closing Date, except that the accuracy of representations and warranties
that by their terms speak as of the date of the Merger Agreement or some
other date will be determined as of such date and Axion will have received
a certificate signed on behalf of BMS by an authorized officer of BMS to
such effect.
(b) Each of BMS and BMS Sub will have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement and the other Documents at or prior to the Closing Date and Axion
will have received a certificate signed on behalf of BMS by an authorized
officer of BMS to such effect.
(c) Except as disclosed in any required reports, schedules, forms,
statements and other documents filed by BMS with the Commission and
publicly available on or prior to the date of the Merger Agreement, since
December 31, 1995, no event, change, circumstance or development has
occurred that has had, or could reasonably be expected to have, a BMS
Material Adverse Effect.
78
(d) Each of the Documents to which BMS or BMS Sub is a party will have
been executed substantially in the forms attached as exhibits to the Merger
Agreement or, if not included as exhibits, in the form mutually agreed to
by the parties thereto and Axion, as the case may be, by the applicable
parties thereto (other than Axion and its affiliates) and will have become
effective in accordance with its terms and be in full force and effect. BMS
will have delivered to Axion, true, correct and complete copies of each
Document to which Axion is not a party.
(e) Axion and AHC will have received (i) a letter of its counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the
effect that they reaffirm the opinion furnished pursuant to the Merger
Agreement to the effect that the Merger will be treated for Federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code and (ii) Axion and AHC will have received a letter of
Axion's advisors, Ernst & Young, to the effect that they reaffirm the
opinion furnished pursuant to the Merger Agreement concerning the
qualification of the Distribution as a tax-free spinoff under Section 355
of the Code, except in the case of each of the letters referred to in
clauses (i) and (ii) of this paragraph (e), the specified date not more
than five days prior to Closing.
(f) Since the effective date of the Form S-4 or this Proxy
Statement/Prospectus, as applicable, no event with respect to BMS, any
subsidiary of BMS or any security holder of BMS has occurred which should
have been set forth in an amendment to the Form S-4 or a supplement to this
Proxy Statement/Prospectus which has not been set forth in such an
amendment or supplement.
(g) Axion and AHC will have received an opinion dated the Closing Date
of Cravath, Swaine & Moore, counsel to BMS, with respect to such matters as
Axion and its counsel shall reasonably request in form and substance
reasonably satisfactory to Axion and its counsel.
Termination, Amendment and Waiver
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the Axion stockholders: (a) by mutual written consent of BMS, BMS
Sub and Axion; (b) by either BMS or Axion: (i) if, upon a vote at the Special
Meeting or any adjournment thereof, any required approval of the Axion
stockholders will not have been obtained; (ii) if the Merger will not have been
consummated on or before October 31, 1996, unless the failure to consummate the
Merger is the result of a wilful and material breach of the Merger Agreement by
the party seeking to terminate the Merger Agreement; provided, however, that the
passage of such period will be tolled for any part thereof (but in no event
beyond December 31, 1996) during which any party will be subject to a nonfinal
order, decree, ruling or action restraining, enjoining or otherwise prohibiting
the consummation of the Merger or the calling or holding of the Special Meeting;
or (iii) if any governmental entity will have issued an order, decree or ruling
or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action will have
become final and nonappealable; (c) by Axion if BMS or BMS Sub will have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement or any other Document to be performed by BMS
or BMS Sub at or prior to the time of termination, which breach will not have
been cured within 30 days following written notice of such breach; or (d) by BMS
if Axion or any of its subsidiaries will have failed to comply in any material
respect with any of the covenants or agreements contained in the Merger
Agreement or any other Document to be performed by Axion or any of its
subsidiaries at or prior to the time of termination, which breach will not have
been cured within 30 days following written notice of such breach.
79
Effect of Termination
In the event of termination of the Merger Agreement by either Axion or BMS
as described in "--Termination", the Merger Agreement will forthwith become void
and have no effect, and, except for certain obligations provided for in the
Merger Agreement which will survive termination, there will be no liability or
obligation on the part of BMS, BMS Sub or Axion, except to the extent that such
termination results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in the Merger
Agreement, the Distribution Agreement or any agreement contemplated thereby.
Amendment
The Merger Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the stockholders of Axion; provided, however, that after any such approval,
there will be made no amendment that by law requires further approval by such
stockholders without the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
Expenses
The Merger Agreement provides that (except as provided below) whether or
not the Merger is consummated, all out-of-pocket fees and expenses incurred in
connection with the Merger, the Distribution or the consummation of any of the
transactions contemplated by the Merger Agreement and the Documents and the
negotiation, preparation, review and delivery of the agreements contemplated
thereby, including all fees and expenses of accountants, legal counsel,
investment bankers and other advisors will be paid by the party incurring such
fees or expenses, except that expenses incurred in connection with printing and
mailing this Proxy Statement/Prospectus and the Form S-4 will be shared equally
by BMS and Axion. Expenses incurred in connection with the Required AHC
Documents will be paid by Axion.
At the Closing, BMS will provide, or cause to be provided, to Axion funds
in an amount equal to the lesser of $2,000,000 and the aggregate amount of Axion
Expenses set forth in a true and complete schedule to be submitted by Axion to
BMS not later than five business days prior to Closing (the "Transaction Expense
Schedule"), and Axion will pay the Axion Expenses listed in such schedule. The
term "Axion Expenses" means all out-of-pocket fees and expenses incurred or to
be incurred by or on behalf of Axion or any of its subsidiaries in connection
with the Merger, the Distribution or the consummation of any of the transactions
contemplated by the Merger Agreement and the other Documents and the
negotiation, preparation, review and delivery of the Merger Agreement and the
agreements contemplated thereby and by the other Documents, including all
Axion's expenses incurred or to be incurred by Axion or any such subsidiary in
connection with printing and mailing the documents filed or required to be filed
by AHC (including the Information Statement) with the Commission or any state
securities commission or otherwise required to be provided or delivered to the
stockholders of Axion or, following the Distribution, AHC, in connection with
the distribution of shares of AHC Preferred Stock in connection with the
Distribution (collectively, the "Required AHC Documents") other than the Proxy
Statement and, subject to certain provisions of the Merger Agreement, this Proxy
Statement/Prospectus and the Form S-4 and all fees and expenses incurred or to
be incurred by Axion or any such subsidiary of accountants, legal counsel,
investment bankers and other advisors. The term "Excess Axion Expenses" means
all Axion Expenses in excess of $2,000,000.
Accounting Treatment
80
The Merger will be accounted for by BMS as a "purchase" for financial
accounting purposes in accordance with GAAP. The purchase price (i.e., the
Merger Consideration) will be allocated based on the fair values of assets
acquired and liabilities assumed.
Interests of Certain Persons in the Transactions
In considering the recommendations of the Axion Board, Axion stockholders
should be aware that Axion's officers and members of the Axion Board will have
certain interests in the Distribution and the Merger as a result of their status
as stockholders plus certain interests in addition to the interests of
stockholders generally.
The Merger will constitute a "corporate transaction" of Axion with respect
to all Axion Options outstanding under the Axion 1989 Stock Option and
Restricted Stock Plan (the "Axion 1989 Plan") and 1995 Executive Stock Option
Plan (the "Axion 1995 Plan"). See "Effect of Transactions on Axion Employees and
Axion Benefit Plans". In addition, as noted above, pursuant to the Merger
Agreement all Axion Options outstanding prior to the Time of Contribution shall
be vested, and will be exercised or canceled. Accordingly, the authorization and
adoption of the Merger Agreement by Axion stockholders will, if the Merger is
consummated, have the following consequences with respect to such Axion Options:
(a) all such Axion Options that had not previously become exercisable and
vested will become fully exercisable and vested in connection with the
Merger;
(b) Axion will extend loans to each executive officer, in addition to each
current employee or consultant, to enable such individual to exercise
in full his or her Axion Options; and
(c) each officer, employee or consultant who exercises his or her Axion
Options will receive in exchange for his or her Axion Common Stock in
the Merger shares of BMS Common Stock, which stock will be freely
tradable immediately following the consummation of the Merger, subject
to contractual restrictions on the officer's ability to resell the BMS
Common Stock and the limitations set forth under Rule 145 under the
Securities Act.
As of the Record Date, options to purchase a total of 1,697,968 shares of
Axion Common Stock, at exercise prices ranging from $0.075 to $10.00 per share,
were held by 91 Axion employees, directors and consultants. Of the options so
held, options to purchase a total of 799,544 shares at prices ranging from
$0.075 to $10.00 per share were unvested at the Record Date, and will become
vested in connection with the Merger. Michael D. Goldberg, the President and
Chief Executive Officer of Axion, has advised Axion that he does not intend to
exercise the Goldberg $10.00 Options, which, accordingly, will be canceled prior
to the Time of Contribution.
Set forth below is a table showing, for certain of Axion's officers, the
total number of shares subject to options (vested and unvested) held by the
officer as of the Record Date, the range of exercise prices under such options
and the number of option shares that will become vested as a result of the
Merger. See "Security Ownership of Certain Beneficial Owners and Management of
Axion" herein and "Management" and "Security Ownership of Certain Beneficial
Owners and Management of AHC" in the Information Statement attached hereto as
Appendix G.
81
Total Number No. of Option Shares
Name of Option Shares Exercise Prices to Vest on Merger
---- ---------------- --------------- -----------------
Michael D. Goldberg 360,000 $1.00-$10.00 198,888
David L. Levison 205,000 $0.42-$ 6.00 94,444
Eric T. Herfindal 200,000 $0.075-$ 6.00 102,778
Garrett J. Roper 180,000 $1.00-$ 6.00 86,024
Donna M. Williams 50,000 $ 6.00 33,333
George Borkow 20,000 $ 6.00 14,167
Stephen Dow 20,000 $1.00-$ 6.00 7,736
Steven Gluckstern 30,000 $ 6.00 18,541
Joseph S. Lacob 30,000 $1.00-$ 6.00 6,458
William Miller 10,000 $ 6.00 6,458
L. John Wilkerson(1) 32,500 $ 6.00 18,541
(1) Options exercisable into 30,000 shares held by Galen Associates, a Delaware
limited partnership, and options exercisable into 2,500 shares held by Longbow
Partners, a New York general partnership. Dr. Wilkerson, a director of Axion, is
also a controlling stockholder of two corporations that are general partners of
Galen Associates. Dr. Wilkerson disclaims beneficial ownership of the options
held by Galen Associates except to the extent of his pecuniary interest therein
arising from his interests as a stockholder in the corporations that are general
partners of Galen Associates. Dr. Wilkerson is a general partner of Longbow
Partners and disclaims beneficial ownership of the options held by Longbow
Partners except to the extent of his pecuniary interest therein.
It is anticipated that Axion will extend the Employee Loans totaling
approximately $6,500,000 to approximately 91 holders of Axion Options, who will
use the proceeds to exercise such Axion Options immediately prior to the Time of
Contribution. Axion will loan a sum of money to each such holder equal to the
exercise price for all of the shares purchasable under each such optionee's
respective Axion Options, the proceeds of which such optionee may use to
exercise his or her Axion Options. Each such note shall be full recourse, may be
secured or unsecured, shall bear interest at the applicable Federal rate
established by the IRS and shall be due at the end of two years, subject to
acceleration to the extent the optionee sells any of the Axion shares purchased
with the note (other than in the Merger) or the BMS shares received in exchange
for such Axion shares.
In addition, OTNC has entered into employment agreements with certain
employees, which agreements will become effective at the Effective Time. Axion
has also adopted a severance plan applicable to certain employees of OTNC. See
"Effect of Transactions on Axion Employees and Axion Benefit Plans".
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Axion Certificate of Incorporation also provides for
exculpation of directors under certain circumstances. See "Comparison of Certain
Rights of Holders of BMS Common Stock, Holders of Axion Common Stock and Holders
of Axion Preferred Stock--Indemnification of Officers and Directors". In
addition, it is anticipated that AHC will enter into similar indemnification
agreements with its directors and officers, and that the AHC certificate of
incorporation and by-laws will provide, as applicable, for the indemnification
of directors and officers and the exculpation under certain circumstances of
directors. See "Executive
82
Compensation Plans in Effect After the Distribution--AHC Indemnification
Agreements" in the Information Statement attached as Appendix G hereto.
Resales of BMS Common Stock Issued in the Merger; Affiliates
The BMS Common Stock to be issued to Axion stockholders in connection with
the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an "affiliate" of Axion or BMS
within the meaning of Rule 145 under the Securities Act. In the Merger
Agreement, Axion has agreed to use its reasonable best efforts to cause each of
those persons who may be deemed affiliates of Axion to deliver to BMS on or
prior to the Closing Date a written agreement providing that such persons will
not make any sale, transfer or other disposition of the BMS Common Stock
received in connection with the Merger in violation of the Securities Act or the
rules and regulations promulgated thereunder. If any affiliate refuses to
provide such an agreement, BMS will be entitled to place appropriate legends on
the BMS shares to be received by such affiliates, and to issue stop transfer
instructions to BMS's transfer agent in regard to such shares. This Proxy
Statement/Prospectus does not cover any resales of BMS Common Stock received by
affiliates of BMS, including certain family members and related interests.
Dissenters' Rights
Holders of shares of Axion Common Stock are entitled to appraisal rights
under Section 262, provided that they comply with the conditions established by
Section 262. Section 262 is reprinted in its entirety as Appendix F to this
Proxy Statement/Prospectus. The following discussion is not a complete statement
of the law relating to appraisal rights and is qualified in its entirety by
reference to Appendix F. This discussion and Appendix F should be reviewed
carefully by any Axion stockholder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, since failure to comply
with the procedures set forth herein or therein will result in the loss of
appraisal rights.
Axion stockholders of record who desire to exercise their appraisal rights
must:
- hold shares of Axion Common Stock on the date of making a demand for
appraisal;
- make a written demand for appraisal prior to the vote on the Merger by
Axion stockholders;
- continuously hold such shares through the Effective Time;
- not vote in favor of the Merger nor consent thereto in writing;
- file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court"), as more fully described below, within 120 days
after the Effective Time; and
- otherwise satisfy all of the conditions described more fully below.
A record holder of shares of Axion Common Stock who makes the demand
described below with respect to such shares (the "Dissenting Shares"), who
continuously is the record holder of such shares through the Effective Time, who
otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the Merger nor consents thereto in writing will be
entitled to an appraisal by the Delaware Court of the fair value of his shares
of Axion Common Stock. All references in Section 262 and in this summary of
appraisal
83
rights to an "Axion stockholder" or "holders" of shares are to the record holder
or holders of shares of Axion Common Stock.
Holders of shares of Axion Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger and must deliver a
separate written demand for appraisal to Axion prior to the vote by the Axion
stockholders on the Merger. A demand for appraisal must be executed by or on
behalf of the holder of record, fully and correctly, as such holder's name
appears on the certificate or certificates representing shares of Axion Common
Stock. A person having a beneficial interest in shares of Axion Common Stock
that are held of record in the name of another person, such as a broker,
fiduciary or other nominee, must act promptly, to cause the record holder to
follow the steps summarized herein properly and in a timely manner to perfect
whatever appraisal rights are available. If shares of Axion Common Stock are
owned of record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If shares of Axion Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Axion Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Axion Common Stock outstanding in the name of such record
owner.
An Axion stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 600 Hansen Way, Second Floor, Palo Alto, CA 94304,
Attention: Steven M. Spurlock, Esq. The written demand for appraisal should
specify the Axion stockholder's name and mailing address, the number of shares
of Axion Common Stock owned, and that the holder is thereby demanding appraisal
of his or her shares. A proxy or vote against the Merger will not constitute
such a demand. Within ten days after the Effective Time, the Surviving
Corporation must provide notice of the Effective Time to all holders who have
complied with Section 262.
Within 120 days after the Effective Time, either Axion, as the Surviving
Corporation, or any holder who has complied with the required conditions of
Section 262, may file a petition in the Delaware Court, with a copy served on
the Surviving Corporation in the case of a petition filed by a holder, demanding
a determination of the fair value of the shares of all dissenting holders. The
Surviving Corporation does not presently intend to file an appraisal petition
and holders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, Axion stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any Axion stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation, a
statement setting forth the aggregate number of shares of Axion Common Stock
with respect to which demands for appraisal were received by Axion and the
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Surviving
Corporation or within 10 days after expiration of the time for delivery of
demands for appraisal under Section 262, whichever is later.
84
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which holders are entitled to
appraisal rights and will appraise shares of Axion Common Stock owned by such
holders, determining the fair value of such shares exclusive of any element of
value arising from the accomplishment or expectations of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community,
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings, prospects, the nature of the enterprise and any other facts which
could be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Axion stockholders considering seeking appraisal should recognize that the
fair value of their shares determined under Section 262 could be more than, the
same as or less than the consideration they are to receive pursuant to the
Merger Agreement if they do not seek appraisal of their shares. The cost of the
appraisal proceeding may be determined by the Delaware Court and taxed against
the parties as the Delaware Court deems equitable in the circumstances. Upon
application of a dissenting Axion stockholder, the Delaware Court may order that
all or a portion of the expenses incurred by any dissenting holder in connection
with the appraisal proceeding, including without limitation, reasonable
attorney's fees and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal.
Any holder of shares of Axion Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive payment
of dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any Axion stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger. After this period, such stockholder may withdraw
such demand for appraisal only with the consent of the Surviving Corporation. If
no petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, holders' rights to appraisal shall cease, and all holders of
shares of Axion Common Stock will be entitled to receive the consideration
offered pursuant to the Merger Agreement. Inasmuch as the Surviving Corporation
has no obligation to file such a petition, and has no present intention to do
so, any holder of shares of Axion Common Stock who desires such a petition to be
filed is advised to file it on a timely basis.
It is a condition to the obligation of BMS to effect the Merger that no
Dissenting Shares be outstanding at the Effective Time. See "Risk Factors--Vote
Required; Stockholder Agreement".
85
THE DISTRIBUTION
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Distribution. To the extent that they relate to the Distribution
Agreement, the following descriptions do not purport to be complete and are
qualified in their entirety by reference to such Agreement, which is attached as
Appendix B to this Proxy Statement/Prospectus, respectively, and is incorporated
herein by reference. All stockholders are urged to read such agreement in its
entirety.
Reasons for the Distribution
The Retained Business constitutes the only business, assets and liabilities
of Axion that BMS has agreed to acquire. As a result, the disposition of the
Retained Business will be effected through a series of sequential transactions,
including the Contributions, the Distribution and the Merger, all as set forth
in the Merger Agreement and the Distribution Agreement. Prior to the Effective
Time, the Acquired Business will be transferred to AHC and OPUS Sub, and the AHC
Preferred Stock will be distributed to the stockholders of Axion in the
Distribution. After the Distribution and at the Effective Time, Axion will hold
the Retained Business, so that BMS will effectively acquire the Retained
Business in the Merger. The purpose of this complex structure is to permit the
disposition of the Retained Business in a transaction that should be tax free to
Axion's stockholders in which Axion stockholders will receive BMS Common Stock
and will also retain their proportionate equity interests in the Acquired
Business in the form of AHC Preferred Stock to be received in the Distribution.
In the event Axion stockholders do not approve the Merger, or if the Merger
Agreement is otherwise terminated, Axion nonetheless intends to consummate the
Contributions. See "Risk Factors--Certain Federal Income Tax Consequences" and
"Certain Federal Income Tax Consequences".
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger, and
the AHC Preferred Stock to be received by holders of Axion Common Stock and
holders of Axion Preferred Stock in the Distribution does not constitute a part
of the consideration to be received by Axion stockholders in the Merger. Axion
stockholders are not being asked to approve the Distribution, which is not
subject to stockholder approval. Axion stockholders should review the
Information Statement attached as Appendix G hereto for additional information
with respect to the Distribution, AHC and the AHC Preferred Stock. Consummation
of the Distribution is a condition to the Merger.
Terms of the Distribution Agreement
Formation of OPUS Sub
Prior to the execution of the Distribution Agreement, Axion will cause the
incorporation of OPUS Sub under Delaware law, and thereafter will not permit
OPUS Sub to engage in any business except as contemplated by the Distribution
Agreement.
Distribution of the Preference Amount
Immediately prior to the time as of which the Contributions are effective
(the "Time of Contribution") Axion will cause OTNC to cause OTN to distribute to
OTNC an amount equal to $13,615,147 (the "Preference Amount"), in full
satisfaction of all amounts that may be due as of, or in respect of any period
ending on or prior to, the Closing Date to OTNC in respect of its Capital
Account Prime Rate Amount and the General Partner Cumulative Preference Amount
(as each such term is defined in the Partnership Agreement). Notwithstanding the
preceding sentence, if the Closing Date occurs after September 30, 1996 and
Axion shall
86
not have used Best Closing Efforts (as defined below) to cause the Closing to
occur on or prior to September 30, 1996, the Preference Amount will be paid only
to the extent of cash and cash equivalents held by OTN as of September 30, 1996
(it being understood that for purposes of this paragraph the amount of cash and
cash equivalents held by OTN as of September 30, 1996 will be reduced by the
amount, if any, by which outstanding indebtedness for borrowed money, or any
guaranties in respect of any indebtedness for borrowed money of any third party,
in respect of which OTN is obligated on September 30, 1996 will exceed
$35,617,000). "Best Closing Efforts" means, in addition to Axion not otherwise
knowingly taking any action to frustrate or delay the Merger, the following: (i)
Axion will have diligently responded to all Commission comments to the Form S-4
related to Axion or its subsidiaries (A) within five business days after receipt
by Axion or its counsel of any initial Commission comments to the Form S-4 and
(B) within a reasonably prompt period under the circumstances after receipt by
Axion or its counsel of any subsequent Commission comments to the Form S-4; (ii)
in the event that the no-action relief requested by Axion from the Commission
with respect to the distribution of AHC Preferred Stock without registration
under the Securities Act is obtained from the Commission, the Information
Statement will have been distributed to Axion stockholders at the same time as
this Proxy Statement/Prospectus is distributed to such Axion stockholders; and
(iii) Axion will have within two business days following notice to Axion of
clearance by the Commission of the Form S-4 called the Special Meeting for the
purpose of approving the Merger and the transactions contemplated by the Merger
Agreement and the other Documents, with such meeting to be held within twenty
business days after the date such meeting is called.
Employee Loans; Exercise or Cancelation of Axion Options
Prior to the Time of Contribution, Axion intends to make the Employee Loans
to certain holders of Axion Options to facilitate the exercise of such Axion
Options by such holders. See "The Merger--Interests of Certain Persons in the
Transactions". Immediately prior to the Time of Contribution, all Axion Options
then outstanding shall have been exercised or shall be canceled.
The Contributions
Immediately prior to the Time of Contribution, OTN will distribute to OTNC,
which will in turn distribute to Axion, the Preference Amount. Immediately prior
to the Time of Distribution, (i) OPUS will contribute the OPUS Sub Assets (as
defined below) to OPUS Sub and OPUS Sub will assume the OPUS Sub Liabilities (as
defined below), (ii) OPUS will distribute the outstanding capital stock of OPUS
Sub to Axion and (iii) Axion will contribute all the Acquired Assets (as defined
below) (including the outstanding capital stock of OPUS Sub) other than the OPUS
Sub Assets (which will remain assets of OPUS Sub) to AHC and will retain the
Retained Assets (as defined below) and AHC will assume all the Assumed
Liabilities (as defined below) other than the OPUS Sub Liabilities (which will
remain Liabilities of OPUS Sub) but will not assume the Retained Liabilities (as
defined below) (the transactions in clauses (i), (ii) and (iii), collectively,
the "Contributions").
"OPUS Sub Assets" means all the assets of OPUS other than any such assets
that are OPUS Station Assets and will include the OPUS Matrix Software (as
defined in the Distribution Agreement), all Contracts relating to the use and
installation of OPUS Matrix Software and all commitments relating to the future
development, use and installation of OPUS Matrix Software, including the
contracts and commitments scheduled in the Distribution Agreement, and certain
other assets scheduled in the Distribution Agreement. "Acquired Assets" means
all the Assets of Axion and its subsidiaries, other than Retained Assets, and
includes the following: (i) the "Access Biotechnology", "Access Biotechnology
(logo)", "Logo (Distribution Services)", "Logo (Pharmaceutical Goods)", "Axion",
"Axion HealthCare", "Axion (TM)", "A Axion (& Design)", "OnCare Systems",
"OnCare Health", "OnCare Practice Utilization System", "OPUS", "OPUS & Design"
and "OPUS
87
Health Systems" trademarks, trade names, service marks, service names and all
derivatives thereof; (ii) a copy of the OPUS Station Data collected from
installed OPUS Stations through the Time of Contribution, including the
installed OPUS Stations scheduled in the Distribution Agreement, to the extent
that provision of such OPUS Station Data to AHC is permitted under the terms of
the applicable agreements related to such OPUS Stations, provided that in no
event shall such OPUS Station Data be provided by AHC or any of its subsidiaries
to any third party (other than to OnCare and its subsidiaries who shall also be
prohibited from providing such OPUS Station Data to any third parties); (iii)
the OPUS Sub Assets; (iv) all the issued and outstanding shares of the capital
stock of OPUS Sub; (v) any AHC Tax Refunds (as such term is defined in the Tax
Matters Agreement); (vi) all cash and cash equivalents and all interest and
dividends receivable on cash invested in various short-term cash equivalent
securities held by Axion and its subsidiaries (including the Preference Amount
distributed by the Partnership to OTNC and then by OTNC to Axion), other than
the Retained Cash; (vii) the Employee Loans; (viii) the 2,700,000 shares of
OnCare Preferred Stock owned by Axion; (ix) the right to certain Insurance
Proceeds (as defined in the Distribution Agreement); and (x) certain other
assets scheduled in the Distribution Agreement.
"Liabilities" means all the debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or
however arising and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto of a person.
"OPUS Sub Liabilities" means all the Liabilities of OPUS other than Liabilities
that are OPUS Station Liabilities or are otherwise Retained Liabilities and
include Liabilities scheduled in the Distribution Agreement. "Assumed
Liabilities" means all Liabilities of Axion and its Subsidiaries, other than
Retained Liabilities, and includes (i) the Liabilities set forth in the
Distribution Agreement relating to the indemnification by AHC of the BMS
Indemnified Parties of liabilities relating to or arising from certain employee
matters; (ii) those Taxes for which the AHC Indemnifying Parties (as defined
herein) have agreed to indemnify the BMS Indemnified Parties pursuant to the Tax
Matters Agreement; (iii) the OPUS Sub Liabilities; and (iv) certain Liabilities
scheduled in the Distribution Agreement.
"OPUS Station Assets" means all the assets of Axion and its subsidiaries
that are primarily used by or are held for use in or are necessary for the
conduct of the OPUS Station Business, including (a) the Pyxis Agreement, as the
same may be amended and in effect as of the Time of Contribution, (b) all rental
contracts for all installed OPUS Station sites and all commitments for the
future installation of OPUS Station sites, as the same may be amended and in
effect as of the Time of Contribution, including the contracts and commitments
scheduled in the Distribution Agreement, (c) all intellectual property related
to the OPUS Station Business (including plans, drawings, product software and
other software used or useful to access data from and to operate OPUS Stations)
other than OPUS Matrix Software, (d) all information derived from OPUS Station
installations as described in a schedule to the Distribution Agreement ("OPUS
Station Data") collected from installed OPUS Stations prior to, at and after the
Time of Contribution including the installed OPUS Stations at sites subject to
the contracts and commitments scheduled in the Distribution Agreement, and (e)
certain other assets scheduled in the Distribution Agreement; provided, however,
that no cash or cash equivalents of Axion or any of its subsidiaries (other than
the Partnership) and no guarantees, letters of credit or foreign exchange
contracts of Axion or any of its subsidiaries (other than the Partnership) will
constitute OPUS Station Assets. "OPUS Station Liabilities" means any Liabilities
of Axion, its subsidiaries and OTN directly and solely related to the OPUS
Station Business and includes certain Liabilities scheduled in the Distribution
Agreement.
"Retained Cash" means (a) an amount in cash equal to the excess, if any, of
the Axion Expenses scheduled in the Transaction Expense Schedule over
$2,000,000, (b) any cash and cash equivalents held by the Partnership (after
giving effect to the payment of the Preference Amount in accordance with the
provisions of the Merger Agreement), (c) an amount in cash equal to the sum of
(i) the amount of any Pre-JV Sales Taxes paid by the
88
Partnership on behalf of Axion at or prior to the Time of Contribution and (ii)
the amount, if any, by which the amount of JV Sales Taxes paid by the
Partnership at or prior to the Time of Contribution exceeds $667,402 and (d) an
amount in cash equal to any amounts withheld from Continuing Axion Employees (as
defined in the Distribution Agreement) as of the Closing Date related to
employee benefit arrangements for Continuing Axion Employees or in respect of
payroll taxes (to the extent such payroll taxes shall not have been paid to the
relevant taxing authorities at the Time of Contribution) and employee
contributions to any Benefit Plan.
"Retained Assets" means (i) the OPUS Station Assets; (ii) all the assets of
the Partnership and any other assets of Axion and its subsidiaries that are
primarily used by or are held for use in or are necessary for the conduct of the
business of OTNC or the Partnership; (iii) all the outstanding capital stock of
OTNC and OPUS and the general partnership interest of OTNC in the Partnership;
(iv) subject to certain provisions of the Distribution Agreement, all current
and former insurance policies of Axion and its subsidiaries in effect at or
prior to the Time of Contribution and the right to Insurance Proceeds (as
defined in the Distribution Agreement) thereunder; (v) the Retained Cash; (vi)
any BMS Tax Refunds (as such term is defined in the Tax Matters Agreement);
(vii) the "Oncology Therapeutics Network(R)" trademarks, trade names, service
marks, service names and all derivatives thereof; and (viii) certain other
assets scheduled in the Distribution Agreement. "Retained Liabilities" means the
OPUS Station Liabilities, any Liabilities of Axion and its subsidiaries directly
and solely related to the business of OTN including certain liabilities
scheduled in the Distribution Agreement, those Taxes (as defined herein) and
other items for which the BMS Indemnifying Parties have agreed to indemnify the
AHC Indemnified Parties (as defined herein) pursuant to the Tax Matters
Agreement, such other Liabilities of Axion and its subsidiaries to the extent
they are directly and primarily related to OTN and/or the OPUS Station Business
including certain liabilities scheduled in the Distribution Agreement, the Axion
Expenses, but only to the extent that such expenses do not exceed $2 million,
any Liabilities of the Retained Companies to the extent such Liabilities solely
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances that occur after the Effective Time, all Liabilities of Axion and
its Subsidiaries related to the amounts described in clause (d) of the
definition of Retained Cash and the Liabilities scheduled in the Distribution
Agreement; provided, however, notwithstanding the foregoing, that Retained
Liabilities will not include any Liabilities described in the definition of
Assumed Liabilities.
The Distribution
Effective immediately following the Contributions and immediately prior to
the Effective Time, each issued and outstanding share of AHC Common Stock will
be converted into that number of shares of AHC Preferred Stock equal to the
quotient of (i)(A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the exercise of Axion Options in
connection with the consummation of the Merger) plus (B) the number of shares of
Axion Common Stock to be issued in connection with the conversion of Axion
Preferred Stock in connection with the consummation of the Merger divided by (i)
the number of shares of AHC Common Stock outstanding immediately prior to the
Time of Distribution. Axion will declare and pay a dividend of all the
outstanding AHC Preferred Stock to the holders of Axion Common Stock and the
holders of Axion Preferred Stock followed by the distribution of certificates
representing (a) one share of AHC Preferred Stock for each share of Axion Common
Stock held by each holder of record of Axion Common Stock, in the case of
holders of Axion Common Stock, and (b) one share of AHC Preferred Stock for each
share of Axion Common Stock into which each share of Axion Preferred Stock held
by each holder of record of Axion Preferred Stock is then convertible in
accordance with the Certificate of Incorporation of Axion in the case of holders
of Axion Preferred Stock, in each case at the Time of Distribution. Immediately
following the Contributions and immediately prior to the Effective Time, subject
to the satisfaction or waiver of the conditions set forth in the Distribution
Agreement, the Axion Board will formally declare the Distribution and Axion will
effect the Distribution by delivery of
89
certificates for AHC Preferred Stock to the transfer agent for delivery to the
holders of Axion Common Stock and the holders of Axion Preferred Stock entitled
thereto. The Distribution will be deemed to be effective upon notification by
Axion to the transfer agent that the Distribution has been declared and that the
transfer agent is authorized to proceed with the distribution of AHC Preferred
Stock, which notification Axion agrees to deliver promptly following such
declaration.
Settlement of Intercompany Accounts
Subject to certain exceptions and limitations, all intercompany balances
between the Retained Business and the Acquired Business are to be satisfied to
the extent practicable immediately prior to the Time of Distribution.
Insurance and AHC's Right to Insurance Proceeds
Subject to certain exceptions, all insurance policies covering Axion and
its directors and officers immediately prior to the Time of Distribution shall
be treated as Retained Assets, and all coverage thereunder with respect to AHC
and its subsidiaries shall terminate except with respect to insured or insurable
occurrences incurred prior to the Time of Contribution that constitute Assumed
Liabilities.
Employee Matters
The Distribution Agreement contains provisions with respect to certain
employee-related matters, including with respect to which employees will
continue as employees of Axion or become employees of AHC after the Time of
Distribution, and with respect to the treatment of Axion employee benefit plans
after the Time of Distribution. See "Effect of Transactions on Axion Employees
and Axion Benefit Plans".
The AHC Indemnifying Parties will indemnify BMS and its subsidiaries
against any losses or claims relating to or arising from employment-related
claims (including, among other things, with respect to severance, benefits,
termination, payroll taxes and workers' compensation) occurring prior to the
Time of Distribution.
Conditions to the Distribution
The obligations of Axion to consummate the Distribution are subject to the
fulfillment of each of the following conditions: (a) all the transactions or
obligations contemplated by the Distribution Agreement to be consummated or
performed at or prior to the Time of Distribution will have been successfully
consummated or so performed; (b) each condition to the closing of the Merger set
forth in the Merger Agreement (other than the completion of the Contributions
and the Distribution) will have been satisfied (or waived by the party for whose
benefit such condition exists); (c) the Axion Board will be reasonably satisfied
that, after giving effect to the Distribution, (i) AHC will not be insolvent and
will not have unreasonably small capital with which to engage in its businesses
and (ii) Axion's surplus would be sufficient to permit, without violation of
Section 170 of the DGCL, the Distribution; (d) all filings required to be made
with, and all consents, approvals and authorizations required to be obtained
from, any governmental entity in connection with the execution, delivery and
performance of the Distribution Agreement or the consummation of the
Contributions, the Distribution or the other transactions contemplated by the
Distribution Agreement will have been made or obtained; (e) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution will be in effect; and (f) Ernst
& Young shall have reaffirmed its opinion that the Distribution should qualify
as a tax-free spinoff pursuant to Section 355 of the Code.
90
Termination, Amendments and Waivers
Notwithstanding anything to the contrary therein, the Distribution
Agreement may be terminated and the transactions contemplated thereby abandoned
at any time prior to the Time of Distribution by mutual written consent of Axion
and AHC but only in the event the Merger is terminated by any party thereto in
accordance with the terms thereof. The Distribution Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto and consented to by BMS. By an instrument in writing, the parties
thereto may waive compliance by any other party with any term or provision of
the Distribution Agreement that such other party was or is obligated to comply
with or perform; provided that no such waiver by Axion will be effective unless
consented to by BMS.
INDEMNIFICATION ARRANGEMENTS
This section of the Proxy-Statement/Prospectus describes certain
indemnification arrangements. To the extent that they relate to the
Indemnification Agreement, the Escrow Agreement and the Tax Matters Agreement,
the following descriptions do not purport to be complete and are qualified in
their entirety by reference to such agreements, which are attached as Appendices
C through E to this Proxy Statement/Prospectus, respectively, and are
incorporated herein by reference. All stockholders are urged to read such
agreements in their entirety.
Terms of the Indemnification Agreement
Indemnification by the AHC Indemnifying Parties
AHC, OPUS Sub, the other 81% AHC Subsidiaries (as defined below) and each
Former Axion Stockholder (collectively, the "AHC Indemnifying Parties") will,
jointly and severally, indemnify, defend and hold harmless BMS, its direct and
indirect subsidiaries, including the Surviving Corporation and its subsidiaries
(including the Partnership) and their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives (collectively, the "BMS Indemnified Parties") from and against,
and pay or reimburse the BMS Indemnified Parties for, all Indemnifiable Losses
(as defined below), as incurred: (a) to the extent relating to or arising from
(i) any breach of any representation or warranty by Axion or any of its
subsidiaries (including OTN) in the Merger Agreement or any other Document (or
in any certificate or similar document delivered pursuant thereto) or (ii) any
breach of any covenant of Axion or any of its subsidiaries (including OTN) in
the Merger Agreement or any other Documents requiring performance on or prior to
the Closing Date or (iii) any breach of any covenant of AHC and its subsidiaries
in the Merger Agreement or any other Documents requiring performance after the
Closing Date; (b)(i) in the case of the Form S-4 and, if required in connection
with the Distribution, the Form S-1 or the Application, relating to or arising
from any claim that there existed any untrue statement of a material fact or any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) in the case of this Proxy
Statement/Prospectus, any other Filings (as defined below) and, if required in
connection with the Distribution, the Information Statement, relating to or
arising from any claim that there existed any untrue statement of a material
fact or any omission of 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; or (iii) in the case of any Required AHC
Documents or other Filings that are provided or required to be delivered to the
Axion stockholders, relating to or arising from any failure by Axion to so
provide or deliver such Required AHC Documents or other Filings; but only, in
the case of (i) or (ii), with respect to information furnished or to be
furnished by Axion or its representatives contained in or omitted from the
Filings; (c) relating to or arising from the Acquired Assets, the Assumed
Liabilities (including the failure by AHC or any of the AHC Companies to
91
otherwise perform or discharge such Assumed Liabilities), the Acquired
Businesses or the current, former or future operations or employees of AHC and
its subsidiaries' businesses whether such Indemnifiable Losses relate to or
arise from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the Effective Time, other
than, in each case, any Retained Liabilities; (d) relating to or arising from
the current or former operations or employees of Axion and its current or former
subsidiaries' (including OTN) businesses whether such Indemnifiable Losses
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring or existing before or at the Effective Time, whether
asserted before, at or after the Effective Time, other than, in each case, any
Retained Liabilities; (e) relating to or arising from claims of any
stockholders, directors, officers, employees or agents of Axion and its
subsidiaries (including OTN) to the extent related to or arising from the
execution by Axion or any of its subsidiaries (including OTN) of the
Indemnification Agreement or the other Documents or the consummation of the
transactions contemplated thereby (including any claims for indemnification by
any officer or director of Axion or any of its subsidiaries (including OTN)
pursuant to any applicable law, the charter and by-laws or other governing
instruments of Axion or any such subsidiary (including OTN) or any
indemnification agreement between Axion or any such subsidiary (including OTN)
and any such person) (except for any Indemnifiable Loss for which the AHC
Indemnifying Parties are indemnified pursuant to Section 3.01(c) of the
Indemnification Agreement); (f) relating to or arising from any Axion Expenses
to the extent that such Axion Expenses were not included in the schedule of
Axion Expenses delivered to BMS pursuant to the Merger Agreement and the
aggregate amount of all Axion Expenses exceeds $2,000,000; (g) relating to or
arising out of (i) the breach of any term, covenant or condition contained in
the Partnership Agreement, the Trademark License Agreement dated as of July 8,
1993 between BMS and the Partnership (the "Trademark License Agreement") or any
other agreement to which any of the Exculpated Parties and the Partnership are
parties (other than any breach by the Limited Partner (as such term is defined
in the Partnership Agreement), its officers, directors, stockholders, employees
or affiliates or any member of the Management Committee appointed by the Limited
Partner pursuant to Section 7.02 of the Partnership Agreement) or (ii) the gross
negligence or wilful misconduct by any Exculpated Party or its obligations under
the Partnership Agreement, the Trademark License Agreement or any other such
agreement, in each case relating to or arising out of events, occurrences,
actions, omissions, facts or circumstances occurring or existing at or prior to
the Effective Time, whether asserted at, prior to or after the Effective Time;
(h) that are Liabilities of the Partnership under Section 11(b) of the Sales
Agency Agreement dated as of July 8, 1993, as amended, between BMS and the
Partnership, relating to or arising out of events, occurrences, actions,
omissions, facts or circumstances occurring or existing at or prior to the
Effective Time, whether asserted at, prior to or after the Effective Time; or
(i) incurred in connection with the enforcement by the BMS Indemnified Parties
of their rights to be indemnified and held harmless under the Indemnification
Agreement.
"81% AHC Subsidiary" means any corporation, company or other entity (i)
more than 81% of whose outstanding shares or securities (representing the right
to vote for the election of directors or other managing authority) are, or (ii)
which does not have outstanding shares or securities (as may be the case in the
partnership, joint venture or unincorporated association), but more than 81% of
whose ownership interest representing the right to make decisions for such other
entity is, in each case, owned or controlled, directly or indirectly, by AHC.
"Indemnifiable Losses" means all losses, liabilities, damages,
deficiencies, obligations, fines, expenses, claims, demands, actions, suits,
proceedings, judgments or settlements, whether or not resulting from third party
claims, including interest and penalties recovered by a third party with respect
thereto and out-of-pocket expenses and reasonable attorneys' and accountants'
fees and expenses incurred in the investigation or defense or any of the same or
in asserting, preserving or enforcing any of the rights of the AHC Indemnified
Parties (as defined below) or the BMS Indemnified Parties under the
Indemnification Agreement, suffered by any of the
92
BMS Indemnified Parties or the AHC Indemnified Parties who or which may seek
indemnification under the Indemnification Agreement; provided, however, that
notwithstanding anything to the contrary set forth in the Indemnification
Agreement, Indemnifiable Losses will not include any such losses relating to or
arising from any breach of any representation, warranty or covenant contained in
Section 4.01(j) of the Merger Agreement or any other amount relating to Taxes or
for which indemnity is payable under the Tax Matters Agreement. "Filings" means
the Form S-4, this Proxy Statement/Prospectus, the Required AHC Documents or any
other document filed or required to be filed with the Commission or any state
securities commission or otherwise provided, or required to be delivered, to the
stockholders of Axion or, following the Distribution, the stockholders of AHC,
in connection with the transactions contemplated by the Merger Agreement or the
other Documents, any preliminary or final form thereof or any amendment or
supplement thereto. "AHC Indemnified Parties" means AHC and its direct or
indirect subsidiaries and their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives. "Exculpated Parties" means OTNC, its officers, directors,
stockholders, employees, or affiliates, the Chairman of the Management Committee
(as such term is defined in the Partnership Agreement) or any other officer of
the Partnership or the members of the Management Committee appointed by OTNC
pursuant to the Partnership Agreement.
Limitations on Indemnification Obligations of the AHC Indemnifying Parties
The indemnification obligations of the AHC Indemnifying Parties for (i) any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that is directly related to OTN
will equal 50% of such Indemnifiable Loss, and (ii) any other Indemnifiable Loss
will equal 100% of such Indemnifiable Loss.
The AHC Indemnifying Parties will not have any liability under the
Indemnification Agreement with respect to any Indemnifiable Loss of the type set
forth in clause (a)(i) of "--Indemnification by the AHC Indemnifying Parties"
above or (ii) that is directly related to OTN or the OPUS Station Business
unless the aggregate of all such Indemnifiable Losses for which the AHC
Indemnifying Parties would but for this sentence be liable exceeds on an
aggregate basis an amount equal to $500,000 and provided that the AHC
Indemnifying Parties' liability with respect to such Indemnifiable Losses will
in no event exceed $12,000,000.
The indemnification obligations of the AHC Indemnifying Parties under the
Indemnification Agreement with respect to (i) any Indemnifiable Loss of the type
set forth in clause (a)(i) of "--Indemnification by the AHC Indemnifying
Parties" above or (ii) that directly relates to OTN or the OPUS Station Business
(other than Indemnifiable Losses related to or arising from any breach of the
representations and warranties in Section 4.01(c), 4.01(n), or 4.01(p) of the
Merger Agreement) will terminate on March 31, 1998, (ii) any Indemnifiable
Losses related to or arising from any breach of the representations and
warranties in Section 4.01(c), 4.01(n) or 4.01(p) of the Merger Agreement will
terminate on the third anniversary of the Effective Time and (iii) all other
Indemnifiable Losses will not terminate.
Notwithstanding anything to the contrary set forth in the Indemnification
Agreement (except as provided in the following sentence), the indemnification
obligations of the Former Axion Stockholders under the Indemnification Agreement
will be limited to the amount of the Escrowed Shares. The limitations on the AHC
Indemnifying Parties' liability under the Indemnification Agreement as set forth
in this paragraph will not apply to any Indemnifiable Losses relating to or
arising from fraud or any misrepresentation or breach of which Axion, AHC, the
81% AHC Subsidiaries or their respective officers and directors had knowledge or
any intentional failure to perform or comply with any covenant (collectively,
"fraud"), and the AHC Indemnifying Parties will be jointly and severally liable
for all Indemnifiable Losses with respect thereto; provided, however, that a
Former Axion Stockholder will be liable for Indemnifiable Losses related to or
arising from fraud only
93
with respect to any fraud by such Former Axion Stockholder. The indemnification
obligations of the AHC Indemnifying Parties under the Indemnification Agreement
are subject to offset as provided in the Tax Matters Agreement.
Indemnification by the BMS Indemnifying Parties
Pursuant to the Indemnification Agreement, BMS, Axion, OTNC, the
Partnership and OPUS (collectively, the "BMS Indemnifying Parties") will,
jointly and severally, indemnify, defend and hold harmless the AHC Indemnified
Parties from and against, and pay or reimburse the AHC Indemnified Parties for
all Indemnifiable Losses, as incurred: (a) relating to or arising from the
Retained Assets, the Retained Liabilities (including the failure by Axion or any
of its subsidiaries to pay, perform or otherwise discharge such Retained
Liabilities in accordance with their terms), whether such Indemnifiable Losses
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the Effective
Time; (b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger Agreement
or any other Document (or in any certificate or similar document delivered
pursuant thereto); (c) (i) in the case of the Form S-4 and, if required in
connection with the Distribution, the Form S-1 or the Application, relating to
or arising from any claim that there existed any untrue statement of a material
fact or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) in the case of
this Proxy Statement/Prospectus, any other Filings and, if required in
connection with the Distribution, the Information Statement, relating to or
arising from any claim that there existed any untrue statement of a material
fact or any omission of 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; but only in each case with respect to
information furnished or to be furnished by BMS or its representatives contained
in or omitted from the Filings; or (d) incurred in connection with the
enforcement by the AHC Indemnified Parties of their rights to be indemnified,
defended and held harmless under the Indemnification Agreement.
Limitation on Indemnification Obligations of the BMS Indemnifying Parties
The indemnification obligations of the BMS Indemnifying Parties under the
Indemnification Agreement with respect to (a) any Indemnifiable Loss of the type
set forth in clause (b) of "--Indemnification by the BMS Indemnifying Parties"
above will terminate on March 31, 1998 and (b) all other Indemnifiable Losses
will not terminate.
Indemnifiable Losses Net of Third-Party Recoveries; Indemnifiable Losses
Calculated on an After-Tax Basis
The amount of any Indemnifiable Losses for which indemnification is
provided under the Indemnification Agreement will be net of amounts recovered by
the indemnified party under third-party insurance policies. The amount of any
Indemnifiable Losses is determined on an after-tax basis to the indemnified
party.
Covenants
For five years from the Effective Time, the BMS Indemnified Parties and the
AHC Indemnified Parties will give confidential treatment to confidential and
proprietary information with respect to each other's businesses, subject to
certain exceptions and limitations.
Unless BMS otherwise consents in writing, neither AHC nor any of the 81%
AHC Subsidiaries will: (i) (A) in the case of AHC, liquidate, dissolve or wind
up its affairs or (B) in the case of any 81% AHC
94
Subsidiary, liquidate, dissolve or wind up its affairs unless the assets of such
81% AHC Subsidiary (or, if such 81% AHC Subsidiary will not be wholly owned, a
proportionate amount of such assets equal to the direct and indirect ownership
interest of AHC in such 81% AHC Subsidiary) will have been distributed to or
otherwise acquired by AHC and/or any other 81% AHC Subsidiary; (ii) (A) merge
with or into or consolidate with any other person, or (B) sell, lease or
otherwise transfer all or substantially all the assets of AHC and the 81% AHC
Subsidiaries, taken as a whole (including by means of the sale of the capital
stock of any subsidiary) to any other person (in each case, whether in one or a
series of transactions), unless, in each case, such person explicitly agrees to
assume the obligations of AHC and the 81% AHC Subsidiaries under the
Indemnification Agreement, the Tax Matters Agreement or the Escrow Agreement
pursuant to an agreement reasonably satisfactory in form and substance to BMS
and its counsel; (iii) engage in any recapitalization or restructuring pursuant
to which any cash, securities or other property will be distributed in respect
of its capital stock or effect any other distribution (by means of dividend,
redemption or otherwise) in respect of its capital stock (other than, in the
case of any 81% AHC Subsidiary, any such distribution to AHC); (iv) enter into
any transactions with affiliates of AHC or any 81% AHC Subsidiary unless (1) any
such transaction is between or among AHC and the 81% AHC Subsidiaries or (2) the
terms of such transactions are fair and reasonable to AHC or the 81% AHC
Subsidiaries, as the case may be, as in a comparable transaction made on an
arm's length basis between unaffiliated parties; or (v) agree to or otherwise
suffer any of the foregoing in (i), (ii), (iii) or (iv) above or otherwise take
any action or fail to take any action designed to restrict, reduce or otherwise
limit the rights of the BMS Indemnified Parties under the Indemnification
Agreement, the Tax Matters Agreement or the Escrow Agreement or the ability of
any BMS Indemnified Party to collect any amount owed to it under the
Indemnification Agreement, Tax Matters Agreement or the Escrow Agreement. For
purposes of this covenant, OnCare and its subsidiaries are deemed to be
affiliates of AHC and the 81% AHC Subsidiaries.
AHC will cause each of its subsidiaries that will be or become an 81% AHC
Subsidiary on or after the Closing Date to enter into an agreement, reasonably
satisfactory in form and substance to both BMS and its counsel and AHC and its
counsel, pursuant to which such subsidiary shall agree to be bound by the terms
of each of the Indemnification Agreement, the Tax Matters Agreement and the
Escrow Agreement as if such subsidiary were named an 81% AHC Subsidiary therein.
The foregoing provisions of this "--Covenants" section will terminate on
the later of (a) the sixth anniversary of the Effective Time and (b) the
expiration of the statute of limitations (including any extensions thereof
arising from audits commenced on or before such sixth anniversary) for all
Federal income tax returns of the Affiliated Group (as defined in the Tax
Matters Agreement) for all taxable years ending on or before the day on which
the Effective Time occurs is in process, provided that the foregoing provisions
shall not terminate until such time as any Tax Claims (as defined in the Tax
Matters Agreement) relating to such audit or contest have been settled and all
liabilities related thereto satisfied.
Appointment of AHC as Representative
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder irrevocably
appointing AHC as his/her or its agent and attorney-in-fact to execute and
deliver on such Former Axion Stockholder's behalf, and thereby result in each
such Former Axion Stockholder becoming a party to and bound by, the
Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit,
95
claim, action or proceeding arising with respect to any transaction contemplated
by such agreements, including the defense, appeal or settlement of any claim,
action or proceeding for which each such Former Axion Stockholder may be
obligated to indemnify any person pursuant to such agreements or may be entitled
to indemnification pursuant to such agreements or which may be brought by BMS
against each such Former Axion Stockholder to enforce such indemnity; and will
result in each such Former Axion Stockholder ratifying and confirming any action
taken by AHC in the exercise of the power of attorney granted thereby.
See "Risk Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries" and "The Merger-Indemnification
Arrangements; Escrow; Appointment of AHC as Representative".
Terms of the Tax Matters Agreement
Prior to the Time of Distribution, BMS, BMS Sub, Axion, certain
subsidiaries of Axion, AHC, the 81% AHC Subsidiaries, the Partnership and the
Former Axion Stockholders will enter into a Tax Matters Agreement which sets
forth each party's rights and obligations with respect to payments of Federal,
state, local or foreign Taxes for periods before and after the Merger and
related matters such as the filing of and right to tax returns and the control
of tax contests.
The Tax Matters Agreement specifically provides that: the AHC Indemnifying
Parties will jointly and severally indemnify and hold harmless BMS, the
Surviving Corporation, OPUS, OTNC, the Partnership, their affiliates and each of
their respective officers, directors, employees, stockholders, agents and
representatives (collectively, the "BMS Indemnified Parties") from all
liabilities for Federal, state, local, foreign and other governmental taxes,
assessments, duties, fees, levies or similar charges of any kind including all
interest, penalties and additions imposed with respect to such amounts
(collectively, "Taxes") imposed on Axion, OPUS, OTNC or any member of the
Affiliated Group (as defined in the Tax Matters Agreement) (whether imposed
directly or by reason of United States Treasury Regulations Section 1.1502-76 or
similar provisions) (i) for any pre-merger tax period, including any Pre-JV
Sales Taxes (but excluding any Retained Tax Liabilities), which are in each case
unpaid as of the Effective Time (the "Pre-Merger Taxes"), (ii) with respect to
the Contributions, (iii) as a result of the Distribution, (iv) as a result of
the provision of the OPUS Station Data (as defined in the Distribution
Agreement) to AHC, OnCare or any of their assignees, (v) with respect to the
OPUS License Agreement or (vi) in respect of the transfer of assets or rights
from OnCare or any of its subsidiaries or affiliates or any other affiliate of
Axion and its subsidiaries to Axion prior to the Distribution. The AHC
Indemnifying Parties shall also jointly and severally indemnify the BMS
Indemnified Parties from all liabilities for fifty percent (50%) of any
liability for any unpaid Taxes (other than JV Sales Taxes) as of June 30, 1996
imposed on the Partnership for all periods up to and including June 30, 1996 in
excess of $225,000, and 100% of any liability for JV Sales Taxes paid after June
30, 1996 in excess of $667,402; provided, however, that no indemnification shall
be payable with respect to any JV Sales Taxes to the extent payment of such JV
Sales Taxes increased the amount of "Retained Cash" pursuant to clause (c) of
the definition of "Retained Cash" in the Distribution Agreement. "Retained Tax
Liabilities" shall mean (W) any income Tax liability (including any liability
for any Tax measured by reference to income) of OTNC (or the Affiliated Group)
attributable to the allocation to OTNC of Taxable income of the Partnership
(whether or not such taxes are paid before or after the Effective Time) and any
other Taxes to the extent directly attributable to the operation of the
Partnership, in each case for the period beginning on July 1, 1996, and ending
on the day on which the Effective Time occurs and in each case determined in
accordance with certain principles provided therein and (for the avoidance of
doubt) in the case of Taxes measured by reference to income, by assuming that
such income is subject to Tax at the highest applicable federal, state and local
tax rate as otherwise provided therein, (X) any income Tax liability (including
any liability for any Tax measured by reference to income) to the extent
directly attributable
96
to the reallocation of Partnership income by the IRS or any other governmental
agency from BMOTN to OTNC, (Y) all liabilities for any unpaid Taxes as of June
30, 1996 imposed on the Partnership for all periods up to and including June 30,
1996 that are not indemnified by the AHC Indemnifying Parties pursuant to the
preceding sentence, and (Z) any Tax liabilities relating to the operations,
assets or activities of a BMS Entity (other than the Partnership). "Pre-JV Sales
Taxes" shall mean any liability of Axion with respect to unpaid sales and use
Taxes on sales prior to the date of formation of the Partnership. "JV Sales
Taxes" shall mean any liability of the Partnership with respect to unpaid sales
and use Taxes on sales prior to August 1, 1994.
The BMS Indemnifying Parties will jointly and severally indemnify and hold
harmless the AHC Indemnified Parties (A) from all liability for Taxes imposed on
the Surviving Corporation, OTNC, OPUS or the Partnership for any Post-Merger Tax
Period and (B) for any Retained Tax Liabilities.
Other provisions of the Tax Matters Agreement provide AHC with the ability,
under certain circumstances, to control tax contests relating to a claim for
which AHC would indemnify the BMS Indemnified Parties and, under certain
circumstances, allow AHC to obtain refunds for taxes paid by Axion prior to the
Effective Time, up to a certain threshold.
The indemnification obligations of the AHC Indemnifying Parties under the
Tax Matters Agreement survive for the term of the applicable statute of
limitations (generally six years). Other than in the case of fraud by a Former
Axion Stockholder, the indemnification obligations of the Former Axion
Stockholders are limited to the Escrowed Shares; the indemnification obligations
of AHC are unlimited.
Appointment of AHC as Representative
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder irrevocably
appointing AHC as his/her or its agent and attorney-in-fact to execute and
deliver on such Former Axion Stockholder's behalf, and thereby result in each
such Former Axion Stockholder becoming a party to and bound by, the
Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such indemnity; and will result in each such
Former Axion Stockholder ratifying and confirming any action taken by AHC in the
exercise of the power of attorney granted thereby.
See "Risk Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries" and "The Merger--Indemnification
Arrangements; Escrow; Appointment of AHC as Representative."
97
Terms of the Escrow Agreement
Deposit of Escrowed Property
Pursuant to the Escrow Agreement, at the Closing (a) the Exchange Agent, on
behalf of the Former Axion Stockholders, will deposit into escrow, and the
Escrow Agent will acknowledge receipt of, a number of shares of BMS Common Stock
equal to $5,000,000 divided by the Average Value of BMS Common Stock, rounded to
the nearest whole share, which amount will be deemed to have been deposited by
the Former Axion Stockholders on a pro rata basis from the shares of BMS Common
Stock to be issued and delivered to each Former Axion Stockholder with respect
to its shares of Axion Common Stock pursuant to the Merger Agreement as
described under "The Merger--Terms of the Merger Agreement--Conversion of Axion
Common Stock in the Merger" herein, calculated based on the ratio of the number
of shares of BMS Common Stock to be so issued and delivered to such Former Axion
Stockholder with respect to its shares of Axion Common Stock to the aggregate
number of shares of BMS Common Stock to be so issued to all the Former Axion
Stockholders with respect to their shares of Axion Common Stock. Such shares
together with any dividends and distributions with respect to such shares as set
forth in the Escrow Agreement and any income received from the investment
thereof, as on deposit or invested from time to time in accordance with the
terms of the Escrow Agreement are referred to as the "Escrowed Shares", and (b)
AHC will deposit, or cause to be deposited into escrow, and the Escrow Agent
will acknowledge receipt of, $5,000,000 in cash. Such cash, together with any
income received thereon, as on deposit or invested from time to time in
accordance with the terms of the Escrow Agreement, is referred to as the
"Escrowed Cash" (the Escrowed Shares and the Escrowed Cash together being the
"Escrowed Property"). During the term of the Escrow Agreement, BMS will, from
time to time and concurrently with the payment thereof, (a) deliver to the
Escrow Agent for deposit in accordance with the terms of the Indemnification
Agreement, all non-taxable stock dividends and other non-taxable distributions
made with respect to the Escrowed Shares and (b) deliver to the Escrow Agent,
who will promptly distribute the same to the Former Axion Stockholders, all cash
distributions and other taxable distributions (other than taxable distributions
representing the proceeds of a sale or acquisition or a substantial
restructuring in connection with a sale or acquisition of only BMS) made with
respect to the Escrowed Shares. BMS and each AHC Indemnifying Party acknowledge
and agree that, to the extent and so long as any of the Escrowed Property is
held by the Escrow Agent hereunder, BMS will have, as of and from the date such
Escrowed Property is received by the Escrow Agent, a perfected first priority
security interest in such Escrowed Property to secure the payment of the amount,
if any, payable by an AHC Indemnifying Party pursuant to the Indemnification
Agreement and the Tax Matters Agreement. Each of BMS and each of the AHC
Indemnifying Parties agree that the Escrowed Shares will be voted by the Escrow
Agent with respect to all matters as to which the holders of BMS Common Stock
are entitled to vote in accordance with written instructions from AHC as the
representative of the Former Axion Stockholders. AHC agrees that if any Former
Axion Stockholder provides AHC with written directions as to how to vote the
Escrowed Shares with respect to any matter, AHC will instruct the Escrow Agent
to vote such number of Escrowed Shares as are beneficially held for such Former
Axion Stockholder as so directed by such Former Axion Stockholder, and if no
such directions are received with respect to particular Escrowed Shares on any
matter for which such Escrowed Shares may be voted, AHC will direct the Escrow
Agent to abstain from voting such Escrowed Shares with respect to such matter.
Disposition of Escrowed Property
At any time on or prior to the Escrowed Cash Termination Date (as defined
below), BMS may deliver a certificate to the Escrow Agent requesting delivery of
Escrowed Property to BMS, and the Escrow Agent will deliver the Escrowed
Property to BMS to the extent and at the time provided in accordance with the
Escrow Agreement; provided, however, that (i) no distribution of Escrowed
Property will be made in respect of any
98
Indemnified Obligation (as defined below) related to a liability for Taxes for
which a BMS Indemnified Party is indemnified pursuant to the Tax Matters
Agreement unless and until such time as such liability for Taxes will be deemed
liquidated and therefore payable in accordance with the provisions of the Tax
Matters Agreement, (ii) after the Escrowed Shares Termination Date (as defined
herein), no Escrowed Shares will be released to BMS except with respect to an
Escrowed Shares Pending Claim (as defined herein) and (iii) after the Second
Anniversary Date (as defined herein), Second Anniversary Cash shall be released
to BMS only with respect to Second Anniversary Pending Claims (as defined
herein). For purposes of the foregoing, the amount of Second Anniversary Cash as
of any date will equal the excess, if any, of the amount of Escrowed Cash on
deposit with the Escrow Agent on such date over the amount specified in clause
(A) of the definition of "Retained Escrow Amount" (as defined herein) calculated
as of such date.
Immediately following the Escrowed Shares Termination Date (as defined
below), if either (a) both BMS and AHC deliver a certificate to the Escrow Agent
or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers a
copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
as the representative of the Former Axion Stockholders such number of Escrowed
Shares (rounded to the nearest whole share) that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the Escrowed Shares
Termination Date multiplied by the Average Value of BMS Common Stock over (y)
the amount of any unpaid Escrowed Shares Pending Claims (as defined below) on
the Escrowed Shares Termination Date. Thereafter, if as of the last day of any
fiscal quarter following the Escrowed Shares Termination Date, Escrowed Shares
remain on deposit with the Escrow Agent, and either (a) both BMS and AHC deliver
a certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC as the representative of the Former Axion
Stockholders the number of Escrowed Shares that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the last day of such fiscal
quarter multiplied by the Average Value of BMS Common Stock over (y) the amount
of any unpaid Escrowed Shares Pending Claims on the last day of such fiscal
quarter. "Escrowed Shares Pending Claims" means all Pending Claims (as defined
below) existing on the Escrowed Shares Termination Date. The amount of any
Escrowed Shares Pending Claim on any date will be determined in accordance with
the provisions of the Escrow Agreement. "Escrowed Shares Termination Date" means
the earlier to occur of (i) one year after the date of the Escrow Agreement and
(ii) complete distribution of the Escrowed Shares in satisfaction of claims for
Indemnified Obligations.
Immediately following the second anniversary of the date of the Escrow
Agreement (the "Second Anniversary Date"), if either (a) both BMS and AHC
jointly deliver a certificate to the Escrow Agent or (b) the Escrow Agent (i)
receives a certificate from AHC, (ii) delivers a copy of such certificate to BMS
and (iii) does not, within 15 business days following delivery of such
certificate to BMS, receive written notice from BMS objecting to the certificate
given by AHC, the Escrow Agent will deliver to AHC an amount in cash equal to
the excess, if any, of Escrowed Cash on deposit with the Escrow Agent as of the
Second Anniversary Date over the Retained Escrow Amount on the Second
Anniversary Date. Thereafter, if as of the last day of any fiscal quarter
following the Second Anniversary Date, Escrowed Cash remains on deposit with the
Escrow Agent and either (a) both BMS and AHC deliver a certificate to the Escrow
Agent or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers
a copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
an amount in cash equal to the excess, if any, of
99
Escrowed Cash on deposit with the Escrow Agent as of the last day of such fiscal
quarter over the Retained Escrow Amount as of the last day of such fiscal
quarter. "Retained Escrow Amount" means, as of any date, the sum of (A) an
amount, if any, equal to the excess of $1,000,000 over (i) the aggregate amount,
if any, of Escrowed Cash that will have been released during the period from the
Second Anniversary Date to such date in respect of any Pending Claim that was
not an existing Pending Claim at any time on or prior to the Second Anniversary
Date and (ii) the aggregate amount, if any, released to AHC pursuant to the
paragraph below from and after the Escrowed Cash Termination Date and (B) the
amount of any unpaid Second Anniversary Pending Claims on such date. "Second
Anniversary Pending Claims" means all the Pending Claims existing on the Second
Anniversary Date (and, for the avoidance of doubt, includes all Escrowed Shares
Pending Claims existing on such date). The amount of any Second Anniversary
Pending Claim on any date will be determined as provided in the Escrow
Agreement, provided that, for all purposes of this paragraph, the amount of
unpaid Second Anniversary Pending Claims on the last day of any fiscal quarter
ending after the Second Anniversary Date will be reduced by an amount equal to
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the last
day of such fiscal quarter (such number to be determined based on the assumption
that any Escrowed Shares that are to be delivered to AHC as the representative
of the Former AHC Stockholders in respect of the last day of such fiscal quarter
as provided in the second sentence of the paragraph above will have been so
delivered and will not be on deposit with the Escrow Agent on the last day of
such fiscal quarter), if any, multiplied by (y) the Average Value of BMS Common
Stock.
Immediately following the Escrowed Cash Termination Date, if either (a)
both BMS and AHC deliver a certificate to the Escrow Agent or (b) the Escrow
Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC an amount
equal to the excess, if any, of Escrowed Cash on deposit with the Escrow Agent
as of the Escrowed Cash Termination Date (calculated as provided below) over an
amount equal to any unpaid Final Pending Claims (as defined below) on the
Escrowed Cash Termination Date. Thereafter, if as of the last day of any fiscal
quarter following the Escrowed Cash Termination Date Escrowed Cash remains on
deposit with the Escrow Agent and either (a) both BMS and AHC deliver a
certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC an amount equal to the excess, if any, of
Escrowed Cash on deposit with the Escrow Agent as of the last day of such fiscal
quarter (calculated as provided below) over an amount equal to any unpaid Final
Pending Claims on the last day of such fiscal quarter. For purposes of this
paragraph, the amount of any Escrowed Cash on deposit with the Escrow Agent will
be calculated by treating the amount, if any, of Escrowed Cash that is to be
delivered to AHC pursuant to the paragraph above on such date as having been so
delivered and as not being on deposit with the Escrow Agent on such date. "Final
Pending Claims" means all Pending Claims existing on the Escrowed Cash
Termination Date (and, for the avoidance of doubt, includes all Escrowed Shares
Pending Claims and Second Anniversary Pending Claims existing on such date). The
amount of any Final Pending Claim on any date will be determined as provided in
the Escrow Agreement, provided that, for purposes of this paragraph the amount
of unpaid Final Pending Claims on the last day of any fiscal quarter ending
after the Escrowed Cash Termination Date will be reduced by an amount equal to
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the last
day of such fiscal quarter (such number to be determined based on the assumption
that any Escrowed Shares that are to be delivered to AHC as the representative
of the Former AHC Stockholders in respect of the last day of such fiscal quarter
is provided in the second sentence of the second paragraph of "--Disposition of
Escrowed Property" above will have been so delivered and will not be on deposit
with the Escrow Agent on the last day of such fiscal quarter), if any,
multiplied by (y) the Average Value of BMS Common Stock. The "Escrowed Cash
Termination Date" means the earlier to occur of (i) six years after the
100
date of the Escrow Agreement and (ii) complete distribution of the escrowed cash
in satisfaction of claims for Indemnified Obligations.
Either BMS or AHC may deliver to the Escrow Agent a certificate accompanied
by a final and nonappealable award or order of a court of competent jurisdiction
(a "Court Order") with respect to the payment of all or any portion of the
Escrowed Property requesting delivery of Escrowed Property to BMS, AHC or such
other person(s) as may be specified in such award or order. Such certificate
also will be accompanied by an opinion of outside counsel to the effect that the
applicable court award or order is final and nonappealable. In either such case,
the Escrow Agent will deliver all or a portion of the Escrowed Property to BMS
or AHC, as the case may be, in the amount specified in the Court Order.
If AHC has delivered to the Escrow Agent and BMS at any time within 30 days
before or after the due date (including extensions) for payment by AHC of its
final Federal income tax liability for a taxable year (or, if later, 30 days
after the Escrow Agent supplies all information relating to the income realized
with respect to the Escrowed Cash necessary to prepare the certificate referred
to in this paragraph a certificate setting forth the amount of Federal and State
of California income tax due from AHC with respect to any taxable income
realized with respect to the Escrowed Cash for such taxable year (based on the
assumption that AHC is, with respect to such income, subject to Federal and
State of California income tax at the highest regular marginal tax rate
applicable to corporations for such year), and the accuracy and completeness of
such certificate is certified by Ernst & Young or such other nationally
recognized accounting firm chosen by AHC and reasonably satisfactory to BMS,
then the Escrow Agent will pay to AHC in cash the amount set forth in such
certificate no more than 15 days after receipt of such certificate. The Escrow
Agent will use commercially reasonable efforts to supply to AHC the tax
information referred to above prior to the start of the 60-day period referred
to above.
All distributions under the Escrow Agreement that are not the subject of a
dispute will be made no later than 20 days from receipt of a certificate and
will be made from the Escrowed Shares and/or the Escrowed Cash, as the case may
be, in accordance with the provisions described above. Distributions made to BMS
pursuant to the provisions described above will first be made from any Escrowed
Shares on deposit and then, to the extent so required, from any Escrowed Cash.
Distributions made pursuant to the preceding paragraph will be deemed to have
been made from the Escrowed Cash.
If BMS delivers a written notice to the Escrow Agent objecting to any
Certificate from AHC requesting the release of the Escrowed Property, such
notice must specify the disputed amount of such release request and the amount
not in dispute. The Escrow Agent will deliver to AHC the amount of such release
request not in dispute.
Each Escrowed Share distributed pursuant to the Escrow Agreement is valued
at a price per share equal to the Average Value of BMS Common Stock, rounded to
the nearest whole share. All Escrowed Shares distributed to AHC will be
distributed by AHC pro rata to the Former Axion Stockholders based on the ratio
of the number of shares of BMS Common Stock received by such Former Axion
Stockholder at the Closing to the aggregate number of shares of BMS Common Stock
received by all Former Axion Stockholders at the Closing.
Distributions for Indemnified Obligations
At any time on or prior to the Escrowed Cash Termination Date, BMS may
deliver to the Escrow Agent a certificate (i) stating that (A) a BMS Indemnified
Party has incurred an Indemnifiable Loss against which such BMS Indemnified
Party is entitled to be indemnified pursuant to the Indemnification Agreement or
(B) a BMS Indemnified Party is liable for Taxes against which such BMS
Indemnified Party is entitled to be indemnified
101
pursuant to the Tax Matters Agreement (each, an "Indemnified Obligation"), (ii)
stating the aggregate amount of such Indemnified Obligation (or, in the case of
an unliquidated Indemnified Obligation, a good faith and reasonable estimate
thereof) and (iii) specifying in reasonable detail the nature of each item
included in such Indemnified Obligation (an "Indemnification Item"), the amount
thereof and the date on which such Indemnification Item was paid or incurred;
provided, however, that BMS may not deliver to the Escrow Agent a certificate
stating that a BMS Indemnified Party is liable for Taxes against which such BMS
Indemnified Party is entitled to be indemnified pursuant to the Tax Matters
Agreement unless and until any of the following will have occurred: (a) a Tax
Return will have been filed as provided in the Tax Matters Agreement showing
such Taxes to be due and payable and the full amount of such Taxes will not have
been paid at the time such Tax Return was filed; (b) a Taxing Authority will
have asserted in writing or determined that there is a deficiency with respect
to such Taxes; (c) except with respect to any claim for indemnification for
Taxes relating in any respect to (i) the Contributions, the Distribution, the
Merger or any of the other Transactions, (ii) any sales or use Taxes, other than
(A) Pre-JV Sales Taxes, (B) JV Sales Taxes and (C) any liability of any BMS
Indemnified Party with respect to unpaid sales and use taxes on rentals of OPUS
Station machines, and (iii) the distribution of the stock of OnCare by Axion,
BMS will have received an opinion of a nationally recognized accounting firm or
law firm reasonably acceptable to AHC that it is more likely than not that such
Taxes will be properly payable; or (d) there will have been a "determination"
(as defined in Section 1313 of the Code) that such Taxes are due and payable.
If AHC objects to the Indemnified Obligation specified in such certificate,
AHC will, within 10 business days after delivery of the written notice
containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent will deliver a copy of such Reply
Certificate to BMS. BMS and AHC will negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
If no Reply Certificate is delivered with respect to any certificate or any
Indemnification Item contained therein, then AHC will be deemed to have
acknowledged BMS's right to receive any amount or amounts specified in such
certificate (or the undisputed portion thereof), and the Escrow Agent will
transfer to BMS, Escrowed Property in an amount equal to the undisputed amount
claimed in such certificate (plus interest at a rate per annum equal to the
prime rate announced from time to time by The Chase Manhattan Bank on such
amount from the later of (i) the date of such certificate and (ii) the date such
indemnified amount was actually incurred by the applicable Indemnified Party),
all in accordance with the procedures set forth in the Escrow Agreement.
If the Escrow Agent receives a Reply Certificate in a timely manner, the
disputed amount requested for reimbursement pursuant to the applicable
certificate will be held by the Escrow Agent and will not be released to BMS
except in accordance with either (i) written instructions signed by each of an
authorized officer of BMS and AHC or (ii) the final nonappealable judgment of a
court having jurisdiction over the matters relating to the claim by the
applicable Indemnified Party for indemnification from AHC accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date the portion of the amount due to such
Indemnified Party determined pursuant to clauses (i) or (ii) in this paragraph
will promptly be paid to BMS in accordance with the procedures set forth in the
Escrow Agreement.
The payment of Indemnified Obligations contemplated by the Escrow Agreement
will not be deemed to be a waiver of any right, claim or amount to which BMS may
be entitled under the Indemnification Agreement, the Tax Matters Agreement or
otherwise, including any claim relating to an Indemnified Obligation, to the
extent
102
that the amount paid to BMS pursuant hereto is insufficient to satisfy the
entire amount of any such Indemnified Obligation.
Notwithstanding anything to the contrary set forth in "--Disposition of
Escrowed Property" and "--Distributions for Indemnified Obligations", upon
receipt of written notice from the Escrow Agent containing a copy of a
certificate relating to an Indemnified Obligation the final amount of which will
have been liquidated, AHC may elect to pay to BMS such amount in cash in lieu of
payment being made from the Escrowed Property if AHC, within ten business days
after delivery of the written notice containing a copy of the certificate, will
have delivered to BMS and the Escrow Agent a written notice stating its election
to make such cash payment and, thereafter, will have made such cash payment to
BMS on the earliest date that a payment of Escrowed Property would otherwise be
made hereunder with respect to such Indemnified Obligation; provided, however,
that such Indemnified Obligation will constitute a Pending Claim for all
purposes of this Agreement until the time the full amount of such cash payment
is actually received by BMS.
Pending Claims
"Pending Claims" means, at any time, (a) all indemnification claims with
respect to which a certificate will have been delivered at or prior to such time
with respect to which the final amount of such claims will have been liquidated
and which will not have been paid in full at such time whether because the
payment of such amount is in dispute or otherwise and (b) all indemnification
claims with respect to which a Certificate will have been delivered and with
respect to which the final amount of such claim will not have been liquidated.
The amount of any Pending Claim as of any date will be equal to BMS's
reasonable estimate of such amount. If any Pending Claim exists on the last day
of any fiscal quarter during the term of the Escrow Agreement, not later than 10
business days after the last day of such fiscal quarter, BMS will deliver to the
Escrow Agent a certificate (a "Quarterly Certificate") setting forth BMS's
reasonable estimate of the amount of each then existing Pending Claim as of the
last day of such fiscal quarter, provided that, if BMS will not deliver a
Quarterly Certificate in respect of any fiscal quarter or will not include in
such Quarterly Certificate all Pending Claims existing on the last day of such
fiscal quarter, the amount of each Pending Claim (or the amount of any Pending
Claim not included in such Quarterly Certificate, as applicable) will be the
amount of each such Pending Claim set forth in the most recent Certificate
(including any Quarterly Certificate) delivered by BMS to the Escrow Agent in
respect of the amount of such Pending Claim, provided further that failure of
BMS to deliver a Quarterly Certificate in respect of any fiscal quarter will not
affect in any manner the obligations of the AHC Indemnifying Parties under the
Escrow Agreement, the Indemnification Agreement or the Tax Matters Agreement or
the rights of BMS or any other BMS Indemnified Party thereunder.
If AHC reasonably objects to the amount of any Pending Claim specified in
any certificate delivered pursuant to the Escrow Agreement, AHC will, within 10
business days after delivery of such certificate, deliver to the Escrow Agent a
certificate (the "Amount Certificate"), (i) specifying each such amount to which
AHC reasonably objects and (ii) specifying in reasonable detail the nature and
basis for each such objection. Within five business days of delivery to the
Escrow Agent of the Amount Certificate, the Escrow Agent will deliver a copy of
such Amount Certificate to BMS. BMS and AHC will negotiate in good faith for a
period of 30 days after delivery by the Escrow Agent to BMS of such Amount
Certificate to reach a written resolution of any matters raised in the Amount
Certificate and, if such matters are not resolved within a 30-day period, either
party may bring an action to resolve such dispute as provided in the Escrow
Agreement. Notwithstanding the foregoing, the amount of any Pending Claim with
respect to which an Amount Certificate will have been delivered will be for all
purposes of the Escrow Agreement the amount reasonably determined by BMS as
provided in the paragraph above unless and until such time as the Escrow Agent
either (a) receives written
103
instructions signed by an authorized officer of each of BMS and AHC adjusting
the amount of such Pending Claim or (b) the final nonappealable judgment of a
court having jurisdiction over the matters relating to the claim by the
applicable BMS Indemnified Party for indemnification from any AHC Indemnifying
Party adjusting the amount of such Pending Claim accompanied by an opinion of
outside counsel to the effect that the applicable judgment is final and
nonappealable, at which date, in the event that the Escrow Agent will have
received an Amount Certificate from AHC within the time frame set forth above,
the amount of the Pending Claim for all purposes of this Agreement will be
adjusted to the amount determined pursuant to clauses (a) or (b) of this
sentence.
Escrow Agent
The Escrow Agent shall not be liable except for its gross negligence or
wilful misconduct, and shall be indemnified jointly and severally by the AHC
Indemnifying Parties and the BMS Indemnifying Parties against losses or claims
arising out of or in connection with the Escrow Agreement. The Escrow Agent will
be required to make all Escrowed Property available for withdrawal on not less
than two business days' prior written notice.
Appointment of AHC as Representative
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder irrevocably
appointing AHC as his/her or its agent and attorney-in-fact to execute and
deliver on such Former Axion Stockholder's behalf, and thereby result in each
such Former Axion Stockholder becoming a party to and bound by, the
Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such indemnity; and will result in each such
Former Axion Stockholder ratifying and confirming any action taken by AHC in the
exercise of the power of attorney granted thereby.
See "Risk Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries" and "The Merger-Indemnification
Arrangements; Escrow; Appointment of AHC as Representative".
EFFECT OF TRANSACTIONS ON
AXION EMPLOYEES AND AXION BENEFIT PLANS
Transfer of Employment
Each person listed on a schedule to the Distribution Agreement (the
"Transferred Employee Schedule") will be transferred to AHC effective upon the
Time of Distribution (the "Transferred Employees"). It is intended that all
employees of Axion, OPUS, OTN and OTNC who are not listed on the Transferred
Employee Schedule
104
other than those employees listed on a schedule of Axion continuing employees
(the "Continuing Employee Schedule") will be deemed Transferred Employees
whether or not listed on the Transferred Employee Schedule. Prior to the Time of
Distribution, AHC will offer employment to each Transferred Employee on such
terms and conditions (including salary and benefit level) that are substantially
equivalent to the terms and conditions of the employee's employment with Axion,
OPUS, OTN or OTNC, as the case may be, immediately prior to the Time of
Distribution. Any Transferred Employee not actively-at-work as of the date
immediately following the Time of Distribution will nonetheless be deemed to be
an employee of AHC as of such date for all purposes and will be covered under
the benefit plans and arrangements of AHC to the fullest extent permitted by
such plans and arrangements. To the extent any Transferred Employee is not able
to be covered under any benefit plans or arrangements of AHC to the same extent
that such Transferred Employee would have been covered had he or she not been
included as a Transferred Employee, AHC will bear full responsibility to provide
the level of benefits that such Transferred Employee would have otherwise
received. AHC will recognize each Transferred Employee's prior service with
Axion, AHC, OPUS, OTN and OTNC and all members of Axion's controlled group
within the meaning of Section 414(b), (c), (m), and (o) of the Code for all
purposes under each employee benefit plan, policy or arrangement of AHC. AHC
will be solely liable for all liabilities, costs and expenses arising from any
Transferred Employee's failure or inability, for any reason, to accept AHC's
offer of employment and commence or continue such employment with AHC following
the Time of Distribution, including any and all severance or termination
benefits, benefit continuation obligations, or employment-related claims.
BMS prior to the Effective Time will offer continuing employment to the
persons listed on the Continuing Employee Schedule (each a "Continuing
Employee").
OTNC Employment Agreements
OTNC has entered into an employment agreement with David Levison (the
"Employment Agreement") which will become effective on the Closing Date.
Levison's employment under the Employment Agreement commences on the Closing
Date and continues for a period of two years. During that period, Levison will
serve as President of OTNC.
The Employment Agreement provides that Levison will receive a base salary
of $220,000 for the period commencing on the Closing Date and ending on the
first anniversary of the Closing Date and an annual base salary of $240,000 for
the period commencing on the day following such anniversary and ending on the
second anniversary of the Closing Date. Levison will be eligible for a bonus for
1996 of $112,000, which is payable on February 1, 1997. For 1997 and the portion
of 1998 that falls within the term of the Employment Agreement, Levison's bonus
will be determined in accordance with the terms and conditions set forth in the
Bristol-Myers Squibb Company Performance Incentive Plan, provided, however, that
Levison's target bonus will not be less than 27% of his base salary. Levison's
actual bonus will be based upon the extent to which actual pretax earnings for a
given plan year exceed or fall short of budgeted pretax earnings. One half of
Levison's bonus will relate to the pretax results of OTNC and the other half
will relate to the pretax results of the Bristol-Myers Squibb
Oncology/Immunology division. In addition, Levison is entitled to receive a
special retention bonus of $50,000 on the first day after the first anniversary
of the Closing Date and a special retention bonus of $100,000 on the first day
after the second anniversary of the Closing Date, provided in each case that he
is employed by OTNC on such anniversary. Levison will also be entitled to
participate in all retirement and welfare benefit plans of BMS on the same basis
as other key employees of BMS. Levison will receive an option to purchase 5,500
shares of BMS Common Stock under the BMS 1983 Stock Option Plan and a car
allowance of $7,000 per year.
105
If OTNC terminates the employment of Levison without cause, or he
terminates his employment because OTNC (i) materially changes his duties and
responsibilities, (ii) reduces his base salary or target bonus or (iii) requires
him to transfer to a new work location which is more than 20 miles more distance
from Levison's primary residence than was his work location immediately prior to
the transfer, OTNC will be obligated to pay severance to Levison by continuing
to pay his base salary for the greater of 12 months or the remaining balance of
the Employment Agreement. Levison will also be entitled to continued medical,
dental and life insurance benefits through the term of the Employment Agreement.
Payment of these severance amounts is conditioned upon Levison not engaging in
any deliberate act or omission which would be detrimental or damaging to the
good will of OTNC or BMS or materially damaging to OTNC's or BMS's relationships
with its customers, suppliers or employees.
If Levison's employment is terminated by OTNC for cause, all compensation
ceases as of the termination date. If Levison dies or becomes disabled during
the term of the Employment Agreement, all compensation payable under the
Employment Agreement ceases upon death or termination of employment due to
disability.
Throughout the term of the Employment Agreement and for a period of one
year after termination of his employment, Levison is restricted in his ability
to engage in a business which competes with the businesses of OTNC and OPUS
Station. During his employment and after termination thereof, Levison is
prohibited from disclosing confidential information concerning the business of
OTNC. During the term of the Employment Agreement and for a two-year period
thereafter, Levison is restricted from soliciting any employee of OTNC to leave
OTNC in order to accept employment with any other company. In addition, each of
the Noncompetition Agreements provides that none of AHC or OnCare or any of
their respective subsidiaries or Michael D. Goldberg, the President and Chief
Executive Officer and a director of Axion, OnCare and AHC, or Garrett J. Roper,
the Senior Vice President and Chief Financial Officer of Axion, OnCare and AHC
and the Secretary and a director of AHC, will solicit Levison for employment or
hire, whether as an employee, consultant or otherwise, during the term of his
employment agreement with OTNC. See "Relationship with BMS--Noncompetition
Agreements".
OTNC has entered into employment agreements substantially similar to David
Levison's (other than compensation amounts) with Warren Dodge, Bret Brodowy,
Michael Cunningham, Lynn Hammerschmidt and James Adams. Warren Dodge will serve
as Senior Vice President and General Manager of OTNC, Bret Brodowy as Vice
President of Automated Technologies, Michael Cunningham as Vice President of
Purchasing and Development, Lynn Hammerschmidt as Vice President of Marketing
and James Adams as Vice President of Customer Service. These additional
employment agreements contain similar severance, non-compete, confidentiality
and non-solicitation provisions to those contained in David Levison's Employment
Agreement. These employees will receive shares of BMS Common Stock through the
Merger. See "The Merger--Interests of Certain Persons in the Transactions".
Axion Indemnification Agreements
Axion has entered into certain indemnification agreements with its
directors and officers. See "The Merger--Interests of Certain Persons in the
Transactions". The Axion Certificate of Incorporation also provides for
exculpation of directors under certain circumstances. See "Comparison of Certain
Rights of Holders of BMS Common Stock, Holders of Axion Common Stock and Holders
of Axion Preferred Stock--Indemnification of Officers and Directors".
106
Transfer of Plans
Savings Plan
The Distribution Agreement provides that immediately prior to the Time of
Distribution, the Axion, Inc. 401K Profit Sharing Plan (the "Axion 401K Plan")
will be divided into two plans, each plan substantially identical to the Axion
401K Plan. One such plan will be maintained by Axion and will cover only those
participants who are Continuing Employees (the "New Axion 401K Plan"), and one
such plan will cover all other participants in the Axion 401K Plan, including
all participants who are Transferred Employees, retirees and vested terminated
participants in the Axion 401K Plan at the Time of Distribution (the "AHC 401K
Plan"). As of the Time of Distribution, the AHC 401K Plan will be transferred to
and assumed by AHC. As soon as practicable following the Time of Distribution,
Axion will cause an amount in cash (or property acceptable to AHC) to be
transferred from the trust under the Axion 401K Plan to the trust under the AHC
401K Plan equal to the sum of the account balances of (i) all Transferred
Employees, (ii) all retirees and (iii) all vested terminated participants in the
Axion 401K Plan with account balances under the Axion 401K Plan. Assets relating
to the accounts of Continuing Employees will be retained by the Axion 401K Plan
trust which shall be renamed the New Axion 401K Plan Trust. Axion and AHC will
cooperate in good faith to expedite the trust-to- trust transfer and to assure
the ongoing operation and administration of the New Axion 401K Plan and the AHC
401K Plan.
Medical and Dental Benefits
Effective as of the Time of Distribution, the Transferred Employees will
cease to be covered under the Aetna Medical and Dental Plan (the "Axion Health
Plan"). Axion will continue to maintain the Axion Health Plan for the Continuing
Employees (and their eligible dependents). Following the Distribution, AHC will
maintain a medical and dental plan and a corresponding flexible benefit plan to
cover the Transferred Employees (and their eligible dependents) on the same
basis and subject to the same conditions that would have applied absent the
Distribution. Subject to certain indemnification provisions, Axion will be
responsible for providing COBRA coverage to any former employee, retiree or
COBRA beneficiary entitled to such coverage under any Axion welfare benefit plan
as of the Time of Distribution.
Other Welfare Benefits
Following the Distribution, each Transferred Employee (and his or her
dependents) will continue to participate in a life and accidental death and
dismemberment plan on the same terms that would have applied absent the
Distribution. No Transferred Employee will be subject to any waiting period with
respect to such coverage under such plan which would not have applied absent his
or her transfer of employment to AHC. As of the Time of Distribution, and
subject to completion of the Merger, each Continuing Employee will receive
similar welfare benefits under the plans of BMS which apply to similarly
situated employees of BMS.
Disability Coverage
Following the Distribution, each Transferred Employee will continue to
participate in a long-term disability plan on the same terms that would have
applied absent the Distribution. No Transferred Employee will be subject to any
waiting period or pre-existing condition exclusion with respect to such
disability coverage which would not have applied absent his or her transfer of
employment to AHC. In accordance with the foregoing, AHC will be responsible for
providing long-term disability benefits to each Transferred Employee who is or
becomes disabled before, on or after the Time of Distribution and each former
employee of Axion who becomes
107
disabled before the Time of Distribution regardless of whether such former
employee would have been a Transferred Employee if he or she had not become
disabled. As of the date immediately following the Time of Distribution, and
subject to completion of the Merger, each Continuing Employee will be eligible
to participate in the long-term disability coverage provided under the plans and
policies of BMS subject to the same coverage levels and other terms and
conditions (including waiting periods and pre-existing condition exclusions) as
a newly hired employee of BMS.
Retained Plans
The plans maintained by Axion that will not be transferred to AHC (the
"Retained Plans") are the following: (a) the Axion 1989 Plan and the 1995 Plan,
each of which will terminate at the Effective Time, (b) the Axion Health Plan,
which will be retained by Axion and will provide health benefits for the
Continuing Axion Employees, and (c) the Axion Pharmaceuticals, Inc. (as amended
to be the OTNC) Flexible Employee Benefit Plan, which will continue to be
maintained by Axion for the benefit of the Continuing Axion Employees.
With respect to all options granted under the Axion 1989 Plan and the Axion
1995 Plan and currently outstanding, the Merger will constitute a "Corporate
Transaction" for purposes of both the Axion 1989 Plan and Axion 1995 Plan, with
the following consequences:
(a) any option granted under the Axion 1989 Plan not yet exercisable will
become exercisable in full upon consummation of the Merger and the
holder thereof will be entitled to exercise such option immediately
before the Time of Contribution with respect to any or all of the
shares of Axion common stock then subject to the option;
(b) the shares issuable upon exercise of an option granted under either
the Axion 1989 Plan or Axion 1995 Plan and shares already issued upon
exercise of an option granted under the Axion 1989 Plan which in each
case are unvested at the Time of Contribution will become fully
vested, and Axion's repurchase rights with respect to such unvested
shares will automatically lapse upon consummation of the Merger;
(c) Axion will extend an Employee Loan to each holder of an option
outstanding under the Axion 1989 Plan or the Axion 1995 Plan equal to
the exercise price for all of the shares purchasable under each such
option, the proceeds of which such optionee may use to exercise his or
her option. Each such Employee Loan shall be full recourse, may or may
not be secured, shall bear interest at the applicable Federal rate
established by the IRS and shall be due at the end of two years,
subject to acceleration to the extent the optionee sells any of the
Axion shares purchased with the note (other than in the Merger) or the
BMS shares received in exchange for such Axion shares; and
(d) each option granted under the Axion 1989 Plan and each option granted
under the Axion 1995 Plan will be canceled immediately prior to the
Time of Contribution to the extent not exercised prior to the Time of
Contribution.
The Axion 1989 Plan and the Axion 1995 Plan will terminate at the Effective
Time.
Severance Arrangements
Axion has adopted the Oncology Therapeutics Network Corporation Officers
Severance Plan ("Severance Plan") effective January 1, 1996 for the benefit of
David Levison and four other individuals who have entered
108
into employment contracts with OTNC to continue in employment after the Merger.
The Severance Plan provides for the payment of certain severance benefits in the
event of the eligible employee's involuntary termination, other than a
termination for cause, within the twelve (12) month period following certain
changes in control. The Merger constitutes a change in control for purposes of
the Severance Plan and accordingly will trigger severance benefits for an
eligible employee if his employment is involuntarily terminated by BMS within
twelve months of the Merger. An eligible employee's termination of employment by
Axion will not trigger severance benefits under the Severance Plan if the
individual is employed in a comparable position by BMS or a subsidiary. The
Severance Plan provides for a lump sum cash payment equal to 12 months of the
eligible employee's base salary plus the employee's full target bonus for the
fiscal year in which the employment termination occurs. Pursuant to their
respective Employment Agreements, David Levison and the four other individuals
have waived their rights to receive benefits under the Severance Plan. These
Employment Agreements provide for certain severance payments. See "--OTNC
Employment Agreements".
RELATIONSHIP WITH BMS
Following the Merger, AHC will continue to have certain relationships with
BMS and its subsidiaries.
Indemnification Agreement; Escrow Agreement; Tax Matters Agreement
AHC, the 81% Subsidiaries (including OPUS Sub), the Former Axion
Stockholders, BMS, the Surviving Corporation, OPUS, OTNC and the Partnership
will be parties to the Indemnification Agreement, the Tax Matters Agreement and
the Escrow Agreement. See "Indemnification Arrangements--Terms of the
Indemnification Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms
of the Escrow Agreement".
Noncompetition Agreements
BMS has entered into separate Noncompetition Agreements with AHC and OnCare
and each of Michael D. Goldberg, the President and Chief Executive Officer of
Axion, OnCare and AHC and a director of Axion, or Garrett J. Roper, the Senior
Vice President and Chief Financial Officer of Axion, OnCare and AHC and the
Secretary of AHC (the "Noncompetition Agreements") which will become effective
at Closing and will, for two years following the Closing Date, prohibit such
entities or persons and their affiliates, as the case may be, from, as
applicable, ownership, management, operation or control of, employment by,
holding certain equity interests in or serving as a director, advisor or
consultant to, or having certain other relationships with, any entity that
engages in the distribution of oncology drugs, supplies or biologics to certain
customers of OTN or the automated drug dispensing and inventory tracking systems
business in the United States. In addition, each of the Noncompetition
Agreements provides that none of AHC or OnCare or any of their respective
subsidiaries or Michael Goldberg or Garrett Roper will solicit for employment or
hire, whether as an employee, consultant or otherwise, David Levison, President
of OTNC, during the term of his employment agreement with OTNC.
AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement; OnCare
Medstation Agreement.
Pursuant to the AHC Supply Agreement and OnCare Supply Agreement, which
will become effective at the Closing, each of AHC and OnCare, respectively, will
purchase from OTN all the products and supplies offered by OTN required by all
oncology treatment facilities that are either owned by AHC or OnCare, as the
case may be, or any of their respective subsidiaries or controlled affiliates,
managed by AHC or OnCare, as the case may
109
be, or any of their respective subsidiaries or controlled affiliates or which
AHC or OnCare, as the case may be, or any of their respective subsidiaries or
controlled affiliates has the authority at the discretion of the oncology
treatment facility to purchase products or supplies. In general OTN will provide
each of AHC and OnCare the lowest prices at which OTN sells such products or
supplies to other oncology physician management companies with the authority to
make purchasing decisions on behalf of physician office practices which have
agreed to make purchase or other commercial commitments equivalent to those
agreed to by AHC or OnCare, as the case may be, provided that in the event AHC
or OnCare, as the case may be, receives an offer pricing products or supplies at
a price of at least 10% less than the lowest price offered by OTN and OTN
chooses not to match such lower offer, AHC or OnCare, as the case may be, may
purchase such products or supplies pursuant to such lower offer for a term to
end upon the later of 30 days after the receipt of such lower offer and the term
of such lower offer. The existing supply agreement between OTN and OnCare will
terminate on the Closing Date.
Similar arrangements have been made between each of AHC and OnCare and OPUS
pursuant to the AHC Medstation Agreement and the OnCare Medstation Agreement,
respectively, regarding the lease from OPUS of OPUS Stations. As of June 30,
1996, eight OPUS Stations were in use at six different oncology practices
operated by OnCare. The relevant OPUS Station agreements will remain in effect
after the Closing.
License Agreement
In the License Agreement, AHC will agree to provide to the Surviving
Corporation a royalty-free exclusive, fully paid up right and license to use the
"OPUS" name and other scheduled intellectual property in connection with the
OPUS Station Business for a period of one year. The License Agreement also
provides that the Surviving Corporation may use certain supplies bearing the
"Axion" name as specified in the License Agreement for a period of not more than
two months; provided that the Surviving Corporation agrees to use commercially
reasonable efforts to terminate its use of such supplies as soon as practicable
following the Effective Time.
Transitional Services Agreement
In the Transitional Services Agreement, AHC will agree to provide to Axion
certain services, including certain financial and information systems services,
at cost, and the Surviving Corporation will agree to provide to AHC certain
services, including certain information systems services, at $15,000 per month.
The services provided under the Transitional Services Agreement will be
performed for a period of three months after the date thereof with renewals of
one month upon the mutual consent of the parties with such renewals not to
exceed an aggregate of three months in addition to the original term.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Distribution and the Merger to holders of Axion capital
stock who are citizens or residents of the United States. This discussion does
not consider all the tax consequences that may be relevant to Axion stockholders
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, tax exempt organizations or, except as specifically
provided below, foreign persons) or to Axion stockholders who acquired their
shares of Axion Common Stock pursuant to the exercise of employee stock options
or otherwise in compensatory transactions. In addition, this discussion does not
address any state, local or foreign tax considerations nor does it address any
federal estate, gift, employment, excise or other non-income tax consideration.
The following discussion is based upon provisions of the Code, regulations,
administrative rulings and judicial decisions presently in effect,
110
all of which are subject to change (possibly with retroactive effect) or to
different interpretations. ALL AXION STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION AND
THE MERGER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
The Distribution
In the opinion of Ernst & Young, certified public accountants to Axion,
based upon certain representations of BMS, BMS Sub, Axion, AHC and certain
Former Axion Stockholders, the Distribution should qualify as a tax-free spinoff
under Section 355 of the Code. In such event, the following consequences would
obtain:
1. An Axion stockholder should not recognize any income, gain or loss as a
result of the Distribution.
2. An Axion stockholder should apportion the tax basis of his or her Axion
Common Stock between such Axion Common Stock and AHC Preferred Stock received in
the distribution in proportion to the relative fair market values of such Axion
Common Stock and AHC Preferred Stock immediately following the Distribution.
3. An Axion stockholder's holding period for the AHC Preferred Stock
received in the Distribution should include the holding period applicable to the
Axion Common Stock with respect to which the Distribution was made, provided
that such Axion Common Stock is held as a capital asset by such stockholder as
of the date of the Distribution.
4. Under current law, no gain or loss should be recognized by Axion as a
result of the Distribution, except to the extent that immediately after the
Distribution AHC Preferred Stock is owned (either directly, or indirectly
through one or more entities that are treated for United States tax purposes as
partnerships, estates or trusts) or deemed to be owned by certain individuals
who are not citizens or residents of the United States or by certain foreign
corporations (such actual or deemed owners are collectively referred to herein
as "Non-United States Holders"). AHC Preferred Stock that is owned by entities
that are treated for United States tax purposes as partnerships, estates or
trusts will for this purpose be deemed to be indirectly owned by Non-United
States Holders unless certain certification procedures are complied with by the
partners of such partnerships or the beneficiaries of such trusts or estates. In
the case of such direct or indirect ownership by certain Non-United States
Holders, Axion will recognize gain in an amount equal to the excess of the value
of the AHC Preferred Stock that is so held by such Non-United States Holders
over Axion's tax basis in such stock. It is expected that at the Time of
Distribution a substantial portion of Axion Common Stock will be held by
Non-United States Holders. Based on Axion's business judgment as to the value of
the businesses to be distributed by Axion in the Distribution, Axion does not
expect that it will incur a material amount of tax liability as a result of the
distribution of AHC Preferred Stock to Non-United States Holders. It should also
be noted that legislation (the "Proposed Legislation") has been proposed that
would cause the Distribution to constitute a taxable event to Axion whereby
Axion would recognize gain in an amount equal to the excess of the value of the
AHC Preferred Stock distributed over Axion's tax basis in such stock, whether or
not such stock is owned by Non-United States Holders. While the Proposed
Legislation has not yet been enacted into law, as currently drafted such
legislation would, if enacted, apply retroactively to the Distribution. Based on
Axion's business judgment as to the value of the businesses to be distributed by
Axion in the Distribution, Axion does not expect to report a material amount of
tax liability on its federal income tax returns as a result of the distribution
of AHC Preferred Stock even if the Proposed Legislation were adopted with an
effective date that applied to the Distribution. There can be no assurance,
however, that the IRS will agree with Axion's business judgment as to the
valuation of the businesses to be distributed by Axion in the Distribution or
will not establish a higher valuation that would make Axion's tax liability
higher, and, accordingly, there can be no assurance that the distribution of the
AHC Preferred Stock
111
to Non-United States Holders or the adoption of the Proposed Legislation would
not cause Axion to incur a material amount of tax liability. Pursuant to the Tax
Matters Agreement, the AHC Indemnifying Parties have agreed to indemnify the BMS
Indemnified Parties against such tax liability, which may result in a claim
against part or all of the Escrowed Cash or the Escrowed Shares or directly
against the AHC Indemnifying Parties. Regardless of the existence of Non-United
States Holders or whether the Proposed Legislation is adopted, Axion and/or its
subsidiaries may also be required to recognize gain as a result of the transfer
of various assets and liabilities among various entities in anticipation of the
Distribution.
No ruling from the IRS has been or will be sought with respect to any of
the tax matters relating to the Distribution. The opinion of Ernst & Young
described above will not be binding on the IRS. In addition, Axion stockholders
should be aware that such opinion is based on Ernst & Young's interpretation as
to how various requirements of Code Section 355 should apply to the particular
facts presented by the Distribution. With respect to some of these
interpretations, no direct legal precedents exist. Accordingly, there can be no
assurance that the IRS will agree with the conclusions set forth in the Ernst &
Young opinion. Moreover, no published rulings or cases squarely address the
qualifications of a transaction identical to the Distribution under Section 355
of the Code.
A successful IRS challenge to the qualification of the Distribution as a
tax-free spinoff qualifying under Section 355 of the Code (as a result of the
inaccuracy of any of the representations of BMS, BMS Sub, Axion, AHC or certain
Former Axion Stockholders, or otherwise) would result in the following
consequences:
1. Axion would recognize gain in an amount equal to the excess of the value
of the AHC Preferred Stock distributed to Axion stockholders over Axion's tax
basis in such stock (to the extent such gain has not previously been recognized
by Axion in connection with the distribution of AHC Preferred Stock to
Non-United States Holders). As noted above, Axion does not expect that it would
incur a material amount of tax liability. Also as noted above, Axion and/or its
subsidiaries may also be required to recognize gain as a result of the transfer
of various assets and liabilities among various entities in anticipation of the
Distribution, regardless of whether the Distribution qualifies as a tax-free
spinoff under Section 355 of the Code.
2. The receipt of AHC Preferred Stock would constitute a taxable
distribution to all Axion stockholders (including Non-United States Holders) so
that the fair market value of the AHC Preferred Stock received by an Axion
stockholder would be treated (i) first, as a dividend to the extent of such
Axion stockholder's share of Axion's current and accumulated earnings and
profits, (ii) next, as a tax-free return of capital to the extent of such
stockholder's tax basis in the Axion Common Stock with respect to which the AHC
Preferred Stock is distributed (as determined, for Axion stockholders who hold
two or more blocks of stock with different bases, on a block-by-block approach
rather than by aggregating the bases of all blocks of stock held by each Axion
stockholder) and (iii) finally, as gain from the sale of Axion Common Stock. In
addition, Axion would incur certain withholding tax liabilities to the extent
such distributions were made to certain foreign individuals and entities.
3. An Axion stockholder's aggregate basis in the shares of AHC Preferred
Stock received in the Distribution would equal the fair market value of such
shares, and the stockholder's holding period for such AHC Preferred Stock would
not include the period during which the shares of Axion Stock were held.
Under the Tax Matters Agreement, the AHC Indemnifying Parties have agreed
to indemnify the BMS Indemnified Parties against any tax liability arising from
the failure of the Distribution to qualify as a tax-free
112
spinoff under Section 355 of the Code or any other tax liabilities arising from
the Contributions, the Distribution or the related transactions. See
"Indemnification Arrangements--Terms of the Tax Matters Agreement".
The Merger
In the opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for Axion, and Ernst & Young LLP, accountants for Axion, based on
certain representations of BMS, BMS Sub, Axion, AHC and certain Former Axion
Stockholders, the Merger will qualify as a reorganization under Section 368(a)
of the Code. Provided that the Merger does so qualify, the following results
should obtain:
1. No gain or loss will be recognized by stockholders of Axion who exchange
all of their shares of Axion Common Stock solely for shares of BMS Common Stock
in the Merger.
2. No gain or loss will be recognized by Axion as a result of the Merger.
3. The aggregate tax basis of the BMS Common Stock received in the Merger
(including any BMS Common Stock held in escrow) by each Axion stockholder will
be the same as the aggregate tax basis of the shares of Axion Common Stock
surrendered in exchange therefor.
4. The holding period for each share of BMS Common Stock received in the
Merger will include the period during which the shares of Axion Common Stock
surrendered in exchange therefor were held, provided that such shares of Axion
Common Stock were held as capital assets at the Effective Time.
5. A stockholder who exercises dissenter's rights with respect to a share
of Axion Common Stock and who receives payment for such stock in cash will
generally recognize capital gain or loss (if such share were held as a capital
asset at the Effective Time) measured by the difference between the Axion
stockholder's basis in such share and the amount of cash received, provided that
such payment is neither essentially equivalent to a dividend nor has the effect
of a distribution of a dividend (a "Dividend Equivalent Transaction"). (See
Sections 302 and 356(A)(2) of the Code.) A sale of Axion Common Stock pursuant
to an exercise of dissenter's rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the Axion Stockholder exercising
dissenter's rights owns no shares of BMS Common Stock (either actually or
constructively within the meaning of Section 318 of the Code.) If, however, an
Axion stockholder's sale for cash of Axion Common Stock pursuant to an exercise
of dissenter's rights is a Dividend Equivalent Transaction, then such Axion
stockholder will generally recognize ordinary dividend income for federal income
tax purposes in an amount up to the entire amount of cash so received.
It is a condition to the obligation of BMS to effect the Merger that no
Dissenting Shares be outstanding at the Effective Time.
No ruling from the IRS has been or will be sought with respect to any of
the tax matters relating to the Merger. The opinions described above will not be
binding on the IRS and there can accordingly be no assurance that the IRS will
agree with the conclusions set forth therein.
A successful IRS challenge to the status of the Merger as a reorganization
under Section 368(a) of the Code (as a result of the inaccuracy of any of the
representations of BMS, BMS Sub, Axion, AHC or certain Former Axion
Stockholders, or otherwise) would result in an Axion stockholder recognizing
gain or loss with respect to each share of Axion Common Stock surrendered equal
to the difference between the fair market value, as of the Effective Time, of
the BMS Common Stock received in exchange therefor and the stockholder's tax
basis in
113
such Axion stock. In such event, an Axion stockholder's aggregate basis in the
shares of BMS Common Stock received in the exchange would equal the fair market
value of such shares, and the stockholder's holding period for such BMS Common
Stock would not include the period during which the shares of Axion stock were
held. In addition, a successful IRS assertion that the Merger does not qualify
as such a reorganization would also cause the Distribution to fail to qualify as
a tax-free spinoff under Section 355 of the Code which, as noted above, could
result in significant tax liability to Former Axion Stockholders as well as
indemnification obligations of Former Axion Stockholders and the other AHC
Indemnifying Parties. See "Indemnification Arrangements--Terms of the Tax
Matters Agreement".
For tax purposes, AHC will be deemed to own the Escrowed Cash and each of
the Former Axion Stockholders will be deemed to own its pro rata share of the
Escrowed Shares. Any taxable income earned or amounts realized in respect of the
cash or stock held in the Escrow Account shall be for the account of AHC or the
Former Axion Stockholders, respectively, and such parties have agreed to report
such amounts in such manner. If any Escrowed Shares are released to BMS pursuant
to the terms of the Indemnification Agreement or the Tax Matters Agreement, the
basis of such released Escrowed Shares will be allocable to the remaining shares
of BMS Common Stock received in the Merger held by the applicable Former Axion
Stockholder on a pro rata basis, or if no such shares are then held by such
Former Axion Stockholder, such release could result in the recognition of loss
by such Former Axion Stockholder.
The foregoing summary is included herein for general information only. Such
opinions are based in part on representations provided by Axion and BMS. The
summary does not address the Federal income tax consequences to all categories
of Axion stockholders, including those who acquired shares of Axion capital
stock pursuant to the exercise of stock options or otherwise in compensatory
transactions. EACH AXION STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE DISTRIBUTION AND THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX LAWS.
DESCRIPTION OF CAPITAL STOCK OF BMS
General
The following description of the material terms of the authorized capital
stock of BMS does not purport to be complete and is qualified in its entirety by
reference to the Restated Certificate of Incorporation of BMS (the "BMS
Certificate of Incorporation"), the By-laws of BMS (the "BMS By-laws") and the
Rights Agreement. See "Available Information."
The authorized capital stock of BMS presently consists of 1,500,000,000
shares of BMS Common Stock and 10,000,000 shares of preferred stock, issuable in
series. As of July 31, 1996, 501,790,392 shares of BMS Common Stock and 15,698
shares of convertible preferred stock, par value $1.00 per share, of BMS (the
"BMS Convertible Preferred") were issued and outstanding. The BMS Board is
authorized to approve the issuance of one or more additional series of preferred
stock of BMS without further authorization of BMS's stockholders (except as may
be required under applicable stock exchange requirements), and to fix the number
of shares, the designations, the powers, preferences and relative,
participating, optional and other special rights of any such additional series
and the qualifications, limitations and restrictions thereof. Thus, any
additional series may, if so determined by the BMS Board, have full voting
rights with the BMS Common Stock or limited voting rights,
114
be convertible into BMS Common Stock or another security of BMS, and have such
other powers, preferences and relative, participating, optional and other
special rights, and such qualifications, limitations and restrictions thereof,
as the BMS Board shall determine.
Common Stock
The holders of BMS Common stock are entitled to receive dividends when and
as declared by the BMS Board out of funds legally available therefor, subject to
the terms of any preferred stock of BMS at the time outstanding.
The holders of BMS Common Stock are entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors. The
holders of BMS Common Stock do not have any cumulative voting, conversion,
redemption or preemptive rights. In the event of dissolution, liquidation or
winding up of BMS, holders of BMS Common Stock will be entitled to share
ratably, together with any participating preferred stock of BMS, in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of indebtedness of BMS, and the aggregate liquidation
preference of any preferred stock of BMS then outstanding.
The outstanding shares of BMS Common Stock are listed on the NYSE and the
PSE. Chase Mellon Shareholder Services, 85 Challenger Road, Overpeck Centre,
Ridgefield Park, New Jersey 07660 is the transfer agent and registrar for the
BMS Common Stock.
BMS Convertible Preferred
Dividend Rights
Holders of BMS Convertible Preferred are entitled to receive, when and as
declared by the BMS Board out of funds legally available for payment, annual
dividends in an amount per share equal to $2.00. Dividends on BMS Convertible
Preferred are payable on the first day of March, June, September and December of
each year. Dividends on the BMS Convertible Preferred are cumulative and accrue
on a day-to-day basis.
For so long as the BMS Convertible Preferred is outstanding, BMS may not
declare or pay any dividend on BMS Common Stock or redeem or purchase any other
preferred stock of BMS or purchase BMS Common Stock, unless full cumulative
dividends on the BMS Convertible Preferred have been paid, or declared and funds
set apart for payment thereof.
Conversion Provisions
At the election of the holder thereof, each share of BMS Convertible
Preferred is convertible into shares of BMS Common Stock, subject to adjustment
as set forth below. As of the date of this Proxy Statement/Prospectus, each
share of BMS Convertible Preferred is convertible into 4.24 shares of BMS Common
Stock. With respect to shares of BMS Convertible Preferred called for
redemption, conversion rights will expire at the close of business on the date
fixed for redemption, unless BMS defaults in the payment of the redemption
price.
No fractional shares will be issued upon conversion, and, in lieu thereof,
an adjustment in cash will be made based upon the closing price of BMS Common
Stock on the NYSE on the day of conversion.
115
The conversion rate will be subject to adjustment in certain events to
preserve the relative rights of holders of BMS Convertible Preferred, including
certain subdivisions and combinations of BMS Common Stock, certain
reclassifications, and certain consolidations and mergers of BMS. Adjustments in
the conversion rate will be deferred until cumulative adjustments shall have
resulted in a change of the conversion rate by at least one one-hundredth of one
share of BMS Common Stock. No payment or allowance will be made upon conversion
in respect of any accrued and unpaid dividends.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of BMS, whether
voluntary or involuntary, the holders of BMS Convertible Preferred then
outstanding are entitled to receive $50.00 per share plus all accrued and unpaid
dividends.
Redemption
BMS Convertible Preferred is redeemable at any time, at the option of BMS,
in whole or in part, at the price of $50.00 per share together with accrued and
unpaid dividends at the date of redemption. If BMS shall redeem less than all of
the outstanding shares of BMS Convertible Preferred, the BMS Board will
determine the shares to be redeemed by lot.
Voting Rights
Each share of BMS Convertible Preferred entitles the holder thereof to one
vote per share, and except as otherwise provided by the BMS Certificate of
Incorporation or as required by law, the BMS Convertible Preferred and the BMS
Common Stock vote as one class except that when holders of shares of preferred
stock of BMS voting as a class are entitled to elect two directors as provided
in the BMS Certificate of Incorporation, such holders are not entitled to
participate with the BMS Common Stock in the election of any other directors.
Without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of BMS Convertible Preferred, BMS may not amend, alter or
repeal any provision of the BMS Certificate of Incorporation or BMS By-laws so
as to materially affect any of the powers, preferences and rights of BMS
Convertible Preferred. The holders of BMS Convertible Preferred have no other
voting rights except as required by law.
BMS Rights
Each share of BMS Common Stock carries with it an associated right (a "BMS
Right") pursuant to the Rights Agreement dated as of December 4, 1987, between
BMS and The Chase Manhattan Bank, as Rights Agent (as amended, the "Rights
Agreement") that entitles holders of BMS Common Stock under certain
circumstances to buy one one-thousandth of a share of a new series of
participating preferred stock of BMS at an exercise price of $200. The BMS
Rights separate from the associated shares of BMS Common Stock and become
exercisable only after a person or group acquires beneficial ownership of 20% or
more of BMS Common Stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 30% or more of
BMS Common Stock.
If any person (i) becomes the beneficial owner of 25% or more of BMS Common
Stock, other than pursuant to certain tender or exchange offers described in the
Rights Agreement, (ii) who is a 20% or more stockholder engages in certain self-
dealing transactions described in the Rights Agreement or (iii) engages in a
116
merger transaction with BMS in which BMS is the surviving corporation and shares
of BMS Common Stock are not changed or converted, then each BMS Right not owned
by such person or related parties will entitle its holder to purchase, at the
BMS Right's then-current exercise price, shares of BMS Common Stock (or, in
certain circumstances as determined by the BMS Board, cash, property or other
securities of BMS) having a value of twice the BMS Right's exercise price. In
addition, if BMS is involved in a merger or other business combination
transaction with another person in which shares of BMS Common Stock are changed
or converted, or sells 50% or more of its assets or earning power to another
person, each BMS Right will entitle its holder to purchase, at the BMS Right's
then-current exercise price, common shares of such other person having a value
of twice the BMS Right's exercise price.
BMS is generally entitled to redeem the BMS Rights at a price of $.01 per
BMS Right at any time until the 15th day following public announcement that a
20% position has been acquired.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
BMS COMMON STOCK, HOLDERS OF AXION COMMON STOCK AND HOLDERS
OF AXION PREFERRED STOCK
The rights of holders of BMS Common Stock are governed by the BMS
Certificate of Incorporation and the BMS By-laws. The rights of holders of Axion
Common Stock and holders of Axion Preferred Stock are governed by the Axion
Certificate of Incorporation and the Axion By-laws. Both BMS and Axion are
governed by the DGCL. Upon consummation of the Merger, the stockholders of Axion
will become stockholders of BMS. The BMS Certificate of Incorporation and the
BMS By-laws will remain in effect after the Merger. Below is a summary of
certain differences among the rights of holders of BMS Common Stock, holders of
Axion Common Stock and holders of Axion Preferred Stock, resulting from
differences in the respective BMS and Axion certificates of incorporation and
by-laws.
The following summary does not purport to be a complete statement of the
rights of BMS stockholders under the BMS Certificate of Incorporation and the
BMS By-laws compared with the rights of holders of Axion Common Stock and
holders of Axion Preferred Stock under the Axion Certificate of Incorporation
and the Axion By-laws. This summary is qualified in its entirety by reference to
the respective BMS and Axion certificates of incorporation and by-laws. For
information regarding the AHC Preferred Stock, see "Description of AHC Capital
Stock" and "Comparison of Certain Rights of Holders of AHC Preferred Stock,
Holders of Axion Common Stock and Holders of Axion Preferred Stock" in the
Information Statement attached as Exhibit G hereto.
Voting
The BMS Certificate of Incorporation provides that holders of BMS Common
Stock are entitled to one vote for each share held.
The Axion Certificate of Incorporation provides that holders of Axion
Common Stock are entitled to one vote for each share held.
The Axion Certificate of Incorporation provides that holders of Axion
Preferred Stock are entitled to the number of votes equal to the number of
shares of Axion Common Stock into which such shares of Axion Preferred Stock
could be converted on the record date for the vote or the date of the
solicitation of any written consent of Axion stockholders (excluding fractional
shares) and shall have voting rights and powers equal to the
117
voting rights and powers of the holders of Axion Common Stock. Holders of Axion
Preferred Stock vote together as a single class with the holders of Axion Common
Stock upon all matters submitted to a vote of Axion stockholders. The Axion
Certificate of Incorporation also provides for certain matters specified therein
to be submitted to a vote of holders of Axion Preferred Stock, voting in some
cases together as a single class and in other cases separately by series.
No Cumulative Voting
Neither the BMS Certificate of Incorporation nor the Axion Certificate of
Incorporation provides for cumulative voting.
Certain Business Combinations
The BMS Certificate of Incorporation requires the affirmative vote of the
holders of at least 75% of the outstanding shares of stock of BMS entitled to
vote generally in the election of directors, voting together as a single class,
to approve any merger or other Business Combination (as defined therein, which
term includes a merger, consolidation, sale of all or substantially all the
assets of BMS, the adoption of a plan of liquidation and similar extraordinary
corporate transactions) between, or otherwise involving BMS and (i) any
Interested Stockholder (as defined therein) or (ii) any other person which is,
or after such Business Combination would be, an Affiliate or Associate (as
defined therein) unless (i) the transaction has been approved by a majority of
the Continuing Directors (as defined therein) or (ii) certain minimum price,
form of consideration and procedural requirements are satisfied.
The Axion Certificate of Incorporation requires, so long as no fewer than
an aggregate of 500,000 shares of Axion Series A Preferred Stock, par value
$.001 per share (the "Axion Series A"), Axion Series B Preferred Stock, par
value $.001 per share (the "Axion Series B"), Axion Series C Preferred Stock,
par value $.001 per share (the "Axion Series C"), Axion Series D Preferred
Stock, par value $.001 per share (the "Axion Series D"), Axion Series E
Preferred Stock, par value $.001 per share (the "Axion Series E"), or Axion
Series F Preferred Stock, par value $.001 per share (the "Axion Series F") are
outstanding, that any transaction that would result in a reorganization of
Axion, or the merger or consolidation of Axion with or into another corporation,
or the effectuation by Axion of a transaction or series of transactions in which
more than 50% of the voting power of Axion is disposed of, or the sale of all or
substantially all of the assets of Axion must be approved by the holders of at
least 50% of the then outstanding shares of Axion Preferred Stock (excluding
from such vote the shares of any series of Axion Preferred Stock of which there
are fewer than 100,000 shares outstanding), voting together as a single class.
Rights Plan
Each share of BMS Common Stock comes with an associated BMS Right to buy
one one-thousandth of a share of a new series of participating preferred stock
of BMS at an exercise price of $200 under certain circumstances. See
"Description of Capital Stock of BMS--BMS Rights".
Axion currently has no similar stockholder purchase rights plan.
Liquidation Preference
The BMS Certificate of Incorporation does not provide holders of BMS Common
Stock with any liquidation preference in the event of any liquidation,
dissolution, or winding up of BMS.
118
The Axion Certificate of Incorporation does not provide holders of Axion
Common Stock with any liquidation preference in the event of any liquidation,
dissolution, or winding up of Axion.
The Axion Certificate of Incorporation provides that in the event of any
liquidation, dissolution, or winding up of Axion, whether voluntary or
involuntary, the holders of each share of Axion Preferred Stock shall be
entitled to be paid out of the assets of Axion legally available for
distribution to its stockholders the following liquidation preferences: $.75 per
share of Axion Series A, $3.40 per share of Axion Series B, $4.79 per share of
Axion Series C, $5.60 per share of Axion Series D, $7.25 per share of Axion
Series E, and $10.00 per share of Axion Series F, plus, for each such share, an
amount equal to all declared but unpaid dividends thereon, if any, to the date
fixed for distribution to such series (such sum, subject to certain adjustments,
the "Axion Preference Amount").
After holders of Axion Preferred Stock have received their full Axion
Preference Amount, any remaining assets or surplus funds of Axion will be shared
by and distributed ratably among the holders of Axion Common Stock and the
holders of Axion Preferred Stock; provided, however, that holders of Axion
Series A, Axion Series B, Axion Series C, and Axion Series E are entitled to
participate in such ratable distribution and sharing only until such time as
they receive certain aggregate per share maximum amounts set forth in the Axion
Certificate of Incorporation.
For purposes of the foregoing two paragraphs relating to the liquidation
rights of Axion Preferred Stockholders, a merger or consolidation of Axion into
or with another corporation, a sale, transfer or other disposition of all or
substantially all of Axion's assets or the effectuation by Axion of a
transaction or series of related transactions in which more than 50% of the
voting power of Axion is disposed of, shall, unless the holders of at least
66-2/3% of the Axion Preferred Stock, voting together as a class, elect in
writing otherwise, be deemed to be a liquidation, dissolution or winding up of
Axion.
In the event Axion proposes to take any action regarding the liquidation,
dissolution or winding up of Axion which will involve the distribution of assets
other than cash, the value of the assets to be distributed to the holders of
Axion Preferred Stock is to be determined by the vote or written consent of the
Axion Board (subject to certain guidelines specified in the Axion Certificate of
Incorporation with respect to the valuation of securities), and such
determination will be binding upon the holders of Axion Preferred Stock.
Dividends
The BMS Certificate of Incorporation provides that holders of BMS Common
Stock are entitled to receive dividends when and if declared by the BMS Board,
subject to the rights of the holders of outstanding shares of any other class of
BMS stock having preference over the BMS Common Stock as to the payment of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the BMS
Common Stock.
The Axion Certificate of Incorporation provides that the holders of the
outstanding Axion Series A, Axion Series B, Axion Series C, Axion Series D,
Axion Series E and Axion Series F are entitled to receive in any fiscal year,
when and as declared by the Axion Board, out of any assets at the time legally
available therefor, dividends in cash at the rate of $.075 per share, $.34 per
share, $.42 per share, $.56 per share, $.725 per share and $1.00 per share,
respectively (subject to adjustment), per annum before any dividend is declared
or paid on shares of Common Stock. Dividends may be payable quarterly or
otherwise as the Axion Board may from time to time determine, and the right to
such dividends is not cumulative. The holders of the outstanding Axion Preferred
Stock can waive any dividend preference that such holders may be entitled to
receive upon the
119
affirmative vote or written consent of the holders of at least 66-2/3% of the
Axion Preferred Stock then outstanding, voting or consenting as a single class
on an as-if-converted basis. The holders of the outstanding Axion Preferred
Stock have unconditionally and irrevocably waived the right to any such dividend
preference that such holders are entitled to receive through December 31, 1996.
The Axion Certificate of Incorporation provides that no distributions (as
defined in the Axion Certificate of Incorporation) may be paid on the Axion
Common Stock until the holders of the outstanding Axion Preferred Stock have
first received dividends at the dividend rates specified in the preceding
paragraph. If, in any fiscal year, any cash or other distributions are declared
by the Axion Board to be paid on the Axion Common Stock as a class, then an
additional dividend must be paid at the same time to the holders of the
outstanding Axion Preferred Stock at the rate per share equal to the product of
(x) such per share dividend or other distribution on the Axion Common Stock,
multiplied by (y) the number of shares of Axion Common Stock into which each
share of Axion Preferred Stock is then convertible.
Conversion Rights
The BMS Common Stock is not convertible.
The Axion Common Stock is not convertible.
The Axion Certificate of Incorporation provides that each share of Axion
Preferred Stock is convertible at any time, without the payment of any
additional consideration by the holder and at the option of the holder, into
such number of fully paid and nonassessable shares of Axion Common Stock as is
determined according to a formula set forth in the Axion Certificate of
Incorporation, subject to adjustment. Each share of Axion Preferred Stock will
automatically be converted into shares of Axion Common Stock at the applicable
conversion price then in effect upon the affirmative vote or written consent of
the holders of at least 66-2/3% of the Axion Preferred Stock then outstanding,
voting or consenting as a single class on an as-if converted basis. Axion may
not, by amendment of the Axion Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Axion Certificate of
Incorporation relating to conversion and must take all action necessary or
appropriate in order to protect the conversion rights of the holders of Axion
Preferred Stock against impairment.
Size and Classification of the Board of Directors
The BMS Certificate of Incorporation divides the BMS Board into three
classes, each having staggered three year terms. The number of directors on the
BMS Board may be determined by a majority vote of the entire BMS Board. The BMS
Board is currently comprised of ten directors.
The Axion Board currently consists of six directors and is not classified.
The number of authorized directors may be modified from time to time by
amendment of the Axion By-laws. So long as no fewer than 100,000 shares of Axion
Series A remain outstanding, the holders of the Axion Series A outstanding are
entitled to elect two directors at each election of Axion directors. So long as
no fewer than 500,000 shares of Axion Series B remain outstanding, the holders
of a majority of the Axion Series B outstanding are entitled to elect one
director at each election of Axion directors. So long as no fewer than 100,000
shares of Axion Series C remain outstanding, the holders of a majority of the
Axion Series C outstanding are entitled to elect one director at each election
of Axion directors. The holders of a majority of the Axion Common Stock
outstanding are entitled to elect the remaining Axion directors.
120
Removal of Directors
The BMS Certificate of Incorporation and the BMS By-laws generally provide
that, subject to the rights of the holders of BMS Preferred Stock, directors may
be removed from office with or without cause only by the affirmative vote of the
holders of at least 75% of the outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class.
The Axion By-laws provide that, at a special meeting of stockholders called
for such purpose, the Axion Board or any individual director may be removed from
office, with or without cause, and a new director or directors elected by a vote
of stockholders holding a majority of the outstanding shares entitled to vote at
an election of directors.
Vacancies on the Board of Directors
The BMS Certificate of Incorporation and the BMS By-laws provide that,
subject to the rights of the holders of BMS Preferred Stock, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the BMS Board resulting from death, resignation, retirement,
disqualification, removal or other cause will be filled only by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum. The BMS Certificate of Incorporation provides that any directors
so elected will serve for the remainder of the full term of the class in which
the new directorship was created or the vacancy occurred.
The Axion By-laws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected shall hold office for
the unexpired portion of the term of the director whose place shall be vacant
and until his successor shall have been duly elected and qualified. Vacancies
are deemed to exist in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders of which
directors are to be elected to elect the number of directors constituting the
entire Axion Board.
Under the Axion Certificate of Incorporation, any vacancy occurring because
of the death, resignation, or removal of a director elected by the holders of
Axion Series A, the holders of Axion Series B or the holders of Axion Series C
will be filled by the vote or written consent of the holders of a majority of
the shares of that series or, in the absence of such action by such holders, by
action of the remaining directors then in office. Any vacancy occurring because
of the death, resignation or removal of a director elected by the holders of
outstanding Axion Common Stock will be filled by the vote or written consent of
the holders of a majority of the outstanding shares of Axion Common Stock or, in
the absence of such action by such holders, by action of the remaining directors
then in office.
Amendments to the Certificate of Incorporation
Under the BMS Certificate of Incorporation, the affirmative vote of the
holders of at least 75% of the outstanding voting stock is required to alter,
amend or adopt the provisions contained therein relating to the classified
board, filling vacancies on the BMS Board, prohibiting any action required or
permitted to be taken by the stockholders of BMS by written consent, prohibiting
the call of special meetings by stockholders, approval of Business Combinations
and certain amendments to the BMS By-laws.
121
The Axion Certificate of Incorporation requires, so long as no fewer than
an aggregate of 500,000 shares of Axion Series A, Axion Series B, Axion Series
C, Axion Series D, Axion Series E or Axion Series F are outstanding, that the
amendment, repeal or addition of any provision of or to the Axion Certificate of
Incorporation that would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Axion Preferred Stock must be approved by the holders of at least 50% of the
then outstanding shares of Axion Preferred Stock (excluding from such vote the
shares of any series of Axion Preferred Stock of which there are fewer than
100,000 shares outstanding), voting together as a single class. Notwithstanding
the previous sentence, the Axion Certificate of Incorporation provides that
Axion reserves the right to amend, alter, change or repeal any provision
contained in the Axion Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
therein are granted subject to that reservation.
Amendments to By-laws
Under the BMS Certificate of Incorporation and the BMS By-laws, the BMS
By-laws may be altered, amended or repealed by the affirmative vote of the
holders of at least a majority of the outstanding voting stock or by a vote of
the majority of the whole BMS Board, except for amendments which affect certain
provisions relating to the classification and composition of the BMS Board,
which require the affirmative vote of holders of at least 75% of the outstanding
voting stock.
The Axion By-laws provide that such By-laws may be repealed, altered or
amended or new By-laws adopted by the Axion stockholders. Under the Axion
By-laws, the affirmative vote of the holders of at least 66- 2/3% of the voting
power of all the then outstanding shares of the capital stock of Axion entitled
to vote generally in the election of directors, voting together as a single
class, is required to adopt, amend or repeal any provisions of the Axion
By-laws. The Axion Certificate of Incorporation requires, so long as no fewer
than an aggregate of 500,000 shares of Axion Series A, Axion Series B, Axion
Series C, Axion Series D, Axion Series E or Axion Series F are outstanding, the
approval of the holders of at least 50% of the then outstanding shares of Axion
Preferred Stock (excluding from such vote the shares of any series of Axion
Preferred Stock of which there are fewer than 100,000 shares outstanding),
voting together as a single class, to amend, repeal or add any provision to the
Axion By-laws, if such action would adversely alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Axion Preferred Stock. Notwithstanding the foregoing, the Axion
Certificate of Incorporation provides that the Axion Board may from time to time
make, amend, supplement or repeal any Axion By-law adopted by the Axion Board;
provided, however, that the stockholders of Axion may change or repeal any
By-law adopted by the Axion Board; and provided, further, that no amendment or
supplement to the Axion By-laws adopted by the Axion Board will vary or conflict
with any amendment or supplement to the Axion Certificate of Incorporation
adopted by the stockholders of Axion.
Special Meetings of Stockholders; Action by Written Consent
The BMS Certificate of Incorporation and the BMS By-laws require that,
subject to the rights of the holders of any preferred stock of BMS, any action
required or permitted to be taken by the stockholders of BMS be taken only at an
annual meeting or at a special meeting of stockholders called by a majority of
the entire BMS Board or by the Chairman of the BMS Board, and prohibit
stockholder action by written consent in lieu of a meeting. Stockholders of BMS
are not permitted to call a special meeting of stockholders or to require that
the BMS Board call such a special meeting.
122
The Axion By-laws provide that special meetings of Axion stockholders may
be called at any time, for any purposes, only by the President of Axion or the
Axion Board. The Axion By-laws provide that any action required by statute to be
taken at any annual or special meeting of the stockholders, or any action which
may be taken at any annual or special meeting of the stockholders, may be taken
without a meeting, without prior notice and without a vote, if written consent
setting forth the action so taken is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote thereon
were present and voted.
Indemnification of Officers and Directors
The BMS By-laws provide that each BMS officer and director is indemnified
to the fullest extent permitted by law, against: (i) expenses incurred or paid
by the director or officer in connection with any claim made against such
director or officer, or any actual or threatened action, suit or proceeding in
which such director or officer may be involved by reason of being or having been
a director or officer of BMS, or of serving or having served another corporation
or entity at the request of BMS, and (ii) the amount or amounts paid (subject to
certain limitations) by the director or officer in settlement of any such claim
or action. Subject to the provisions of the General Corporation Law of the State
of Delaware, no director of BMS will be personally liable to BMS or BMS
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such liability arises (i) from a breach of the
director's duty of loyalty, (ii) as a result of acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derived an improper personal benefit.
The rights of indemnification provided by the BMS By-laws are severable,
are not exclusive of other rights to which any director or officer now or
hereafter may be entitled, will continue as to a person who has ceased to be an
indemnified person and will inure to the benefit of the heirs, executors,
administrators and other legal representatives of such a person. The provisions
of the indemnification provision under the BMS By-laws is deemed to be a
contract between BMS and each director or officer who serves in such capacity at
any time while such provision is in effect.
The Axion By-laws provide that Axion shall indemnify its directors to the
fullest extent permitted by the DGCL and give Axion the power to indemnify its
officers, employees and other agents as set forth in the DGCL. The Axion
Certificate of Incorporation provides that a director of Axion will not be
personally liable to Axion or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Axion or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation or law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. Any
repeal or modification of the preceding sentence by the stockholders of Axion
will not adversely affect any rights or protection of a director of Axion
existing at the time of such repeal or modification.
EXPERTS
The consolidated financial statements of Axion as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
included in this Proxy Statement/Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
123
The consolidated financial statements and related financial schedule of BMS
incorporated in this Proxy Statement/Prospectus by reference to the BMS Form
10-K for the year ended December 31, 1995, have been so incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
VALIDITY OF BMS SHARES
The validity of the BMS Common Stock to be issued pursuant to the terms of
the Merger Agreement will be passed upon for BMS by Cravath, Swaine & Moore.
124
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AXION
The following table sets forth certain information regarding beneficial
ownership of Axion Common Stock as of July 31, 1996 (i) by each person who is
known by Axion to beneficially own more than five percent of Axion Common Stock,
(ii) by each of Axion's directors and executive officers, and (iii) by all
current directors and executive officers as a group.
Shares Percent
Beneficially Beneficially
Name of Beneficial Owner Owned(1)(2) Owned
------------------------ ------------ ------------
Sevin Rosen Fund II L.P.(3)................. 3,060,067 36.66%
c/o Sevin Rosen Funds
Two Galleria Towers, Suite 1670
Dallas, TX75240
Galen Partners (4).......................... 1,079,755 12.88
666 Third Avenue
Suite 1400
New York, NY 10017
Funds affiliated with Kleiner Perkins
Caufield & Byers (5).................... 1,005,000 12.04
2750 Sand Hill Rd.
Menlo Park, CA 94025
Michael D. Goldberg (6)..................... 799,000 9.18
Garrett J. Roper (7)........................ 180,000 2.11
David L. Levison (8)........................ 245,000 2.86
Eric T. Herfindal (9)....................... 250,000 2.92
Donna M. Williams (10)...................... 50,000 *
Robert V. Gunderson, Jr. (11)............... 5,000 *
George B. Borkow (12)....................... 20,000 *
Stephen M. Dow (13)......................... 3,090,067 36.93
Steven M. Gluckstern (14)................... 180,000 2.15
Joseph S. Lacob (15)........................ 30,000 *
William R. Miller (16)...................... 40,000 *
L. John Wilkerson (4)....................... 1,079,755 12.88
All current directors and executive
officers as a group (12 persons) (17)..... 5,968,822 62.93%
--------- ------
- ----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of
Axion Common Stock set forth opposite their respective names.
(2) The number of shares set forth as beneficially owned includes (a)
shares of Axion Common Stock issuable pursuant to Axion Options which
are exercisable within 60 days after July 31, 1996, or would become
exercisable within such period based on the assumption that the Merger
will occur within
125
60 days of such date, giving effect to the acceleration of the
exercisability of all Axion Options pursuant to the Merger Agreement
("Acceleration Exercise"), as well as (b) shares of Axion Common Stock
issuable pursuant to Axion Options which are exercisable within 60
days after July 31, 1996 ("60-Day Exercise") . Wherever applicable,
the footnotes to this table set forth separately beneficial ownership
based on 60-Day Exercise and beneficial ownership based on
Acceleration Exercise. The number of shares set forth as beneficially
owned also includes shares of Axion Common Stock issuable upon
conversion of shares of Axion Preferred Stock.
(3) Excludes 19,933 shares of Axion Common Stock held by a general partner
of SRB Associates II, a Texas general partnership ("SRB Associates").
SRB Associates is the general partner of Sevin Rosen Fund II L.P., a
Texas limited partnership ("Sevin Rosen II").
(4) Includes 750,900 shares of Axion Common Stock held by Galen Partners
II, L.P., a Delaware limited partnership ("Galen II"), 287,301 shares
of Axion Common Stock held by Galen Partners International II, L.P., a
Delaware limited partnership ("Galen International II"), 5,000 shares
of Axion Common Stock held by Rebound Two (Delaware), LLC, a Delaware
limited liability company, and 4,054 shares held by Galen Employee
Fund, L.P., a Delaware limited partnership. Also includes an option
exercisable into 30,000 shares under the Axion 1989 Plan held by Galen
Associates, a Delaware limited partnership, and an option exercisable
into 2,500 shares under the Axion 1989 Plan held by Longbow Partners,
a New York general partnership (based on Acceleration Exercise) and
includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan and 2,500 shares of Axion Common Stock under
the Axion 1995 Plan (based on 60-Day Exercise). Dr. Wilkerson, a
director of Axion, is a general and limited partner of GWW Partners
L.P. ("GWW Partners"), the general partner of Galen II and Galen
International II. Dr. Wilkerson disclaims beneficial ownership of the
shares held by Galen II and Galen International II except to the
extent of his pecuniary interest therein arising from his interest in
GWW Partners. Dr. Wilkerson is also a controlling stockholder of two
corporations that are general partners of Galen Associates. Dr.
Wilkerson disclaims beneficial ownership of the options held by Galen
Associates except to the extent of his pecuniary interest therein
arising from his interests as a stockholder in the corporations that
are general partners of Galen Associates. Dr. Wilkerson is a general
partner of Longbow Partners and disclaims beneficial ownership of the
options held by Longbow Partners except to the extent of his pecuniary
interest therein arising from his interest in Longbow Partners.
Dr.Wilkerson is a director of Axion.
(5) Includes 954,750 shares held by Kleiner Perkins Caufield & Byers V, a
California limited partnership ("KPCB V"), and 50,250 shares held by
KPCB Zaibatsu Fund I, a California limited partnership ("Zaibatsu").
(6) Includes options exercisable into 110,000 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on Acceleration Exercise) and
includes options exercisable into 93,882 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on 60-Day Exercise). Mr. Goldberg has
advised Axion that he does not intend to exercise the Goldberg $10.00
Options, and, accordingly, the Goldberg $10.00 Options will be
canceled prior to the Effective Time. Mr. Goldberg is the President
and Chief Executive Officer and a director of Axion, OnCare and AHC.
(7) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on Acceleration Exercise) and
includes options exercisable into 73,277 shares of Axion Common Stock
under the Axion
126
1989 Plan and 100,000 shares of Axion Common Stock under the Axion
1995 Plan (based on 60-Day Exercise). Mr. Roper is the Senior Vice
President and Chief Financial Officer of Axion, OnCare and AHC and the
Secretary and a director of AHC.
(8) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on Acceleration Exercise) and
includes options exercisable into 76,638 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on 60-Day Exercise). Includes 6,500
shares of Axion Common Stock held in a trust for the benefit of Mr.
Levison's children (the "Levison Trust"), of which Mr. Levison is a
trustee. Mr. Levison disclaims beneficial ownership of the shares held
by the Levison Trust. Mr. Levison is President and Chief Executive
Officer of OTNC.
(9) Includes options exercisable into 75,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on Acceleration Exercise) and
includes options exercisable into 63,507 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on 60-Day Exercise). Dr. Herfindal is
Senior Vice President of Axion and AHC and a director of AHC.
(10) Includes options exercisable into 50,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and
includes options exercisable into 17,674 shares of Axion Common Stock
under the Axion 1989 Plan (based on 60-Day Exercise). Ms. Williams is
the Treasurer of Axion.
(11) Robert V. Gunderson, Jr., is a member of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to Axion. Mr. Gunderson
is the Secretary of Axion.
(12) Includes options exercisable into 20,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and 20,000
shares of Axion Common Stock under the Axion 1989 Plan (based on
60-Day Exercise). Mr. Borkow is a director of Axion.
(13) Includes 3,060,067 shares of Axion Common Stock held by Sevin Rosen II
and options exercisable into 20,000 shares of Axion Common Stock under
the Axion 1989 Plan (based on Acceleration Exercise) and includes
options exercisable into 20,000 shares of Axion Common Stock under the
Axion 1989 Plan (based on 60-Day Exercise). Mr. Dow disclaims
beneficial ownership of such shares of Axion Common Stock held by
Sevin Rosen II except to the extent of his pecuniary interest therein
arising from his interest in Sevin Rosen II. Mr. Dow is a director of
Axion.
(14) Includes 150,000 shares of Axion Common Stock held by Centre
Reinsurance Holdings Ltd. ("Centre") and options exercisable into
30,000 shares of Axion Common Stock under the Axion 1989 Plan (based
on Acceleration Exercise) and includes options exercisable into 30,000
shares of Axion Common Stock under the Axion 1989 Plan based on 60-Day
Exercise). Mr. Gluckstern disclaims beneficial ownership of such
shares of Axion Common Stock held by Centre except to the extent of
his pecuniary interest therein arising from his interest in Centre.
Mr. Gluckstern is a director of Axion.
(15) Includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and
includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on 60-Day Exercise). Mr. Lacob does
not have voting or investment power over the shares held by KPCB V and
Zaibatsu. Mr. Lacob is a director of Axion.
127
(16) Includes options exercisable into 10,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and
includes options exercisable into 10,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on 60-Day Exercise). Mr. Miller is a
director of Axion.
(17) Includes options exercisable into 1,137,500 shares of Axion Common
Stock under the Axion 1989 Plan and 600,000 shares of Axion Common
Stock under the Axion 1995 Plan (based on Acceleration Exercise) and
includes options exercisable into 499,804 shares of Axion Common Stock
under the Axion 1989 Plan and 600,000 shares of Axion Common Stock
under the Axion 1995 Plan (based on 60-Day Exercise).
STOCKHOLDER PROPOSALS
If the Merger is consummated, stockholders of Axion will become stockholders
of BMS at the Effective Time. Stockholders of BMS will be able to submit to BMS
proposals for formal consideration at the 1997 annual meeting of BMS's
stockholders and inclusion in BMS's proxy statement and proxy for such meeting
in the manner and at the time set forth in the BMS 1996 Proxy Statement. BMS
stockholder proposals in respect of the 1997 annual meeting are required to be
received by BMS at its principal executive offices no later than November 18,
1996 for inclusion in BMS's proxy statement and proxy for such meeting.
128
INDEX OF DEFINED TERMS
Term Page
Acceleration Exercise............................................. 124
Acquired Assets................................................... 85
Acquired Business................................................. 8
Acquisition Proposal.............................................. 71
AHC............................................................... 1
AHC 401K Plan..................................................... 105
AHC Business...................................................... 7
AHC Common Stock.................................................. 9
AHC Indemnified Parties........................................... 91
AHC Indemnifying Parties.......................................... 14, 89
AHC Material Adverse Effect....................................... 66, 67
AHC Medstation Agreement.......................................... 21
AHC Preferred Stock............................................... 1
AHC Supply Agreement.............................................. 21
Alex. Brown....................................................... 58
Amount Certificate................................................ 101
Anti-Kickback Laws................................................ 50
Antitrust Division................................................ 21
Assumed Liabilities............................................... 86
Average Value of BMS Common Stock................................. 10, 62
Axion............................................................. 1
Axion 1989 Plan................................................... 79
Axion 1995 Plan................................................... 79
Axion 401K Plan................................................... 105
Axion Board....................................................... 1
Axion By-laws..................................................... 61
Axion Certificate of Incorporation................................ 1, 61
Axion Common Stock................................................ 1
Axion Expenses.................................................... 78
Axion Health Plan................................................. 105
Axion Options..................................................... 1, 10
Axion Preference Amount........................................... 117
Axion Preferred Stock............................................. 1
Axion Series A.................................................... 116
Axion Series B.................................................... 116
Axion Series C.................................................... 116
Axion Series D.................................................... 116
Axion Series E.................................................... 117
Axion Series F.................................................... 117
Best Closing Efforts.............................................. 85
BMOTN............................................................. 7
BMS............................................................... 1
BMS Board......................................................... 10
129
Term Page
BMS By-laws....................................................... 113
BMS Certificate of Incorporation.................................. 113
BMS Common Stock.................................................. 1
BMS Convertible Preferred......................................... 113
BMS Form 10-K..................................................... 4
BMS Indemnified Parties........................................... 89, 94
BMS Indemnifying Parties.......................................... 92
BMS Material Adverse Effect....................................... 67
BMS 1996 Proxy Statement.......................................... 4
BMS Registration Statement........................................ 4
BMS Rights........................................................ 1, 115
BMS Sub........................................................... 1
Centre............................................................ 125
Certificate of Merger............................................. 12
Certificates...................................................... 12
Change in Control................................................. 48
Closing........................................................... 12
Closing Date...................................................... 2, 10
Code.............................................................. 18
Commission........................................................ 4
Continuing Employee............................................... 103
Continuing Employee Schedule...................................... 103
Continuity of Interest Letters.................................... 36
Contributions..................................................... 9, 85
Conversion Number................................................. 1, 10, 62
Court Order....................................................... 99
Delaware Court.................................................... 81
DGCL.............................................................. 21
Diluted Share Assumption.......................................... 2, 10, 62
Dissenting Shares................................................. 82
Distribution...................................................... 1
Distribution Agreement............................................ 1
Distribution Record Date.......................................... 14
Dividend Equivalent Transaction................................... 111
Documents......................................................... 65
EDS............................................................... 47
Effective Time.................................................... 1
81% AHC Subsidiaries.............................................. 90
Employee Loans.................................................... 20
Employment Agreement.............................................. 103
Ernst & Young..................................................... 18
Escrow Agent...................................................... 16
Escrow Agreement.................................................. 16
Escrowed Cash..................................................... 2, 11, 96
Escrowed Cash Termination Date.................................... 99
Escrowed Property................................................. 96
130
Term Page
Escrowed Shares................................................... 2, 11, 96
Escrowed Shares Pending Claims.................................... 97
Escrowed Shares Termination Date.................................. 97
Ex-Date........................................................... 10
Excess Axion Expenses............................................. 79
Exchange Act...................................................... 4
Exchange Agent.................................................... 12
Exculpated Parties................................................ 91
FDA............................................................... 50
Filings........................................................... 91
Final Pending Claims.............................................. 98
Former Axion Stockholder.......................................... 2
Form S-1.......................................................... 78
Form S-4.......................................................... 4
Fraud............................................................. 92
FTC............................................................... 21
GAAP.............................................................. 14
Galen II.......................................................... 124
Galen International II............................................ 124
GECC.............................................................. 55
Goldberg $10.00 Options........................................... 11
GWW Partners...................................................... 124
HSR Act........................................................... 21
Indemnifiable Losses.............................................. 90
Indemnification Agreement......................................... 14
Indemnification Item.............................................. 100
Indemnified Obligation............................................ 100
Information Statement............................................. 8
IRS............................................................... 19
JV Sales Taxes.................................................... 95
KPCB V............................................................ 124
Letter of Transmittal............................................. 12
Levison Trust..................................................... 125
Liabilities....................................................... 86
License Agreement................................................. 21
Loan Agreement.................................................... 68
Maximum Price..................................................... 2, 10
Merger............................................................ 1
Merger Agreement.................................................. 1
Merger Consideration.............................................. 9, 62
Merger Proposal................................................... 1
Minimum Price..................................................... 2, 10
New Axion 401K Plan............................................... 105
Noncompetition Agreements......................................... 20, 107
Non-United States Holders......................................... 109
NWDA.............................................................. 50
131
Term Page
NYSE.............................................................. 4
NYSE Tape......................................................... 10
OnCare............................................................ 5
OnCare Medstation Agreement....................................... 21
OnCare Preferred Stock............................................ 7
OnCare Supply Agreement........................................... 21
Oncology Products................................................. 53
OPUS.............................................................. 1
OPUS Matrix Business.............................................. 7
OPUS Station...................................................... 49
OPUS Station Assets............................................... 86
OPUS Station Business............................................. 7
OPUS Station Data................................................. 86
OPUS Station Liabilities.......................................... 86
OPUS Sub.......................................................... 1
OPUS Sub Assets................................................... 85
OPUS Sub Liabilities.............................................. 86
OTN............................................................... 1
OTN Business...................................................... 7, 45, 58
OTNC.............................................................. 1
Partnership....................................................... 1
Partnership Agreement............................................. 47
Pending Claims.................................................... 101
PPM............................................................... 58
Pre-JV Sales Taxes................................................ 95
Pre-Merger Taxes.................................................. 94
Preference Amount................................................. 9, 43, 84
Preferred Stock Conversion........................................ 1
Preferred Stock Proposal.......................................... 1
Preferred Stock Conversion........................................ 1
Proposed Legislation.............................................. 109
PSE............................................................... 4
Pyxis............................................................. 49
Pyxis Agreement................................................... 49
Quarterly Certificate............................................. 101
Record Date....................................................... 38
Reply Certificate................................................. 100
Required AHC Documents............................................ 78
Retained Assets................................................... 87
Retained Business................................................. 8, 45
Retained Cash..................................................... 87
Retained Companies................................................ 58
Retained Company.................................................. 58
Retained Company Material Adverse Effect.......................... 66
Retained Escrow Amount............................................ 97, 98
Retained Liabilities.............................................. 87
132
Term Page
Retained Plans.................................................... 106
Retained Tax Liabilities.......................................... 95
Rights Agreement.................................................. 1, 115
Sales Agency Agreement............................................ 47
Second Anniversary Date........................................... 97
Second Anniversary Pending Claims................................. 98
Section 262....................................................... 21
Securities Act.................................................... 2
Severance Plan.................................................... 107
Sevin Rosen II.................................................... 124
60-Day Exercise................................................... 124
Special Meeting................................................... 1
SRB Associates.................................................... 124
Stockholder Agreement............................................. 18
Surviving Corporation............................................. 1
Tax Matters Agreement............................................. 16
Taxes............................................................. 94
Time of Contribution.............................................. 84
Time of Distribution.............................................. 8
Trademark License Agreement....................................... 90
Transaction Expense Schedule...................................... 78
Transferred Employee Schedule..................................... 103
Transferred Employees............................................. 103
Transitional Services Agreement................................... 21
U.S.C............................................................. 75
Zaibatsu.......................................................... 124
133
Index to Financial Statements
Audited Consolidated Financial Statements of Axion Inc.
for each of the three years ended December 31, 1995, 1994 and 1993
with Report of Independent Auditors................................... F-2
Report of Independent Auditors............................................ F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Operations..................................... F-5
Consolidated Statement of Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Unaudited Condensed Consolidated Financial Statements of Axion Inc.
for the six months ended June 30, 1996 and 1995....................... F-21
Condensed Consolidated Balance Sheets..................................... F-22
Condensed Consolidated Statements of Operations and Retained Earnings..... F-23
Condensed Consolidated Statements of Cash Flows........................... F-24
Notes to Condensed Consolidated Financial Statements...................... F-25
Pro Forma Condensed Financial Statements of Axion Inc. and Axion
HealthCare Inc. (giving effect to the proposed distribution of
the outstanding stock of Axion HealthCare Inc. to stockholders
of Axion Inc.)........................................................ F-29
Pro Forma Condensed Balance Sheets at June 30, 1996....................... F-30
Pro Forma Condensed Statements of Operations
For the year ended December 31, 1995 (also giving effect to
distribution of common stock of OnCare Inc.).......................... F-31
For the six months ended June 30, 1996................................ F-32
Notes to Pro Forma Condensed Financial Statements......................... F-33
F-1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
AXION INC.
Each of the Three Years Ended
December 31, 1995, 1994 and 1993
with
Report of Independent Auditors
F-2
Report of Independent Auditors
The Board of Directors and Stockholders
Axion Inc.
We have audited the accompanying consolidated balance sheets of Axion Inc. as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Axion Inc. at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California
March 22, 1996, except for Note 11
as to which the date is
August 2, 1996 and Note 12 as to
which the date is September 10, 1996
F-3
Axion Inc.
Consolidated Balance Sheets
(in thousands of dollars, except par value per share)
December 31,
1994 1995
-----------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,306 $ 8,522
Short-term investments 7,476 5,000
Accounts receivable, less allowance for doubtful accounts of $261 in
1994 and $707 in 1995 24,683 41,458
BMS accounts receivable - Sales Agency Agreement 43,887 59,461
Inventories 7,131 9,577
Prepaid expenses and other 663 475
----------------------
Total current assets 97,146 124,493
Property and equipment 1,473 1,859
Less accumulated depreciation (566) (730)
----------------------
Net property and equipment 907 1,129
Interest in OnCare -- 3,500
Other assets 6 6
----------------------
Total assets $ 98,059 $ 129,128
======================
Liabilities and stockholders' equity
Current liabilities:
Payable to BMS - Sales Agency Agreement $ 36,508 $ 47,755
Borrowings under bank line of credit -- 35,617
Loan payable to BMS 30,000 --
Accounts payable 13,398 19,437
Accrued liabilities 2,078 2,498
----------------------
Total current liabilities 81,984 105,307
Deferred income taxes -- 591
Minority interest 4 4
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized; 8,352,184
shares designated, 6,740,890 shares issued and outstanding, $24,663
liquidation preference in 1995 (8,352,184 shares, 6,735,890 shares and
$24,613, respectively, in 1994) at
amounts paid-in 22,992 23,042
Common stock, $0.001 par value, 15,000,000 shares authorized;
1,604,354 shares issued and outstanding in 1995 (1,572,290 in
1994), at amounts paid-in 360 471
Accumulated deficit (7,281) (287)
----------------------
Total stockholders' equity 16,071 23,226
----------------------
Total liabilities and stockholders' equity $ 98,059 $ 129,128
======================
See accompanying notes.
F-4
Axion Inc.
Consolidated Statements of Operations
(in thousands, except net income (loss) per share)
Years ended December 31,
1993 1994 1995
-----------------------------------
Net revenues $ 56,052 $ 126,369 $ 198,950
Costs and expenses:
Cost of revenues 51,006 112,606 176,292
Sales and marketing 1,635 1,922 2,007
General and administrative 5,734 8,409 11,442
Product development 1,607 -- --
-----------------------------------
Total costs and expenses 59,982 122,937 189,741
-----------------------------------
Income (loss) from operations (3,930) 3,432 9,209
Other income and (expense):
Interest income 490 1,306 756
Interest expense (115) (365) (1,037)
Other nonoperating income (expense) (1,407) (2,945) 146
Minority interest 996 -- --
-----------------------------------
Total other income and (expense), net (36) (2,004) (135)
-----------------------------------
Income (loss) before provision for income
taxes (3,966) 1,428 9,074
Provision for income taxes -- -- 1,187
-----------------------------------
Net income (loss) $ (3,966) $ 1,428 $ 7,887
===================================
Net income (loss) per share $ (2.52) $ 0.17 $ 0.90
===================================
Number of shares used in above computation 1,573 8,190 8,807
===================================
See accompanying notes.
F-5
Axion Inc.
Consolidated Statement of Stockholders' Equity
(in thousands of dollars)
Preferred Stock Common Stock Total
------------------------------------------------- Accumulated Stockholders'
Shares Amount Shares Amount Deficit Equity
--------------------------------------------------------------------------------
Balance at December 31, 1992 6,102,870 $ 17,248 1,583,600 $ 353 $ (4,743) $ 12,858
Repurchase of common stock -- -- (42,125) (25) -- (25)
Issuance of common stock -- -- 14,297 15 -- 15
Net loss -- -- -- -- (3,966) (3,966)
--------------------------------------------------------------------------------
Balance at December 31, 1993 6,102,870 17,248 1,555,772 343 (8,709) 8,882
Issuance of Series F preferred
stock, net of issuance costs of $586 633,020 5,744 -- -- -- 5,744
Issuance of common stock -- -- 16,518 17 -- 17
Net income -- -- -- -- 1,428 1,428
--------------------------------------------------------------------------------
Balance at December 31, 1994 6,735,890 22,992 1,572,290 360 (7,281) 16,071
Issuance of Series F preferred stock 5,000 50 -- -- -- 50
Exercise of stock options and other -- -- 32,064 111 -- 111
Distribution of common stock of OnCare -- -- -- -- (893) (893)
Net income -- -- -- -- 7,887 7,887
--------------------------------------------------------------------------------
Balance at December 31, 1995 6,740,890 $ 23,042 1,604,354 $ 471 $ (287) $ 23,226
================================================================================
See accompanying notes.
F-6
Axion Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
Years ended December 31,
1993 1994 1995
--------------------------------
Operating activities
Net income (loss) $ (3,966) $ 1,428 $ 7,887
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Minority interest (996) -- --
Depreciation and amortization 328 233 316
Provision for deferred income taxes -- -- 591
Issuance of preferred stock for services -- -- 50
Loss on sale of assets -- 5 --
Changes in operating assets and liabilities:
Accounts receivable 4,320 (23,915) (16,775)
BMS accounts receivable-Sales Agency Agreement -- (43,887) (15,574)
Inventories (387) (814) (2,446)
Deposit with GECC (11,056) 11,056 --
Prepaid expenses and other (324) (240) 188
Payable to BMS-Sales Agency Agreement 28,880 7,628 11,247
Accounts payable 4,131 4,862 6,039
Accrued liabilities 2,442 (519) 420
--------------------------------
Net cash provided by (used in) operating activities 23,372 (44,163) (8,057)
Investing activities
Short-term investments (2,061) (3,466) 2,476
Purchase of property and equipment (665) (279) (538)
Proceeds from sale of assets -- 15 --
Interest in OnCare -- -- (4,393)
--------------------------------
Net cash used in investing activities (2,726) (3,730) (2,455)
Financing activities
Borrowings under bank line of credit 2,539 -- 38,212
Repayments of borrowings under bank line of credit (3,939) -- (2,595)
Borrowing under long-term debt agreement 500 -- --
Repayments of long-term debt (70) (430) --
Borrowing under loan payable to BMS -- 36,000 --
Repayments of loan payable to BMS -- (6,000) (30,000)
Investment in joint venture by BMS 1,000 -- --
Net proceeds from issuance of preferred stock -- 5,744 --
Proceeds from issuance of common stock and other 15 17 111
Repurchase of common stock (25) -- --
--------------------------------
Net cash provided by financing activities 20 35,331 5,728
--------------------------------
Net increase (decrease) in cash and cash equivalents 20,666 (12,562) (4,784)
Cash and cash equivalents, beginning of year 5,202 25,868 13,306
--------------------------------
Cash and cash equivalents, end of year $ 25,868 $ 13,306 $ 8,522
================================
Supplemental disclosure of cash flow information:
Interest paid in cash $ 843 $ 1,315 $ 4,450
================================
Income tax payments $ -- $ -- $ 199
================================
See accompanying notes.
F-7
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
1. Accounting Policies
Basis of Presentation
Axion Inc. (individually or collectively with its consolidated subsidiaries, as
the sense requires, "Axion") is a leading cancer-focused healthcare service firm
providing cost containment solutions for the delivery of cancer care. Axion,
either directly or through the Oncology Therapeutics Network Joint Venture, L.P.
(the "Partnership"), provides a clinically oriented, single source of supply for
office based oncologists' oncology drugs and related supplies needs.
The accompanying financial statements include the accounts of Axion and the
following companies:
Oncology Therapeutics Network Corporation ("OTNC"), and the Partnership, a
partnership with Bristol-Myers Squibb Company ("BMS"). OTNC is the general
partner of the Partnership and Bristol-Myers Oncology Therapeutic Network,
Inc., a subsidiary of BMS ("BMOTN"), is the limited partner.
OnCare Inc. ("OnCare"), Axion HealthCare Inc. ("AHC"), and OPUS Health
Systems Inc. ("OPUS"). On December 31, 1995, the 40,000,000 common shares
of OnCare, an oncology physician practice management company, owned by
Axion were distributed by Axion to its shareholders (Note 2). AHC provides
cancer specific managed care services to cancer care payers and providers,
and OPUS is engaged in information systems applications for office-based
oncologists. Both are in the early stages of development with limited
revenues.
All intercompany accounts and transactions have been eliminated. The financial
interest of BMS in the Partnership is recorded as a minority interest.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash equivalents include money market funds and highly liquid debt instruments
with original maturities of three months or less. The carrying amount of Axion's
cash and cash equivalents approximates its fair value.
Short-term investments consist of marketable securities. Effective January 1,
1994, Axion adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115").
Under FAS 115, investments in marketable securities are reported at fair value.
There was no significant cumulative effect as of January 1, 1994 of adopting FAS
115.
Marketable securities are designated as available for sale and are carried at
approximate fair value
Inventories
Inventories, which consist primarily of pharmaceuticals and supplies for cancer
therapy, are carried at the lower of cost or fair value using the average
weighted cost method.
F-8
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and equipment
is provided for using the straight-line method over the estimated useful lives
of the respective assets (which range from three to seven years). Leasehold
improvements are amortized over the shorter of the estimated useful life or the
lease term, using the straight-line method.
Revenue Recognition and Accounts Receivable
Axion sells substantially all of its products to U.S. office-based oncologists.
Revenue from sales is recognized when products are shipped. Axion conducts
ongoing credit evaluations of its customers and does not require collateral.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of entities comprising Axion's customer base. Management
believes that Axion's allowance for doubtful accounts at December 31, 1995 and
1994 is adequate to cover its credit risk. The provision for possible
uncollectible accounts charged to operations was $520, $131 and $37 in 1995,
1994 and 1993, respectively. The amount of write-offs charged to the allowance
for doubtful accounts was $74, $3 and $7 in 1995, 1994 and 1993, respectively.
Sales Agency Agreement with BMS
Under the terms of a Sales Agency Agreement between the Partnership and BMS, the
Partnership is the exclusive sales agent for BMS oncology products (and any
other oncology products that BMS has the right to sell) to officebased
oncologists. The Partnership does not take title to the BMS products that it
sells. No product revenue is recognized by the Partnership on the sale of BMS
products; however, commission income on such BMS product sales is recognized and
included in net revenues. The Partnership does record the related customer
receivables for up to 180 days and the related payables to BMS (see Note 4).
Stock-Based Compensation
Axion accounts for its stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recorded for stock options
granted unless the exercise prices are at less than fair values at the dates of
grant.
Per Share Data
Net income (loss) per share has been computed based on the weighted average
shares of common outstanding and dilutive common equivalent shares outstanding.
Common equivalent shares represent shares of preferred stock outstanding (using
the if converted method) and stock options and warrants outstanding (using the
treasury stock method). In 1993, all common equivalent shares were excluded from
the per share computation due to their anti-dilutive effect as a result of the
net loss for the year. In 1994 and 1995, common equivalent shares have been
included in the per share computation.
2. Interest in OnCare
On June 7, 1995, Axion formed OnCare, an oncology physician practice management
company, to acquire and manage oncology practices. Axion received 40,000,000
shares of common stock of OnCare for $40. In July 1995, Axion advanced $5,000 to
OnCare to fund its initial development activities.
On August 11, 1995, OnCare acquired substantially all of the assets of an
oncology practice for $3,832, the issuance of warrants to acquire 1,800,000
shares of common stock in OnCare, and the assumption of certain liabilities.
OnCare
F-9
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
also entered into a long-term management services agreement providing for its
rights to manage the oncology medical group over a 40-year period. The
transaction was accounted for using the purchase method of accounting.
On December 31, 1995, the $5,000 advance was cancelled in part for 700,000
shares of Series A redeemable preferred stock to be issued by OnCare ($3,500)
and in part as a contribution to the capital of OnCare ($1,500). All of OnCare's
40,000,000 common shares held by Axion were distributed to Axion's shareholders.
The holders of each of Axion's preferred and common shares (and the holders of
options and other rights to acquire common shares) received 3.96327 shares of
OnCare common stock for each common equivalent share held in Axion. Axion
retained its interest in the Series A redeemable preferred stock of OnCare.
OnCare is obligated to redeem the Series A preferred stock at a redemption price
of $5 per share at the earlier of December 31, 1996, the closing of a qualifying
underwritten public offering of the common stock in OnCare, the merger or
consolidation of OnCare with or into another corporation, or the sale of all or
substantially all of OnCare's assets.
Operating results of OnCare for the period ended December 31, 1995 are included
in the consolidated statement of operations. Revenues of OnCare for 1995 were
$2,645 and its net loss was $670 after income tax credit benefit of $450
allocated from Axion.
OnCare ceased to be a consolidated subsidiary on December 31, 1995 as a result
of the distribution by Axion of its holdings of the common stock of OnCare. The
condensed financial position of OnCare at December 31, 1995 and Axion's
investment are summarized as follows:
Assets:
Unamortized management services agreement $4,398
Receivables, property and other assets 4,250
------
8,648
Liabilities:
Bank borrowings 2,000
Other 2,255
------
4,255
------
Net assets, represented by:
Series A redeemable preferred stock held by Axion -
700,000 shares 3,500
Common equity ($1,563 paid in less $670 accumulated
deficit) 893
------
$4,393
======
Axion's interest - 700,000 shares of Series A redeemable
preferred stock $3,500
======
F-10
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
3. Available-For-Sale Securities
The following is a summary of available-for-sale securities, which are carried
at amounts which approximate fair value:
December 31,
1994 1995
----------------------
Cash equivalents - commercial paper $ 8,998 $ 8,457
Short-term investments:
Money market preferred stock 6,900 5,000
Corporate notes 576 --
----------------------
7,476 5,000
----------------------
Total $16,474 $13,457
======================
The gross realized gains and losses of available-for-sale securities for 1995
and 1994 were not material.
4. The Partnership
In 1993, Axion entered into a series of agreements with BMS, whereby the
Partnership was formed. The Partnership is owned by Axion's wholly owned
subsidiary, OTNC (the "general partner"), and BMS' wholly owned subsidiary,
BMOTN (the "limited partner"). All obligations of each partner to the other are
fully and unconditionally guaranteed by Axion and BMS, respectively. The
Partnership commenced operations on August 23, 1993.
In forming the Partnership, each partner contributed $1,000 in cash. Axion
contributed its ongoing Oncology Therapeutics Network business (its primary
operating business of providing services and distributing oncology drugs and
related supplies to office-based oncologists), excluding any debts or
obligations, and BMS contributed certain of its customer lists and entered into
a Sales Agency Agreement, under which BMS agreed to provide the promotional
support of the Bristol Laboratories Oncology sales force and the Partnership was
appointed the exclusive sales agent for BMS oncology products (and any other
oncology products that BMS has the right to sell) to officebased oncologists.
As the general partner, OTNC manages all of the day-to-day operations of the
Partnership. In addition, Axion provides all administrative, operational and
other services necessary to support the functioning of the Partnership, subject
to being reimbursed for its costs by the Partnership. Such reimbursement totaled
$2,817 in 1995, $2,491 in 1994, and $1,080 in 1993, and has been eliminated in
consolidation.
Under the terms of the Sales Agency Agreement, all pricing decisions and title
to BMS products sold by the Partnership remain with BMS, including risk of loss
for all such products. The terms of the Sales Agency Agreement require that the
Partnership remit payment of invoices to BMS within 60 days of the issuance of
any invoice to a customer for BMS products. BMS will retain the risk of
collectibility of accounts receivable relating to all BMS products sold under
the Sales Agency Agreement. If after 180 days the amount has not been paid, the
Partnership turns over to BMS for collection the uncollected invoice and BMS
refunds to the Partnership the amount of the uncollected invoice that was
previously paid by the Partnership plus interest on the amount at an annual rate
of 12 percent, or, if lower, the maximum rate allowed by law. As of December 31,
1995, BMS accounts receivable and the payable to BMS under the Sales Agency
Agreement were $59,461 and $47,755, respectively. As of December 31, 1994, BMS
accounts receivable and the payable to BMS under the Sales Agency Agreement were
$43,887 and $36,508, respectively. No product revenues are recorded by the
Partnership in connection with the sale of BMS
F-11
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
products. BMS pays the Partnership a commission based upon sales of BMS
products. Such commissions totalled $9,412 in 1995, $6,527 in 1994, and $1,440
in 1993, and are included in net revenues. Effective January 1, 1994, BMS agreed
to reimburse the Partnership for certain financing costs and General Electric
Capital Corporation ("GECC") fees. In 1994, such reimbursement totaled $3,817,
of which $2,978 is included in other nonoperating income and expense for the
period during which the GECC agreements were in effect, and $839 in 1994 and
$2,752 in 1995 are included as an offset to interest expense for the period
subsequent to the termination of the GECC agreements.
The Partnership has a term of 20 years, but can be terminated earlier at BMS'
option upon one year's notice as of January 1, 2003 or January 1, 2008. In
addition, the right to terminate the partnership agreement and the Sales Agency
Agreement arises under certain circumstances, including breach, bankruptcy,
insolvency, a change in control of Axion or the general partner or the sale by
the general partner of its interest in the Partnership. Under certain
conditions, upon termination of the partnership agreement, the terminating
partner is entitled to purchase the other partner's interest or to require the
other partner to purchase the terminating partner's interest. In addition, in
the event that the Sales Agency Agreement is terminated as a result of a change
in control of Axion, or BMS elects to terminate the Sales Agency Agreement in
2003 or 2008, BMS is required to sell, and Axion is required to buy, BMS'
interest.
OTNC receives a preferential allocation of profits as follows: in 1993, the
first $900 in profits would have been allocated to OTNC if the Partnership had
earned profits, with the balance allocated 80% to OTNC and 20% to the limited
partner; in 1994, this preference was $4,900 with the balance allocated 80:20 in
favor of OTNC; in 1995, the preference was $10,200 with the balance allocated
80:20; in 1996, the preference is $18,750 with the balance allocated 80:20; in
1997, all profits are allocated 70:30; in 1998, 60:40; and after 1998 all
profits are allocated equally.
The preferences due OTNC are cumulative; any unallocated preference is carried
forward for allocation in later years, together with interest at the prime rate
on the accumulated unpaid preference. The aggregate preference of OTNC over the
term of the Partnership, excluding interest, is $34,750 ($35,800 including
interest) of which $4,788 in 1995 was paid to OTNC as a distribution. Generally,
all losses are borne equally by both partners throughout the term of the
Partnership provided that BMS shall not be allocated losses that cause its
capital account to be negative.
OTNC was allocated a loss of $996, or 50% of the Partnership's loss in the 1993
period, income of $4,788, or 100% of the Partnership's profit in 1994, and
income of $11,083, or 100% of the Partnership's profit in 1995.
5. Financing of Accounts Receivable and Inventories
Prior Arrangements
GECC Agreement (no longer in effect)
In 1993, to facilitate the provision of credit to its customers and to reduce
the requirement for further working capital financing, the Partnership and BMS
entered into agreements with GECC for the sale of eligible accounts receivable
(both BMS and non-BMS product related), subject to a 25% cash holdback by GECC
of the uncollected balance. Proceeds from the sale of BMS and non-BMS product
receivables were remitted directly by GECC to the Partnership, less the
holdback. In 1994, the Partnership incurred $3,310 of GECC fees related to the
sale of BMS receivables and $1,952 of GECC fees related to the sale of non-BMS
products. In 1993, the Partnership incurred $870 of GECC fees related to the
sale of BMS receivables and $537 of GECC fees related to the sale of non-BMS
products. BMS reimbursed the Partnership for certain GECC fees in 1994 and such
reimbursement totaled $2,317. GECC fees, net of reimbursement by BMS, are
included under other nonoperating expense in the statements of operations.
F-12
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
BMS Agreement (no longer in effect)
In September 1994, the Partnership and BMS terminated the agreements with GECC.
Interim financing was then provided by the partners and ultimately by BMS under
a $30,000 secured note agreement payable in full on January 31, 1995. The
$30,000 note was paid in January 1995 out of the initial borrowings under the
bank credit line discussed below.
Current Arrangement - $50,000 Bank Credit Line
In January 1995, the Partnership entered into agreements to establish a $50,000
one year revolving line of credit with a bank. The bank credit line is renewable
annually, if the parties so agree. The current expiration date is December 31,
1996. Interest is payable monthly at interest rates ranging from .25% to .75%
above the bank's reference rate, unless the Partnership elects an optional
interest rate of 0.50% above the bank's offshore rate as defined in the
agreement (6.3% at December 31, 1995). The agreement includes certain covenants
which restrict the Partnership's use of amounts borrowed and its ability to
incur additional obligations and pay distributions. Additionally, certain
covenants of the loan agreement require the Partnership to maintain tangible net
worth and a ratio of liabilities to tangible net worth at determined levels. At
December 31, 1995, Axion had borrowed $35,617 under this agreement. The
borrowings are secured by the Partnership's inventories and accounts receivable.
6. Product Development
In 1992, Axion initiated a product development program whereby it would acquire
rights to certain drug compounds from third parties in exchange for various
payments and development funding. In August 1993, Axion terminated its product
development activities in order to focus its efforts on the development of the
Partnership and the support of clinical studies.
7. Commitments
Axion has an agreement to lease its existing office facility through July 1996.
Rent expense under this lease was $276, $333 and $368 in 1993, 1994 and 1995,
respectively. Minimum future lease payments under this operating lease are $214
in 1996.
Axion has an agreement for management information services through December
2004. Future payments under this agreement are as follows: $2,375 in 1996;
$2,452 in 1997; $2,502 in 1998; $2,552 in 1999; $2,552 in 2000; and $9,120
thereafter.
F-13
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts and dividend rates)
8. Stockholders' Equity
Convertible Preferred Stock
The following series of convertible preferred stock have been issued and are
outstanding:
Liquidation
Number of Shares Preference
----------------------- ---------------
Issued and Dividend Per Carrying
Designated Outstanding Rate Share Total Value
---------------------------------------------------------------
Series A 3,166,667 3,135,000 0.075 $ 0.75 $ 2,351 $ 2,341
Series B 1,600,000 882,353 0.340 3.40 3,000 2,837
Series C 420,000 420,000 0.420 4.79 2,012 1,744
Series D 700,000 700,000 0.560 5.60 3,920 3,899
Series E 965,517 965,517 0.725 7.25 7,000 6,427
Series F 1,500,000 633,020 1.00 10.00 6,330 5,744
--------------------- --------------------
Balance at December 31, 1994 8,352,184 6,735,890 24,613 22,992
Series F -- 5,000 1.00 10.00 50 50
--------------------- --------------------
Balance at December 31, 1995 8,352,184 6,740,890 $ 24,663 $ 23,042
===================== ====================
All preferred shares issued to date are convertible into and carry voting rights
equivalent to common shares on a 1:1 basis. Additionally, conversion is
automatic upon the consent of at least two-thirds of the preferred stock
outstanding or the closing of an underwritten public offering of common stock in
which net proceeds are not less than $10,000 and the price per share for
automatic conversion of Series A is not less than $4.00 per share; for automatic
conversion of Series B, C and D is not less than $7.00 per share; for automatic
conversion of Series E is not less than $7.25 per share; and for automatic
conversion of Series F is not less than $10.00 per share (subject to adjustment
for stock dividends, stock splits or recapitalization).
F-14
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Convertible Preferred Stock (continued)
Any assets remaining after payment of liquidation preferences plus any declared
but unpaid dividends to the holders of the convertible preferred stock would be
distributed pro rata to holders of common and preferred shares on an
as-converted basis until the preferred shareholders of Series A, B, C and E
receive an aggregate of $4.00, $7.00, $7.00 and $9.46 per share, respectively,
inclusive of the respective liquidation preference amounts referred to above.
Thereafter, the remaining assets would be distributed pro rata among the holders
of common shares.
Holders of convertible preferred stock are entitled to noncumulative cash
dividends if and when declared by the Board of Directors. No dividends have been
declared through December 31, 1995.
Warrants
At December 31, 1995, warrants to purchase 25,000 shares of common stock were
outstanding at $6.00 per share. The warrants expire in June 2005.
Stock Option and Restricted Stock Plan
Axion has a Stock Option and Restricted Stock Plan (the "1989 Plan") under which
a total of 2,000,000 shares of common stock have been reserved for issuance to
employees, including officers and directors, nonemployee directors and
consultants of Axion. Incentive options may be granted at a price per share not
less than the fair value of common stock on the date of grant and become
exercisable in increments over periods of one to four years from the date of
grant. Non-qualified options may be granted at a price per share not less than
85% of fair value on the date of grant and become exercisable in increments over
periods of one to five years.
In 1995, Axion allowed employees to cancel certain outstanding options and
receive new grants for a like number at the fair value of the common stock on
the date of grant. Employees elected to cancel and receive new grants for
options on 161,250 shares.
The following table summarizes the option activity under the 1989 Plan for the
years ended December 31, 1995, 1994 and 1993:
Shares Under Price Range
Option Per Share
-----------------------------
Balance at December 31, 1993 740,500 $0.075-$3.00
Granted 142,250 6.00-9.00
Canceled (23,404) 0.42-9.00
Exercised (16,518) 0.42-6.00
-----------------------------
Balance at December 31, 1994 842,828 0.075-9.00
Granted 487,583 6.00
Canceled (175,914) 0.42-9.00
Exercised (32,064) 0.42-6.00
-----------------------------
Balance at December 31, 1995 1,122,433 $0.075-$6.00
=============================
At December 31, 1995, 1,590,701 shares of common stock were available for
issuance under the 1989 Plan, of which 1,122,433 shares were subject to
outstanding options. At December 31, 1995, incentive options on 522,127 shares
and non-qualified options on 193,756 shares were exercisable.
F-15
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Executive Stock Option Plan
In 1995, Axion adopted an Executive Stock Option Plan under which a total of
600,000 shares of common stock have been reserved for issuance to officers of
Axion. At December 31, 1995, 600,000 shares were subject to outstanding
incentive and non-qualified stock options. The options are immediately
exercisable, but if exercised the shares of common stock generally would vest
over six years based on continued service. At December 31, 1995, incentive
options on 83,333 shares and non-qualified options on 16,667 shares were vested
and exercisable at exercise prices ranging from $6.00 to $10.00 per share.
9. Income Taxes
Significant components of the provision for income taxes are as follows:
1995
------
Current:
Federal $ 157
State 439
------
Total current 596
Deferred:
Federal 430
State 161
------
Total deferred 591
------
$1,187
======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Axion's deferred tax liabilities and assets as of December 31, are as follows:
F-16
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
1994 1995
-------------------
Deferred income tax liabilities:
Portion of Partnership income allocated to BMS
for income tax purposes (not for financial
statement preferential allocation purposes) $ -- $(1,393)
State income taxes (127) --
Other (68) (183)
-------------------
Total deferred tax liabilities (195) (1,576)
Deferred income tax assets:
Allowance for doubtful accounts 128 400
Unicap adjustment 84 19
Other reserves and accrued expenses 123 538
Benefit from net operating loss carryforwards 2,506 --
Other 85 28
-------------------
Total deferred tax assets 2,926 985
-------------------
Net deferred tax assets (liabilities) 2,731 (591)
Less: valuation allowance (2,731) --
-------------------
Net deferred tax liability $ -- $ (591)
===================
The significant reconciling item in the reconciliation of income tax computed at
the U.S. federal statutory tax rate to the provision for income tax expense is
the reduction in the valuation allowance for deferred tax assets in 1995 as a
result of the utilization of net operating loss carryforwards.
10. Benefit Plan
Axion has a defined contribution plan under the provisions of Section 401(k) of
the Internal Revenue Code covering all eligible employees (the "401(k) Plan").
Employees may contribute to the 401(k) Plan annually up to the Internal Revenue
Service limit. The Plan allows Axion to make matching contributions at the
discretion of the Board of Directors. Axion has not contributed to the 401(k)
Plan since its inception.
11. Proposed Merger with BMS and Distribution of AHC to Shareholders
As of August 2, 1996, Axion and BMS signed an amended and restated agreement and
plan of merger, which contemplates the merger of a newly formed wholly owned
subsidiary of BMS into Axion, with Axion being the surviving company. Holders of
shares of Axion's common stock at the consummation of the proposed merger would
receive shares of common stock of BMS having an aggregate value of $86,000,
subject to holdback of shares of common stock of BMS having a value of $5,000.
The $5,000 in shares of common stock of BMS plus $5,000 in cash otherwise
available to AHC will constitute an escrow fund to secure indemnification
obligations to BMS in the event BMS were to suffer certain defined indemnifiable
losses. Prior to consummation, all the shares of Axion's various series of
preferred stock will be converted into shares of Axion common stock and all of
the options and warrants outstanding to purchase shares of Axion common stock
will be either exercised (including that portion of options that would not yet
be exercisable under normal circumstances) or cancelled. Axion intends to extend
loans to holders of Axion stock options and warrants to assist those holders in
paying for the shares purchased upon exercise of options and warrants. Based on
Axion's shares of preferred and common stock outstanding at December 31, 1995
and shares of common stock subject to unexercised stock options and warrants at
December 31, 1995, the pro forma number of shares of Axion common stock at that
date, assuming full conversion of shares of preferred stock and exercise of
substantially all outstanding options and warrants, would have been 9,977,756
shares (excluding
F-17
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
11. Proposed Merger with BMS and Distribution of AHC to Shareholders (continued)
100,000 shares of Axion common stock pursuant to an option which is not expected
to be exercised). The actual exchange ratio of shares of BMS common stock for
shares of Axion common stock will be a fraction determined by: (i) the aggregate
value of $86,000, divided by the average closing market price of shares of BMS
common stock during the ten trading days ending five trading days prior to the
consummation of the merger (subject to both a minimum price and a maximum
price); divided by (ii) the number of shares of Axion common stock at
consummation of the merger, assuming full conversion of shares of preferred
stock and exercise of options and warrants for shares of common stock.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. AHC will have received from Axion, as a
contribution to the capital of AHC, substantially all of Axion's assets and
liabilities other than those assets and liabilities related to Axion's interest
in the Partnership and of the OPUS Station automated drug dispensing business.
Among the more significant assets to be transferred to AHC by Axion will be: (i)
a cash distribution from the Partnership to Axion of $13,615 (which would have
required additional borrowings by the Partnership of $9,226 at December 31,
1995), and the remainder of Axion's cash and cash equivalents and short-term
investments ($9,132 at December 31, 1995), subject to adjustment in certain
situations, of which $5,000 will be placed in an escrow fund as previously
disclosed; (ii) the shares of Series A redeemable preferred stock of OnCare
($3,500 representing 700,000 shares at December 31, 1995, which was increased by
$10,000, representing an additional 2,000,000 shares, in February and March
1996, making a total of $13,500 or 2,700,000 shares); and (iii) amounts due
under loans extended to those persons exercising Axion stock options and
warrants (none at December 31. 1995, but approximately $6,500 at that date had
substantially all of the options and warrants then outstanding been exercised
and loans extended for the full exercise price).
The merger of Axion and the newly formed BMS subsidiary is subject to certain
conditions including approval by the holders of Axion's various classes of
stock, regulatory matters and certain other conditions.
F-18
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Historical operating results of Axion including the Partnership and the OPUS
Station automated drug dispensing business, which constitute the businesses (the
"Retained Business" upon consummation of the merger) to be merged with the newly
formed wholly owned subsidiary of BMS are shown below. In 1995, the operating
results below exclude OnCare, which was formed in June 1995 and the shares of
common stock of which were distributed by Axion Inc. on December 31, 1995, AHC
and the OPUS Matrix business, together the businesses to be distributed to Axion
shareholders (the "Acquired Business") immediately prior to consummation of the
merger. For the 1993 and 1994 operating results below, no adjustments have been
made to Axion's historical results as they would be insignificant.
Summary Operating Results of Retained Business (excluding OnCare and the
Acquired Business in 1995)
Years ended December 31,
1993 1994 1995
-----------------------------------
Net revenues $ 56,052 $ 126,369 $ 195,335
Costs and expenses:
Cost of revenues 51,006 112,606 174,314
Sales and marketing 1,635 1,922 2,007
General and administrative 5,734 8,409 6,459
Product development 1,607 -- --
-----------------------------------
Total costs and expenses 59,982 122,937 182,780
-----------------------------------
Income (loss) from operations (3,930) 3,432 12,555
Other income and (expense):
Interest income (expense), net 375 941 (220)
Other nonoperating income (expense) (1,407) (2,945) 146
Minority interest 996 -- --
-----------------------------------
Total other income and (expense), net (36) (2,004) (74)
-----------------------------------
Income (loss) before provision for income taxes (3,966) 1,428 12,481
Provision for income taxes -- -- 2,500
-----------------------------------
Net income (loss) $ (3,966) $ 1,428 $ 9,981
===================================
F-19
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
The historical financial positions of the Retained Business to be merged with
the newly formed wholly owned subsidiary of BMS are shown below. The historical
financial position does not reflect the transfer to AHC by Axion of: (i) a cash
distribution from the Partnership to Axion of $13,615 (which would have required
additional borrowings of $9,226 at December 31, 1995), and the remainder of
Axion's cash and cash equivalents and short-term investments ($9,132 at December
31, 1995), subject to adjustment in certain situations, of which $5,000 will be
placed in an escrow fund as previously disclosed; and (ii) the shares of Series
A redeemable preferred stock of OnCare ($3,500 representing 700,000 shares had
the distribution been made at December 31, 1995); and (iii) the
F-20
effect of exercise of unexercised Axion stock options and warrants (and related
loans receivable and cash received) arising after December 31, 1995.
Summary Financial Position of Retained Business (excluding OnCare
and the Acquired Business in 1995)
December 31,
1994 1995
-------------------
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 20,782 $ 13,521
Accounts receivable, less allowance for doubtful accounts 24,683 41,458
BMS accounts receivable - Sales Agency Agreement 43,887 59,461
Inventories 7,131 9,577
Prepaid expenses and other 663 164
-------------------
Total current assets 97,146 124,181
Net property and equipment 907 1,129
Interest in OnCare -- 3,500
Other assets 6 6
-------------------
Total assets 98,059 128,816
-------------------
Liabilities
Current liabilities:
Payable to BMS - Sales Agency Agreement 36,508 47,755
Borrowings under bank line of credit -- 35,617
Loan payable to BMS 30,000 --
Accounts payable 13,398 19,348
Accrued liabilities 2,078 2,423
-------------------
Total current liabilities 81,984 105,143
Deferred income taxes -- 591
Minority interest 4 4
-------------------
Total liabilities and minority interest 81,988 105,738
-------------------
Net assets $ 16,071 $ 23,078
===================
12. Subsequent Event
On September 10, 1996, the Company agreed to extend the final date for the
redemption of the OnCare preferred stock from December 31, 1996 to
December 31, 2000.
F-21
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of
AXION INC.
Six Months Ended June 30, 1996 and 1995
F-22
Axion Inc.
Condensed Consolidated Balance Sheets
(in thousands of dollars, except par value per share)
December 31, June 30,
1995 1996
-----------------------
(Note) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 8,522 $ 1,077
Short-term investments 5,000 2,109
Accounts receivable, less allowance for doubtful accounts
of $707 in 1995 and $766 in 1996 41,458 55,657
BMS accounts receivable - Sales Agency Agreement 59,461 67,994
Inventories 9,577 15,038
Prepaid expenses and other 475 1,900
-----------------------
Total current assets 124,493 143,775
Property and equipment 1,859 2,747
Less accumulated depreciation (730) (970)
-----------------------
Net property and equipment 1,129 1,777
Interest in OnCare 3,500 13,500
Other assets 6 1
-----------------------
Total assets $ 129,128 $ 159,053
=======================
Liabilities and stockholders' equity
Current liabilities:
Payable to BMS - Sales Agency Agreement $ 47,755 $ 55,429
Borrowings under bank line of credit 35,617 40,616
Accounts payable 19,437 31,874
Accrued liabilities 2,498 2,891
-----------------------
Total current liabilities 105,307 130,810
Deferred income taxes 591 591
Minority interest 4 4
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized; 8,352,184 designated, 6,740,890 shares
issued and outstanding, $24,663 liquidation
preference in 1995 and 1996, at amounts paid in shares 23,042 23,042
Common stock, $0.001 par value, 15,000,000 shares
authorized; 1,604,354 shares issued and outstanding
in 1995 and 1,606,651 shares issued and outstanding
1996, at amounts paid in 471 471
Retained earnings (accumulated deficit) (287) 4,135
-----------------------
Total stockholders' equity 23,226 27,648
-----------------------
Total liabilities and stockholders' equity $ 129,128 $ 159,053
=======================
Note: The consolidated balance sheet at December 31, 1995 has been derived
from the audited consolidated financial statements at that date but does
not include all the footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
F-23
Axion Inc.
Condensed Consolidated Statements of Operations
and Retained Earnings (Accumulated Deficit)
(in thousands of dollars, except per share amounts)
Six months ended
June 30,
1995 1996
------------------------
(Unaudited)
Net revenues $ 89,377 $ 133,161
Costs and expenses:
Cost of revenues 80,010 119,235
Sales and marketing 1,147 1,163
General and administrative 4,723 5,495
------------------------
Total costs and expenses 85,880 125,893
------------------------
Income from operations 3,497 7,268
Interest income (expense), net (22) (21)
------------------------
Income before provision for income taxes 3,475 7,247
Provision for income taxes 300 2,825
------------------------
Net income (per share: $0.36
in 1995 and $0.50 in 1996) 3,175 4,422
Accumulated deficit at
beginning of period (7,281) (287)
------------------------
Retained earnings (accumulated deficit)
at end of period $ (4,106) $ 4,135
========================
See accompanying notes.
F-24
Axion Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
Six months ended
June 30,
1995 1996
--------------------
(Unaudited)
Operating activities
Net income $ 3,175 $ 4,422
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 147 240
Issuance of preferred stock for services 50 --
Changes in operating assets and liabilities:
Accounts receivable (11,884) (14,199)
BMS accounts receivable - Sales Agency Agreement (7,992) (8,533)
Inventories (2,937) (5,461)
Prepaid expenses and other (225) (1,425)
Payable to BMS - Sales Agency Agreement 6,073 7,674
Accounts payable 661 12,437
Accrued liabilities (256) 393
--------------------
Net cash provided by (used in) operating activities (13,188) (4,452)
Investing activities
Short-term investments 7,476 2,891
Purchase of property and equipment (288) (888)
Additional interest in OnCare -- (10,000)
Other assets -- 5
--------------------
Net cash provided by (used in) investing activities 7,188 (7,992)
Financing activities
Borrowing under bank line of credit 4,043 4,999
Proceeds from issuance of common stock 7 --
--------------------
Net cash used in financing activities 4,050 4,999
--------------------
Net decrease in cash and cash equivalents (1,950) (7,445)
Cash and cash equivalents, beginning of period 13,306 8,522
--------------------
Cash and cash equivalents, end of period $ 11,356 $ 1,077
====================
Supplemental disclosure of cash flow information
Interest paid in cash $ 2,139 $ 2,011
====================
Income tax payments $ 18 $ 910
====================
See accompanying notes.
F-25
Axion Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements for each of the three years in the period ended December
31, 1995 and footnotes thereto included on pages F-3 to F-20.
2. Interest in OnCare
In February and March 1996, Axion advanced an additional $10,000 to OnCare Inc.
("OnCare") in exchange for an additional 2,000,000 shares of OnCare Series A
redeemable preferred stock to be issued, increasing its interest in the Series A
preferred stock to $13,500, representing 2,700,000 shares. OnCare is obligated
to redeem the Series A preferred stock at a redemption price of $5 per share at
the earlier of December 31, 2000, the closing of a qualifying underwritten
public offering of the common stock in OnCare, the merger or consolidation of
OnCare with or into another corporation, or the sale of all or substantially all
of OnCare's assets.
OnCare ceased to be a consolidated subsidiary on December 31, 1995, as a result
of the distribution by Axion of its holdings of the common stock of OnCare.
Operating results of OnCare for the six months ended June 30, 1996 are not
included in Axion's consolidated statement of income for that period. Revenues
of OnCare for the six months ended June 30, 1996 were $7,118 and its net loss
was $1,175, without any income tax benefit. The condensed financial position of
OnCare at June 30, 1996 and Axion's investment are summarized as follows:
Assets:
Cash $ 2,557
Receivables, property and other assets 9,091
Unamortized management services agreements
and other intangible assets 4,776
--------
16,424
Liabilities:
Bank borrowings --
Other 3,206
--------
3,206
--------
Net assets, represented by:
Series A redeemable preferred stock held by
Axion - 2,700,000 shares 13,500
Common equity (deficit) ($1,563 paid in less $1,845
accumulated deficit) (282)
--------
$ 13,218
========
Axion's interest - 2,700,000 shares of Series A
redeemable preferred stock $ 13,500
========
F-26
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders
As of August 2, 1996, Axion and BMS signed an amended and restated agreement and
plan of merger, which contemplates the merger of a newly formed wholly owned
subsidiary of BMS into Axion, with Axion being the surviving company. Holders of
shares of Axion's common stock at the consummation of the proposed merger would
receive shares of common stock of BMS having a value of $86,000, subject to
holdback of shares of common stock of BMS having a value of $5,000. The $5,000
in shares of common stock of BMS plus $5,000 in cash otherwise available to AHC
will constitute an escrow fund to secure indemnification obligations to BMS in
the event BMS were to suffer certain defined indemnifiable losses. Prior to
consummation, all the shares of Axion's various series of preferred stock will
be converted into shares of Axion common stock and all of the options and
warrants outstanding to purchase shares of Axion common stock will be either
exercised (including that portion of options that would not yet be exercisable
under normal circumstances) or cancelled. Axion intends to extend loans to
holders of Axion stock options and warrants to assist those holders in paying
for the shares purchased upon exercise of options and warrants. Based on Axion's
shares of preferred and common stock outstanding at June 30, 1996 and shares of
common stock subject to unexercised stock options and warrants at June 30, 1996,
the pro forma number of shares of Axion common stock at that date, assuming full
conversion of shares of preferred stock and exercise of substantially all
outstanding options and warrants, would have been 9,977,756 shares (excluding
100,000 shares of Axion common stock pursuant to an option which is not expected
to be exercised). The actual exchange ratio of shares of BMS common stock for
shares of Axion common stock will be a fraction determined by: (i) the aggregate
value of $86,000, divided by the average closing market price of shares of BMS
common stock during the ten trading days ending five trading days prior to the
consummation of the merger (subject to both a minimum price and a maximum
price); divided by (ii) the number of shares of Axion common stock at
consummation of the merger, assuming full conversion of shares of preferred
stock and exercise of options and warrants for shares of common stock.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. AHC will have received from Axion, as a
contribution to the capital of AHC, substantially all of Axion's assets and
liabilities other than those assets and liabilities related to Axion's interest
in the Partnership and the OPUS station automated drug dispensing and inventory
tracking systems business. Among the more significant assets to be transferred
to AHC by Axion will be: (i) a cash distribution from the Partnership to Axion
of $13,615 (which would have required additional borrowings by the Partnership
of $12,915 at June 30, 1996), and the remainder of Axion's cash and cash
equivalents and short-term investments ($2,485 at June 30, 1996), subject to
adjustment in certain situations, of which $5,000 will be placed in an escrow
fund as previously disclosed; (ii) the shares of Series A redeemable preferred
stock of OnCare (2,700,000 shares with a redemption value and carrying cost of
$13,500); and (iii) amounts due under loans extended to those persons exercising
Axion stock options and warrants (none at June 30, 1996, but approximately
$6,500 at that date had substantially all of the options and warrants then
outstanding been exercised and loans extended for the full exercise price).
The merger of Axion and the newly formed BMS subsidiary is subject to certain
conditions including approval by the holders of Axion's various classes of
stock, regulatory matters and certain other conditions.
F-27
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders (continued)
Historical operating results of Axion including the Partnership and the OPUS
Station automated drug dispensing and inventory tracking systems business, which
constitute the businesses (the "Retained Business" upon consummation of the
merger) to be merged with the newly formed wholly owned subsidiary of BMS are
shown below. The historical operating results exclude AHC and the OPUS Matrix
business, the businesses to be distributed to Axion shareholders (the "Acquired
Business") immediately prior to consummation of the merger.
Summary Operating Results of Retained Business (excluding the Acquired Business)
Six months ended
June 30,
1995 1996
------------------------
Net revenues $ 89,124 $ 133,057
Costs and expenses:
Cost of revenues 79,853 119,170
Sales and marketing 1,147 1,163
General and administrative 3,236 3,186
------------------------
Total costs and expenses 84,236 123,519
------------------------
Income from operations 4,888 9,538
Interest income (expense), net (22) (21)
------------------------
Income before provision for income taxes 4,866 9,517
Provision for income taxes 847 3,719
------------------------
Net income $ 4,019 $ 5,798
========================
F-28
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders (continued)
The historical financial position of the Retained Business to be merged with the
newly formed wholly owned subsidiary of BMS is shown below. The historical
financial position does not reflect the transfer to AHC by Axion of: (i) a cash
distribution from the Partnership to Axion of $13,615, (which would have
required additional borrowings by the Partnership of $12,915 at June 30,1996)
and the remainder of Axion's cash and cash equivalents and short-term
investments ($2,485 at June 30, 1996), subject to adjustment in certain
situations, of which $5,000 will be placed in an escrow fund; and (ii) the
shares of Series A redeemable preferred stock of OnCare ($13,500 representing
2,700,000 shares at June 30, 1996); and (iii) the effect of exercise of
unexercised Axion stock options and warrants (and related loans receivable and
cash received) arising after June 30, 1996.
Summary Financial Position of Retained Business (excluding the Acquired
Business) at June 30, 1996
Assets
Current assets:
Cash, cash equivalents and short-term $ 3,185
Accounts receivable, less allowance for
doubtful accounts 55,636
BMS accounts receivable - Sales Agency
Agreement 67,994
Inventories 15,038
Prepaid expenses and other 516
--------
Total current assets 142,369
Net property and equipment 997
Interest in OnCare 13,500
Other assets 1
--------
Total assets $156,867
--------
Liabilities:
Current liabilities:
Payable to BMS - Sales Agency Agreement $ 55,429
Borrowings under bank line of credit 40,616
Accounts payable 30,863
Accrued liabilities 2,479
--------
Total current liabilities 129,387
Deferred income taxes 591
Minority interest 4
--------
Total liabilities and minority interest 129,982
--------
Net assets $ 26,885
========
F-29
PRO FORMA CONDENSED FINANCIAL STATEMENTS
OF
AXION INC.
and
AXION HEALTHCARE INC.
(Giving Effect to the Proposed Distribution
of Stock of Axion HealthCare Inc.
to holders of Stock of Axion Inc.)
F-30
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Balance Sheets
(in thousands of dollars)
(giving effect to the proposed distribution of outstanding stock of AHC
to holders of stock of Axion Inc. ("Axion"))
Pro Forma
Historical- June 30, 1996
June 30, ---------------------------
1996 Pro Forma Axion
Axion Adjustments- (excluding
Consolidated Increase AHC AHC)
------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash, cash equivalents and short-term
investments $ 3,186 $ 12,915(a) $ 16,101(b) $ --
Accounts receivable, less allowance for
doubtful accounts 55,657 -- 21 55,636
BMS accounts receivable - Sales Agency
Agreement 67,994 -- -- 67,994
Inventories 15,038 -- -- 15,038
Prepaid expenses and other 1,900 -- 1,384 516
----------------------------------------------------------
Total current assets 143,775 12,915 17,506 139,184
Net property and equipment 1,777 -- 780 997
Investment in OnCare 13,500 -- 13,500 --
Other assets 1 -- -- 1
----------------------------------------------------------
Total assets $ 159,053 $ 12,915 $ 31,786 $ 140,182
==========================================================
Liabilities and stockholders' equity
Current liabilities:
Payable to BMS - Sales Agency Agreement $ 55,429 $ -- $ -- $ 55,429
Borrowings under bank line of credit 40,616 (5,000)(a) -- 35,616
Additional borrowings -- 17,915(a) -- 17,915
Accounts payable 31,874 -- 1,011 30,863
Accrued liabilities 2,891 -- 412 2,479
----------------------------------------------------------
Total current liabilities 130,810 12,915 1,423 142,302
Deferred income taxes 591 -- -- 591
Minority interest 4 -- -- 4
Stockholders' equity (net capital deficiency) 27,648 -- 30,363 (2,715)
----------------------------------------------------------
Total liabilities and stockholders' equity $ 159,053 $ 12,915 $ 31,786 $ 140,182
==========================================================
- ----------
(a) Additional borrowings of $17,915 by the Partnership sufficient to fund a
cash distribution of $13,615 from the Partnership to Axion and a $5,000
reduction of amounts borrowed under the bank line of credit.
(b) Upon the consummation of the proposed merger of Axion with BMS, $5,000 of
cash of AHC will be deposited in an escrow fund to secure indemnification
obligations to BMS in the event BMS were to suffer certain defined
indemnifiable losses from its merger with Axion.
See accompanying notes.
F-31
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Statements of Operations
(in thousands of dollars)
(giving effect to distribution of common stock of
OnCare, Inc. ("OnCare") and the proposed distribution
of outstanding stock of AHC to holders of stock of Axion)
Pro Forma-
Year ended December 31,
Historical- 1995
Year ended ------------------------------------------
December 31, Pro Forma Axion
1995 Adjustments- (excluding
Axion Increase OnCare and
Consolidated (Decrease) OnCare AHC AHC)
-----------------------------------------------------------------------------
Net revenues $ 198,950 $ -- $ 2,645 $ 970 $ 195,335
Costs and expenses:
Costs of revenues 176,292 -- 1,686 292 174,314
Sales and marketing 2,007 -- -- -- 2,007
General and administrative 11,442 -- 2,018 2,965 6,459
----------------------------------------------------------------------------
Total costs and expenses 189,741 -- 3,704 3,257 182,780
----------------------------------------------------------------------------
Income (loss) from operations 9,209 -- (1,059) (2,287) 12,555
Other income (expense):
Interest income (expense),net (281) -- (61) -- (220)
Other nonoperating income (expense) 146 -- -- -- 146
----------------------------------------------------------------------------
Total other income (expense), net (135) -- (61) -- (74)
----------------------------------------------------------------------------
Income (loss) before provision for income taxes 9,074 -- (1,120) (2,287) 12,481
Provision for income taxes 1,187 1,313(a) -- -- 2,500
----------------------------------------------------------------------------
Net income $ 7,887 $ (1,313) $ (1,120) $ (2,287) $ 9,981
============================================================================
- ----------
(a) Add back allocated income tax benefit of losses of OnCare and AHC, which
benefit would not have been available currently if OnCare and AHC had not
been consolidated subsidiaries of Axion Inc.
See accompanying notes.
F-32
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Statements of Operations
(in thousands of dollars)
(giving effect to the proposed distribution of stock of AHC
to holders of stock of Axion)
Pro Forma -- Six months
ended June 30, 1996
---------------------------
Historical-
Six months Axion
ended June 30, Pro Forma (excluding
1996 Adjustments- OnCare
Axion Increase and
Consolidated (Decrease) AHC AHC)
------------------------------------------------------------
(Unaudited)
Net revenues $ 133,161 $ -- $ 104 $ 133,057
Costs and expenses:
Costs of revenues 119,235 -- 65 119,170
Sales and marketing 1,163 -- -- 1,163
General and administrative 5,495 -- 2,309 3,186
------------------------------------------------------------
Total costs and expenses 125,893 -- 2,374 123,519
------------------------------------------------------------
Income (loss) from operations 7,268 -- (2,270) 9,538
Interest income (expense),net (21) -- -- (21)
------------------------------------------------------------
Income (loss) before provision for
income taxes 7,247 -- (2,270) 9,517
Provision for income taxes 2,825 894(a) -- 3,719
------------------------------------------------------------
Net income (loss) $ 4,422 $ (894) $ (2,270) $ 5,798
============================================================
- ---------
(a) Add back of allocated income tax benefit of losses of AHC, which benefit
would not have been available currently if AHC had not been a consolidated
subsidiary of Axion.
See accompanying notes.
F-33
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Notes to Pro Forma Condensed Financial Statements
(in thousands of dollars)
1. Proposed Distribution of all Stock of AHC to Stockholders of Axion
Immediately prior to consummation of the merger of a subsidiary of BMS with
Axion Inc. ("Axion"), Axion intends to distribute to its then stockholders all
of the outstanding shares of Axion HealthCare Inc. ("AHC"), which will represent
100% ownership in AHC. Prior to that distribution, AHC will have received from
Axion, as a contribution to the capital of AHC, substantially all of Axion's
assets and liabilities other than those assets and liabilities related to
Axion's interest in the Partnership and the OPUS station automated drug
dispensing business. Among the more significant assets to be transferred to AHC
by Axion will be (i) a cash distribution from the Partnership to Axion of
$13,615 (which would have required additional borrowings by the Partnership of
$12,915 at June 30, 1996) and the remainder of Axion's cash and cash equivalents
and short-term investments ($2,485 at June 30, 1996), subject to adjustment in
certain situations, of which $5,000 will be placed in an escrow fund (as
discussed below); (ii) the shares of Series A redeemable preferred stock of
OnCare (2,700,000 shares with a redemption value and cost of $13,500); and (iii)
amounts due under loans extended to those persons exercising Axion stock options
and warrants (none at June 30, 1996, but approximately $6,500 at that date had
substantially all of the options and warrants then outstanding been exercised
and loans extended for the full exercise price).
2. Pro Forma Condensed Balance Sheets
The pro forma condensed balance sheets give effect to the distribution of AHC by
Axion, after the transfer from Axion to AHC of: (i) a cash distribution from the
Partnership to Axion of $13,615 (which would have required additional borrowings
by the Partnership of $12,915 at June 30, 1996) and $2,485 of cash and cash
equivalents and short-term investments at June 30, 1996 (representing the
remainder of Axion's cash and cash equivalents and short-term investments),
subject to adjustment in certain situations, of which $5,000 will be placed in
an escrow fund (as discussed below); and (ii) $13,500 redemption and carrying
value of the 2,700,000 shares of Series A redeemable preferred stock of OnCare.
The pro forma condensed balance sheets do not reflect the transfer of loans
receivable (none at June 30, 1996 but approximately $6,500 at that date had
substantially all of the options and warrants then outstanding been exercised
and loans extended for the full exercise price) from Axion to AHC.
Upon consummation of the proposed merger of Axion with BMS, $5,000 of cash of
AHC will be deposited in an escrow fund to secure indemnification obligations to
BMS in the event BMS were to suffer certain defined indemnifiable losses from
its merger with Axion. The segregation of this amount of cash is not reflected
in the pro forma condensed balance sheets.
3. Pro Forma Condensed Income Statements
The pro forma condensed income statements give effect to the separation of
OnCare and AHC from Axion, as if the common stock of both OnCare and AHC had
been distributed by Axion prior to 1995. The losses of OnCare and AHC would not
have been available to be used in Axion's income tax returns and there would
have been no current income tax benefit from these losses, had the distribution
been made prior to 1995.
F-34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation,
hereinafter a "derivative action"), if such persons acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal actions or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) actually and reasonably incurred
in connection with the defense or settlement of such action, and the DGCL
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. Pursuant to
its terms, the DGCL is not exclusive of other rights to indemnification that may
be granted by a corporation's by-laws, disinterested director vote, stockholder
vote, agreement or otherwise.
Under the terms of the Registrant's By-laws, each director and officer is
indemnified by the Registrant, to the full extent permitted by law, against: (i)
expenses incurred or paid by the director or officer in connection with any
claim made against such director or officer, or any actual or threatened action,
suit or proceeding (civil, criminal, administrative, investigative or other,
including appeals and whether or not relating to a date prior to the adoption of
this by-law) in which such director or officer may be involved as a party or
otherwise, by reason of being or having been a director or officer of the
Registrant, or of serving or having served at the request of the Registrant as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action taken or not
taken by such director or officer in such capacity, and (ii) the amount or
amounts paid by the director or officer in settlement of any such claim, action,
suit or proceeding or any judgment or order entered therein; however,
notwithstanding anything to the contrary in the Registrant's By-laws, where a
director or officer seeks indemnification in connection with a proceeding
voluntarily initiated by such director or officer the right to indemnification
granted thereunder shall be limited to proceedings where such director or
officer has been wholly successful on the merits. The term "expenses" includes,
but is not limited to, reasonable amounts for attorneys' fees, costs,
disbursements and other expenses and the amount or amounts of judgments, fines,
penalties and other liabilities.
Article Fourteenth of the Registrant's Restated Certificate of Incorporation
provides that subject to the provisions of the DGCL, no director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director except to the extent
that such liability arises (i) from a breach of the director's duty of loyalty
to the Registrant or its stockholders, (ii) as a result of acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL relating to unlawful stock purchase or
redemption or (iv) any transaction from which the director derived an improper
personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules to this Registration
Statement are listed in the Exhibit Index which immediately follows the
signature pages to this Registration Statement and which is incorporated herein
by reference.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final jurisdiction of
such issue.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
D. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
E. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
F. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
G. The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made, a
post-effective amendment to this Registration Statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-2
b. To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
c. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON THE 19TH DAY OF SEPTEMBER, 1996.
BRISTOL-MYERS SQUIBB COMPANY,
by *
______________________________________
Name: Charles A. Heimbold, Jr.
Title: Chairman of the Board,
Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
* Chairman of the Board, Chief Executive September 19, 1996
________________________________ Officer and Director (Principal Executive
Charles A. Heimbold, Jr. Officer)
* Chief Financial Officer and Senior Vice September 19, 1996
________________________________ President Corporate Staff (Principal
Michael F. Mee Financial Officer)
* Controller and Vice President Corporate September 19, 1996
________________________________ Staff (Principal Accounting Officer)
Frederick S. Schiff Director
Director
________________________________
Robert E. Allen
* Executive Vice President and Director September 19, 1996
________________________________
Michael E. Autera
* Director September 19, 1996
________________________________
Ellen V. Futter
* Director September 19, 1996
________________________________
Louis V. Gerstner, Jr.
II-4
Signature Title Date
--------- ----- ----
Director
________________________________
John D. Macomber
* Director September 19, 1996
________________________________
James D. Robinson III
* Director September 19, 1996
________________________________
Andrew C. Sigler
* Director September 19, 1996
________________________________
Louis W. Sullivan, M.D.
* Executive Vice President, President- September 19, 1996
________________________________ Pharmaceutical Group and Director
Kenneth E. Weg
*/s/ Alice C. Brennan
________________________________
Alice C. Brennan
Attorney-in-Fact
II-5
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
August 2, 1996, among Bristol-Myers Squibb Company, OTN Acquisition
Sub Inc. and Axion Inc. (filed as Appendix A to the Proxy
Statement/Prospectus)
3.1* Restated Certificate of Incorporation of Bristol-Myers Squibb
Company (incorporated herein by reference to Exhibit 4a to
Registration Statement No. 33- 33682 on Form S-3 filed on March 7,
1990)
3.2* By-laws of Bristol-Myers Squibb Company, as amended through May 2,
1995 (incorporated herein by reference to Exhibit 3b to the Form
10-Q for the quarterly period ended March 31, 1995)
3.3* Amended and Restated Certificate of Incorporation of Axion Inc.
3.4* Certificate of Merger of Axion Inc., dated December 21, 1995
3.5* By-laws of Axion Inc., as amended and restated on June 29, 1992
4.1* Letter of Agreement dated March 28, 1984 (incorporated herein by
reference to Exhibit 4 to Form 10-K for the fiscal year ended
December 31, 1983)
4.2* Rights Agreement, dated as of December 4, 1987, between
Bristol-Myers Squibb Company and The Chase Manhattan Bank as
successor to Manufacturers Hanover Trust Company, as amended
(incorporated herein by reference to Exhibit 1 to the Form 8-A dated
December 10, 1987, and Exhibit 1 to the Form 8 dated July 27, 1989)
4.3* Indenture, dated as of June 1, 1993, between Bristol-Myers Squibb
Company and The Chase Manhattan Bank (National Association), as
trustee (incorporated herein by reference to Exhibit 4.1 to the Form
8-K dated May 27, 1993, and filed on June 3, 1993)
4.4* Form of 7.15% Debenture Due 2023 of Bristol-Myers Squibb Company
(incorporated herein by reference to Exhibit 4.2 to the Form 8-K
dated May 27, 1993, and filed on June 3, 1993)
5.1 Opinion of Cravath, Swaine & Moore as to the validity of the
securities being issued
8.1* Opinion of Cravath, Swaine & Moore regarding tax matters (Exhibits
thereto included in Exhibit 8.3)
8.2* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, regarding tax matters (Exhibits thereto included in Exhibit
8.3)
8.3 Opinion of Ernst & Young LLP regarding tax matters (including
Exhibits A, B, and C)
11.1 Computation of Net Income (Loss) Per Share for Axion Inc.
11.2* Computation of per share earnings for Bristol-Myers Squibb Company
(incorporated herein by reference to Exhibit 11 to Form 10-K for the
fiscal year ended December 31, 1995)
23.1 Consents of Cravath, Swaine & Moore (included in Exhibit 5.1 and
Exhibit 8.1, respectively)
23.2* Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in Exhibit 8.2)
23.3 Consent of Ernst & Young LLP
23.4 Consent of Ernst & Young LLP regarding summarization of tax opinion
(included in Exhibit 8.3)
23.5 Consent of Price Waterhouse LLP
II-6
24.1* Power of Attorney of certain officers and directors
24.2 Certified resolutions of Bristol-Myers Squibb Company
99.1 Form of Proxy to be used in soliciting holders of Axion Common Stock
and Axion Preferred Stock
99.2* Limited Partnership Agreement dated as of July 8, 1993, between
Oncology Therapeutics Network Corporation and Bristol-Myers Oncology
Therapeutic Network, Inc.
99.3* Sales Agency Agreement dated as of July 8, 1993, between
Bristol-Myers Squibb Company and Oncology Therapeutics Network Joint
Venture, L.P.
99.4* Trademark License Agreement dated as of July 8, 1993, between
Bristol-Myers Squibb Company and Oncology Therapeutics Network Joint
Venture, L.P.
- --------
* Previously filed
II-7
APPENDIX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Dated as of August 2, 1996
among
BRISTOL-MYERS SQUIBB COMPANY,
OTN ACQUISITION SUB INC.
and
AXION INC.
================================================================================
TABLE OF CONTENTS
SECTION Page
----
ARTICLE I
The Merger
1.01. The Merger..................................................3
1.02. Closing.....................................................3
1.03. Effective Time..............................................3
1.04. Effects of the Merger.......................................4
1.05. Certificate of Incorporation and By-Laws....................4
1.06. Directors...................................................4
1.07. Officers....................................................4
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
2.01. Effect on Capital Stock
(a) Cancelation of Treasury
Stock; Axion-Owned Stock
and BMS-Owned Stock...................................4
(b) Conversion of Axion Common Stock......................5
(c) Conversion of BMS Sub Common Stock....................7
(d) Shares of Dissenting Stockholders.....................7
2.02. Exchange of Certificates
(a) Exchange Agent........................................8
(b) Exchange Procedures...................................8
(c) Distributions with Respect
to Unexchanged Shares.................................9
(d) No Further Ownership Rights
in Axion Common Stock.................................10
(e) No Fractional Shares..................................10
(f) Termination of Exchange Fund..........................10
(g) No Liability..........................................11
(h) Withholding Rights....................................11
(i) Indemnification Matters; Appointment
of AHC as Representative; Escrow......................11
2.03. Payment of Axion Expenses ..................................12
2
SECTION Page
----
ARTICLE III
Certain Pre-Merger Transactions
3.01. Ancillary Agreements........................................12
3.02. Formation of OPUS Sub.......................................14
3.03. Related Transactions........................................14
ARTICLE IV
Representations and Warranties
4.01. Representations and Warranties of Axion
(a) Organization, Standing
and Corporate Power...................................14
(b) Subsidiaries..........................................17
(c) Capital Structure.....................................18
(d) Authority; Noncontravention...........................19
(e) Financial Statements;
Undisclosed Liabilities...............................22
(f) Information Supplied..................................25
(g) Absence of Certain Changes or Events..................26
(h) Benefit Plans, Employment
and Labor Relations...................................26
(i) Absence of Changes in Benefit Plans...................29
(j) Taxes.................................................29
(k) No Excess Parachute Payments..........................31
(l) State Takeover Statutes...............................31
(m) Brokers; Fees and Expenses............................31
(n) Matters Related to the Distribution
Agreement...........................................32
(o) Compliance with Applicable Laws.......................32
(p) Retained Business.....................................34
(q) Intellectual Property.................................36
(r) Assets Other Than Real Property Interests.............38
(s) Title to Real Property................................40
(t) Litigation............................................41
(u) Employee and Labor Matters............................42
(v) Contracts.............................................44
(w) Insurance.............................................47
(x) Customer Accounts Receivable;
Inventories...........................................48
(y) Accounts; Safe Deposit Boxes;
Powers of Attorney; Officers and Directors............49
(z) Transactions with Affiliates..........................49
3
SECTION Page
----
(aa) Effect of Transaction.................................50
(bb) Disclosure............................................50
(cc) Suppliers.............................................51
(dd) Customers.............................................51
(ee) Accuracy of Representations
and Warranties........................................52
4.02. Representations and Warranties of BMS
(a) Organization, Standing
and Corporate Power...................................52
(b) Validly Issued........................................52
(c) Authority; Noncontravention...........................52
(d) SEC Documents.........................................54
(e) Absence of Certain Changes or Events..................54
(f) Litigation............................................55
(g) Accuracy of Representations
and Warranties........................................55
(h) Information Supplied..................................55
(i) Voting Requirements...................................56
(j) Interim Operations of BMS Sub.........................56
(k) Brokers, Fees and Expenses............................56
ARTICLE V
Covenants
5.01. Ordinary Conduct of Axion and its Subsidiaries
(a) Ordinary Course.......................................57
(b) Changes in Stock; Dividends...........................57
(c) Governing Documents...................................58
(d) Change in Business....................................58
(e) No Acquisitions.......................................58
(f) No Dispositions.......................................59
(g) Indebtedness..........................................59
(h) Capital Expenditures..................................59
(i) Benefit Plans; Compensation...........................59
(j) Accounting Policies...................................60
(k) Affiliate Transactions................................60
(l) Maintenance of Properties.............................60
(m) Real Property Matters.................................60
(n) Material Contracts....................................61
(o) Agreements............................................61
4
SECTION Page
----
5.02. Additional Covenants of Axion
(a) Actions Affecting the Contributions,
the Distribution or the Merger........................61
(b) Intercompany Transactions.............................61
(c) Advice of Changes; Filings............................62
(d) Insurance.............................................62
(e) Resignations..........................................62
(f) Supplemental Disclosure...............................62
(g) Exclusivity...........................................63
5.03. Covenants of BMS
(a) Actions Affecting the Merger..........................64
ARTICLE VI
Additional Agreements
6.01. Preparation of Form S-4, Required AHC Documents
and the Proxy Statement; Stockholders'
Meeting; Consent of Holders of Axion Preferred
Stock to Waiver of Dividend Preference....................65
6.02. Accountants' Letters........................................67
6.03. Access to Information; Confidentiality......................67
6.04. Reasonable Best Efforts.....................................69
6.05. Legal Conditions to Distribution
and Merger; Legal Compliance..............................69
6.06. Options.....................................................71
6.07. Fees and Expenses...........................................71
6.08. Pre-Signing and Certain Other Transactions..................72
6.09. Public Announcements........................................73
6.10. Affiliates..................................................73
6.11. Stock Exchange Listing......................................73
6.12. Tax Representation Letters..................................73
6.13. Transfer Assumption Documentation...........................74
6.14. EDS Contract................................................74
6.15. Conversion of Axion Preferred Stock.........................75
ARTICLE VII
Conditions Precedent
7.01. Conditions to Each Party's
Obligation To Effect the Merger
(a) Stockholder Approval..................................75
(b) NYSE Listing..........................................75
5
SECTION Page
----
(c) HSR Act...............................................75
(d) Other Governmental Filings and Consents...............75
(e) No Injunctions or Restraints..........................75
(f) Form S-4..............................................76
(g) Required AHC Documents................................76
(h) Consummation of the Transactions......................76
7.02. Conditions to Obligations of BMS and BMS Sub
(a) Representations and Warranties........................76
(b) Performance of Obligations of Axion...................77
(c) No Material Adverse Change............................77
(d) Documents.............................................77
(e) Tax Opinion...........................................77
(f) No Litigation.........................................77
(g) Amendments to SEC Documents...........................78
(h) Third Party Consents..................................78
(i) No Bankruptcy Proceedings.............................79
(j) Termination of Agreements.............................79
(k) Conversion of Axion Preferred Stock; No
Dissenters' Shares..................................79
(l) Axion Options.........................................80
(m) Indebtedness..........................................80
(n) Opinions..............................................80
7.03. Conditions to Obligation of Axion
(a) Representations and Warranties........................80
(b) Performance of Obligations of BMS
and BMS Sub.........................................81
(c) No Material Adverse Change............................81
(d) Documents.............................................81
(e) Tax Opinion...........................................81
(f) Amendment to SEC Documents............................81
(g) Opinion...............................................82
ARTICLE VIII
Termination, Amendment and Waiver
8.01. Termination.................................................82
8.02. Effect of Termination.......................................83
8.03. Amendment...................................................83
ARTICLE IX
General Provisions
6
SECTION Page
----
9.01. Survival of Representations and Warranties..................84
9.02. Notices.....................................................84
9.03. Definitions.................................................85
9.04. Interpretation..............................................86
9.05. Counterparts................................................86
9.06. Entire Agreement; No
Third-Party Beneficiaries.................................86
9.07. Governing Law...............................................86
9.08. Assignment..................................................87
9.09. Captions....................................................87
9.10. Severability................................................87
9.11. Schedules; Exhibits.........................................87
9.12. Enforcement; Consent to Jurisdiction........................88
9.13. Waiver; Remedies............................................88
EXHIBITS
Exhibit A Distribution Agreement
Exhibit B Tax Matters Agreement
Exhibit C Indemnification Agreement
Exhibit D Escrow Agreement
Exhibit E Transitional Services Agreement
Exhibit F License Agreement
Exhibit G AHC and OnCare Supply Agreement
Exhibit H AHC and OnCare Medstation Agreement
Exhibit I Letter of Transmittal
Exhibit 3.01(a)(1) AHC Sub Undertaking
Exhibit 3.01(a)(2) Retained Company Undertaking
Exhibit 6.08(a)(1)-(6) Employment Agreements
Exhibit 6.08(a) Non-Competition Agreement
Exhibit 6.08(b) Stockholders Agreement
Exhibit 6.08(c) Amendment to Partnership Agreement
Exhibit 6.08(e) Opinion of Ernst & Young LLP
Exhibit 6.08(f) Letter of OnCare and Partnership
Exhibit 6.09 Press Release
Exhibit 6.10 Affiliates' Agreement
Exhibit 6.12(a) BMS Tax Representation Letter
Exhibit 6.12(b) Axion Tax Representation Letter
Exhibit 6.12(c) Stockholder Tax Representation
Letter
7
SCHEDULES
Schedule 4.01(b) Subsidiaries
Schedule 4.01(c) Axion Stock Reserved for Issuance
Schedule 4.01(c)(i) Axion Preferred Stockholders
Schedule 4.01(c)(ii) Axion Common Stockholders
Schedule 4.01(c)(iii) Axion Option Holders
Schedule 4.01(e)(i) Axion Financial Statements
Schedule 4.01(e)(ii) Retained Company Financial
Statements
Schedule 4.01(e)(iii) AHC Financial Statements
Schedule 4.01(g) Certain Changes or Events
Schedule 4.01(h) Benefit Plans
Schedule 4.01(i) Changes in Benefit Plans
Schedule 4.01(j) Taxes
Schedule 4.01(k) Excess Parachute Payments
Schedule 4.01(n)(i) Retained Assets
Schedule 4.01(n)(ii) Assets and Liabilities of OTNC
Schedule 4.01(n)(iii) Intercompany Balances
Schedule 4.01(o)(i) Compliance with Applicable Law
Schedule 4.01(o)(ii) Permits
Schedule 4.01(p) Retained Business
Schedule 4.01(q)(i) Intellectual Property (Axion)
Schedule 4.01(q)(ii) Intellectual Property (Retained
Company)
Schedule 4.01(r)(i) Axion Personal Property (Axion)
Schedule 4.01(r)(ii) Axion Personal Property (Retained
Company)
Schedule 4.01(s)(i) Real Property (Axion)
Schedule 4.01(s)(ii) Real Property (Retained Company)
Schedule 4.01(t) Litigation
Schedule 4.01(u) Employee and Labor Matters
Schedule 4.01(v)(i) Employment Agreements
Schedule 4.01(v)(ii) Labor Agreements
Schedule 4.01(v)(iii) Noncompete Agreements
Schedule 4.01(v)(iv) Contracts with Affiliates
Schedule 4.01(v)(v) Third Party Property Leases
Schedule 4.01(v)(vi) Third Party Personal Property Leases
Schedule 4.01(v)(vii) Continuing Contracts
Schedule 4.01(v)(viii) Intellectual Property Agreements
Schedule 4.01(v)(ix) Indebtedness
Schedule 4.01(v)(x) Guarantees
Schedule 4.01(v)(xi) Investment Agreements
Schedule 4.01(v)(xii) Liens and Encumbrances
Schedule 4.01(v)(xiii) Indemnification Agreements
Schedule 4.01(v)(xiv) Other Agreements
Schedule 4.01(w) Insurance
Schedule 4.01(x) Liens on Accounts Receivable
8
Schedule 4.01(y)(i) Bank Accounts
Schedule 4.01(y)(ii) Banking Resolutions
Schedule 4.01(y)(iii) Power of Attorney
Schedule 4.01(y)(iv) Officers and Directors
Schedule 4.01(z) Transactions with Affiliates
Schedule 4.01(cc) Suppliers
Schedule 4.01(dd) Customers
Schedule 5.01(b) Changes in Stock
Schedule 5.01(k) Affiliate Transactions
Schedule 5.01(m) Real Property Matters
Schedule 6.08(b) Axion Stockholders Party to the
Stockholders Agreement
AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER dated as of August 2, 1996, among
BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation
("BMS"), OTN Acquisition Sub Inc., a Delaware
corporation and a wholly owned subsidiary of BMS ("BMS
Sub") and AXION INC., a Delaware corporation ("Axion").
WHEREAS, the Board of Directors of Axion has approved an agreement
and plan of reorganization and distribution embodied in the form of Exhibit A
(the "Distribution Agreement") which will be entered into prior to the Effective
Time (as defined in Section 1.03) pursuant to which (a) immediately prior to the
Time of Contribution (as defined in the Distribution Agreement), (i) Oncology
Therapeutics Network Joint Venture, L.P., a Delaware limited partnership ("OTN"
or the "Partnership"), will distribute to Oncology Therapeutics Network
Corporation, a Delaware corporation and a wholly owned subsidiary of Axion
("OTNC"), which will in turn distribute to Axion the Preference Amount (as
defined in the Distribution Agreement), and (ii) all Axion Options (as defined
below) outstanding immediately prior to the Time of Contribution shall have been
exercised or canceled, (b) immediately prior to the Time of Distribution (as
defined in the Distribution Agreement), (i) OPUS Health Systems Inc., a Delaware
corporation and a wholly owned subsidiary of Axion ("OPUS"), will contribute the
OPUS Sub Assets (as defined in the Distribution Agreement) to a newly formed,
wholly owned subsidiary of OPUS ("OPUS Sub"), and OPUS Sub will assume the OPUS
Sub Liabilities (as defined in the Distribution Agreement), (ii) OPUS will
distribute the outstanding capital stock of OPUS Sub to Axion and (iii) Axion
will contribute all the Assets (as defined in the Distribution Agreement) of
Axion and its Subsidiaries (as defined in Section 9.03(e)) (including the
outstanding capital stock of OPUS Sub) other than the OPUS Sub Assets (which
will remain Assets of OPUS Sub) and the Retained Assets (as defined in the
Distribution Agreement) to Axion HealthCare Inc., a Delaware corporation and a
wholly owned subsidiary of Axion ("AHC"), and AHC will assume all the
Liabilities (as defined in the Distribution Agreement) of Axion and its
Subsidiaries other than the OPUS Sub Liabilities (which will remain Liabilities
of OPUS Sub) and the Retained Liabilities (as defined in the Distribution
Agreement) (the transactions in clauses (i), (ii) and (iii), collectively, the
"Contributions"), (c) immediately
2
following the Contributions and immediately prior to the Time of Distribution,
(i) each issued and outstanding share of AHC Common Stock, par value $.0001 per
share ("AHC Common Stock"), will be converted into a number of shares of AHC
Series A Preferred Stock, par value $.0001 per share ("AHC Preferred Stock") as
shall be equal to the quotient of (A)(I) the number of shares of Axion Common
Stock, par value $.001 per share ("Axion Common Stock"), outstanding immediately
prior to the Time of Distribution (including any shares of Axion Common Stock
issued in connection with the exercise of Axion Options (as defined in Section
6.06) in connection with the consummation of the Merger) plus (II) the number of
shares of Axion Common Stock to be issued in connection with the conversion of
Axion Preferred Stock (as defined in Section 4.01(c)) in connection with the
consummation of the Merger divided by (B) the number of shares of AHC Common
Stock outstanding immediately prior to the Time of Distribution, and (d)
immediately following the Contributions and the conversion referred to in clause
(c) above and immediately prior to the Effective Time, subject to the
satisfaction or waiver of the conditions set forth in Article VII of the
Distribution Agreement, the Board of Directors of Axion will cause Axion to
distribute to the holders of Axion Common Stock and the holders of Axion
Preferred Stock all the then outstanding shares of AHC Preferred Stock (the
"Distribution");
WHEREAS, the respective Boards of Directors of BMS and Axion have
determined that, following the Distribution, the merger of BMS Sub with and into
Axion (the "Merger") with Axion as the surviving corporation (the "Surviving
Corporation") upon the terms and subject to the conditions set forth in this
Agreement would be advantageous and beneficial to their respective corporations
and stockholders; and
WHEREAS, for Federal income tax purposes, it is intended that (a)
the Distribution shall qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and (b) the Merger
3
shall qualify as a reorganization within the meaning of Section 368(a)(1)(B) of
the Code, and this Agreement is intended to be and is adopted as a plan of
reorganization.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), BMS Sub shall be merged with and into
Axion at the Effective Time. Following the Merger, the separate corporate
existence of BMS Sub shall cease and Axion shall continue as the Surviving
Corporation and shall continue to hold all the rights and obligations of Axion
in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m. on a date to be specified by the parties, which
(subject to satisfaction or waiver of the conditions set forth in Article VII)
shall be no later than the first business day after satisfaction of the
conditions set forth in Article VII (other than those that are waived by the
party or parties for whose benefit such conditions exist) (the "Closing Date"),
at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue,
New York, N.Y. 10019, unless another date or place is agreed to in writing by
the parties hereto.
SECTION 1.03. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VII, the parties
shall file a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
immediately following the Distribution upon the filing of the Certificate of
Merger with the Delaware Secretary of State, or at such other time as Axion and
BMS shall agree should be specified in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time").
4
SECTION 1.04. Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Axion shall vest in the Surviving
Corporation, and all debts, liabilities and obligations of Axion shall become
the debts, liabilities and obligations of the Surviving Corporation.
SECTION 1.05. Certificate of Incorporation and By-Laws. (a) The
Certificate of Incorporation of Axion shall be the Certificate of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The By-laws of Axion as in effect at the Effective Time shall be
the By-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Directors. The directors of BMS Sub at the Effective
Time shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of BMS Sub at the Effective
Time shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any further action on the part of the holder of
any shares of Axion Common Stock or any shares of capital stock of BMS Sub:
(a) Cancelation of Treasury Stock, Axion-Owned Stock and BMS-Owned
Stock. Each share of Axion Common Stock issued and outstanding immediately prior
to the Effective Time and owned by Axion or by any of its Subsidiaries owned
5
by BMS or any wholly owned subsidiary of BMS or held in the treasury of Axion
shall automatically be canceled and retired and shall cease to exist, and no BMS
Common Stock (as defined in Section 2.01(b)) or other consideration shall be
delivered in exchange therefor.
(b) Conversion of Axion Common Stock. (i) Subject to Section
2.02(e), each issued and outstanding share of Axion Common Stock (other than (A)
shares to be canceled in accordance with Section 2.01(a) and (B) as set forth in
paragraph (d) below, shares that have not been voted in favor of the approval
and adoption of this Agreement and with respect to which appraisal rights shall
have been perfected in accordance with Section 262 of the DGCL ("Dissenters'
Shares")) shall be converted into the right to receive a number of fully paid
and nonassessable shares of Common Stock, par value $.10 per share, of BMS
together with the associated rights pursuant to the Rights Agreement dated as of
December 4, 1987, as amended on July 26, 1989, between BMS and The Chase
Manhattan Bank, as Rights Agent, (collectively, "BMS Common Stock") equal to the
Conversion Number (the "Merger Consideration"). The term "Conversion Number"
shall mean a number (rounded to the nearest thousandth or, if there shall not be
a nearest thousandth, rounded to the next higher thousandth), equal to the
quotient of (a)(i) $86,000,000 divided by (ii) the Average Value of BMS Common
Stock divided by (b) the number of shares of Axion Common Stock outstanding
immediately prior to the Effective Time (calculated on a fully diluted basis
assuming all shares of Axion Preferred Stock outstanding immediately prior to
the Effective Time have been converted into Axion Common Stock in accordance
with the terms of such Axion Preferred Stock and all Axion Options outstanding
immediately prior to the Effective Time have been exercised or canceled and in
each case the related subject shares of Axion Common Stock (other than any
subject shares related to any portion of any Axion Option that shall have been
canceled and not exercised) are outstanding). The term "Average Value of BMS
Common Stock" means an amount equal to the average of the per share closing
prices of BMS Common Stock as reported on the New York Stock Exchange Composite
Transaction Tape (as published in The Wall Street Journal, Eastern Edition, or,
if not published therein, in another authoritative source mutually selected by
Axion and BMS) for the 10 consecutive full New York Stock Exchange ("NYSE")
trading days ending on the fifth full NYSE trading day immediately preceding the
Effective Time; provided that (A) if the Board of Directors of BMS declares a
cash
6
dividend on the outstanding shares of BMS Common Stock having a record date
after the Effective Time but an exdividend date (based on "regular way" trading
on the NYSE of shares of BMS Common Stock, the "Ex-Date") that occurs during the
averaging period, then for purposes of computing the Average Value of BMS Common
Stock, the closing price on the Ex-Date and any trading day in the averaging
period after the Ex-Date shall be adjusted by adding thereto the amount of such
dividend and (B) if the Board of Directors of BMS declares a cash dividend on
the outstanding shares of BMS Common Stock having a record date before the
Effective Time and an Ex-Date that occurs during the averaging period, then for
purposes of computing the Average Value of BMS Common Stock, the closing price
on any trading day before the Ex-Date will be adjusted by subtracting therefrom
the amount of such dividend. Notwithstanding anything to the contrary contained
herein, in the event that the Average Value of BMS Common Stock on the Closing
Date is less than $82.73 (the "Minimum Price"), then solely for the purposes of
calculating the Merger Consideration, the Average Value of BMS Common Stock on
the Closing Date shall be deemed to be the Minimum Price, and in the event that
the Average Value of BMS Common Stock on the Closing Date is greater than $91.43
(the "Maximum Price"), then solely for the purposes of calculating the Merger
Consideration, the Average Value of BMS Common Stock on the Closing Date shall
be deemed to be the Maximum Price. If prior to the Effective Time, the Board of
Directors of BMS declares a stock split, stock combination, stock dividend or
other non-cash distribution on the outstanding shares of BMS Common Stock, then
the Minimum Price and Maximum Price (and if the Ex-Date for such event occurs
during the Averaging Period, the Average Value of BMS Common Stock) will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution. As of the Effective Time, all such shares of Axion Common Stock
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares of Axion Common Stock shall cease to have any rights with respect
thereto, except the right to receive the shares of BMS Common Stock and any cash
in lieu of fractional shares of BMS Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.02, without interest.
(ii) The term "Axion Expenses" shall mean all out-of-pocket fees and
expenses incurred or to be incurred
7
by or on behalf of Axion or any of its Subsidiaries in connection with the
Merger, the Distribution or the consummation of any of the transactions
contemplated by this Agreement and the Documents (as defined in Section 9.03(b))
and the negotiation, preparation, review and delivery of the agreements
contemplated hereby and thereby, including all Axion's expenses incurred or to
be incurred by Axion or any such Subsidiary in connection with printing and
mailing the Required AHC Documents (as defined in Section 4.01(d)) other than
the Proxy Statement (as defined in Section 4.01(d)) and, subject to the
provisions of Section 6.07, the Proxy Statement and the Form S-4 (as defined in
Section 4.01(f)) and all fees and expenses incurred or to be incurred by Axion
or any such Subsidiary of accountants, legal counsel, investment bankers and
other advisors. Axion shall cause third parties to submit to Axion not later
than five business days prior to Closing final bills for all Axion Expenses, and
Axion shall submit to BMS not later than five business days prior to Closing a
true and complete schedule of all Axion Expenses (the "Transaction Expense
Schedule"), together with a copy of all invoices or other supporting
documentation related thereto and a copy of all final bills issued for Axion
Expenses.
(c) Conversion of BMS Sub Common Stock. As of the Effective Time, by
virtue of the Merger, each issued and outstanding share of capital stock of BMS
Sub shall be converted into and become one fully paid and nonassessable share of
Common Stock, par value $.010 per share, of the Surviving Corporation.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in
this Agreement to the contrary, no Dissenters' Shares shall be converted as
described in Section 2.01(b) but shall become the right to receive such
consideration as may be determined to be due in respect of such Dissenters'
Shares pursuant to the laws of the State of Delaware; provided, however, that
any Dissenters' Shares outstanding immediately prior to the Effective Time and
held by a stockholder who shall, after the Effective Time, lose his or her right
of appraisal, withdraw his or her demand for appraisal as a matter of right
under Section 262 of the DGCL, or, with the consent of BMS, otherwise withdraw
his or her demand for appraisal, in either case pursuant to the DGCL, shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration. Axion shall give BMS prompt notice of any written demands
for appraisal of shares of Axion Common Stock received by
8
Axion. Axion shall not, without the prior written consent of BMS, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands. Payments, if any, with respect to Dissenters' Shares shall not be
paid by BMS or with funds supplied by BMS.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of
the Effective Time, BMS shall deposit with Chemical Mellon Shareholders Services
LLC or a bank or trust company appointed by BMS (the "Exchange Agent"), for the
benefit of the holders of shares of Axion Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing the shares of BMS Common Stock (such shares of BMS Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.01 in exchange for outstanding shares of Axion Common Stock. BMS shall provide
to the Exchange Agent, on a timely basis, funds necessary to pay any cash
payable in lieu of fractional shares of BMS Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, BMS shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Axion Common Stock (the "Certificates")
whose shares were converted into the right to receive shares of BMS Common Stock
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as BMS may reasonably specify
including the terms set forth in the letter of transmittal attached hereto as
Exhibit I (the "Letter of Transmittal")) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of BMS Common Stock. Upon surrender of a Certificate for
cancelation to the Exchange Agent or to such other agent or agents as may be
appointed by BMS, together with such Letter of Transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of BMS Common Stock which
such holder has the right to receive pursuant to the provisions of this Article
II
9
(which, for the avoidance of doubt, shall not include the number of shares of
BMS Common Stock that shall be deemed to have been deposited in escrow by such
holder in accordance with the provisions of Section 2.02(i)(e)), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Axion Common Stock which is not registered in the
transfer records of Axion, a Certificate representing the proper number of
shares of BMS Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes required by
reason of the issuance of shares of BMS Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of BMS
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of BMS Common Stock and cash in
lieu of any fractional shares of BMS Common Stock as contemplated by this
Section 2.02. No interest will be paid or will accrue on any cash payable in
lieu of any fractional shares of BMS Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions with respect to BMS Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of BMS Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.02(e) until the surrender of such Certificate in accordance with
this Article II. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the Certificate
representing whole shares of BMS Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of BMS Common Stock to which such holder
is entitled pursuant to Section 2.02(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of BMS Common Stock, less the amount of any
withholding taxes which may be required thereon and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such
10
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of BMS Common Stock, less the amount of any withholding
taxes which may be required thereon.
(d) No Further Ownership Rights in Axion Common Stock. All shares of
BMS Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to Section 2.02(c) or 2.02(e)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the shares of Axion Common Stock
theretofore represented by such Certificates, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Axion Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of BMS Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of BMS.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Axion Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of BMS
Common Stock (after taking into account all Certificates registered to such
holder) shall receive, in lieu thereof, cash (without interest) in an amount,
less the amount of any withholding taxes which may be required thereon, equal to
such fractional part of a share of BMS Common Stock multiplied by the per share
closing price of BMS Common Stock as reported on the New York Stock Exchange
Composite Transaction Tape (as published in The Wall Street Journal, Eastern
Edition, or, if not published therein, in another authoritative source mutually
selected by Axion and BMS) on the full NYSE trading day immediately preceding
the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time
11
shall be delivered to BMS, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article II shall thereafter look only to
BMS for payment of their claim for BMS Common Stock, any cash in lieu of
fractional shares of BMS Common Stock and any dividends or distributions with
respect to BMS Common Stock.
(g) No Liability. In the event that any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Surviving Corporation shall, in exchange for such lost, stolen or destroyed
Certificate, issue or cause to be issued the number of shares of BMS Common
Stock and pay or cause to be paid the amounts deliverable in respect thereof
pursuant to this Article II.
(h) Withholding Rights. The Surviving Corporation shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Axion Common Stock such amounts as may be required to
be deducted and withheld with respect to the making of such payment under the
Code, or under any provision of state, local or foreign tax law. To the extent
that amounts are so withheld and paid over to the appropriate taxing authority,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Axion Common Stock in respect of which such
deduction and withholding was made.
(i) Indemnification Matters; Appointment of AHC as Representative;
Escrow. At the Closing:
(a) The stockholders of Axion immediately prior to the Effective
Time (the "Former Axion Stockholders") each shall become a party to the
Indemnification Agreement (as defined in Section 3.01), the Tax Matters
Agreement (as defined in Section 3.01) and the Escrow Agreement.
(b) By execution of the Letter of Transmittal, which execution may
occur subsequent to the Closing, each Former Axion Stockholder shall irrevocably
appoint AHC, and AHC shall have accepted such appointment, as such person's true
and lawful agent and attorney-in-fact to enter into the
12
Indemnification Agreement, the Tax Matters Agreement and the Escrow Agreement on
behalf of such person and with respect to all the other matters set forth in the
Letter of Transmittal.
(c) The Exchange Agent, on behalf of the Former Axion Stockholders,
shall deposit into escrow, in accordance with the terms of the Escrow Agreement,
a number of shares of BMS Common Stock equal to $5,000,000 divided by the
Average Value of BMS Common Stock, rounded to the nearest whole share, which
amount shall be deemed to have been deposited by the Former Axion Stockholders
on a pro rata basis from the shares of BMS Common Stock to be issued and
delivered to each Former Axion Stockholder with respect to its shares of Axion
Common Stock pursuant to Section 2.02(b), calculated based on the ratio of the
number of shares of BMS Common Stock to be so issued and delivered to such
Former Axion Stockholder with respect to its shares of Axion Common Stock to the
aggregate number of shares of BMS Common Stock to be so issued to all the Former
Axion Stockholders with respect to their shares of Axion Common Stock.
(d) AHC shall deposit, or cause to be deposited, into escrow, in
accordance with the terms of the Escrow Agreement, $5,000,000 in cash.
SECTION 2.03. Payment of Axion Expenses. At the Closing, BMS shall
provide, or cause to be provided, to Axion funds in an amount equal to the
lesser of $2,000,000 and the aggregate amount of Axion Expenses listed in the
Transaction Expense Schedule, and Axion shall pay the Axion Expenses listed in
the Transaction Expense Schedule.
ARTICLE III
Certain Pre-Merger Transactions
SECTION 3.01. Ancillary Agreements. (a) Prior to the Time of
Distribution (as defined in the Distribution Agreement), Axion shall:
(i) execute and deliver the Distribution Agreement, a tax matters
agreement substantially in the form of Exhibit B (the "Tax Matters
Agreement"), a post-closing covenants and indemnification agreement
substantially in the form of Exhibit C (the
13
"Indemnification Agreement"), the Escrow Agreement, a transitional
services agreement substantially in the form of Exhibit E (the
"Transitional Services Agreement") and a license agreement substantially
in the form of Exhibit F (the "License Agreement");
(ii) cause AHC to execute and deliver the Distribution Agreement,
the Indemnification Agreement, the Transitional Services Agreement, the
AHC Supply Agreement (as defined below), the AHC Medstation Agreement (as
defined below), the Tax Matters Agreement, the Escrow Agreement and the
License Agreement;
(iii) cause each of OTNC, OPUS, OTN and OPUS Sub to execute and
deliver the Distribution Agreement, the Indemnification Agreement, the
Escrow Agreement and the Tax Matters Agreement;
(iv) cause OPUS to execute and deliver each of the AHC Supply
Agreement and the OnCare Supply Agreement, each substantially in the form
of Exhibit G (respectively, the "AHC Supply Agreement" and the "OnCare
Supply Agreement");
(v) cause the Supply Agreement dated January 1, 1996 between the
Partnership and OnCare Inc. ("OnCare") to be terminated;
(vi) cause the Partnership to execute and deliver each of the AHC
Medstation Agreement and the OnCare Medstation Agreement, each
substantially in the form of Exhibit H (respectively, the "AHC Medstation
Agreement" and the "OnCare Medstation Agreement");
(vii) cause each of the AHC Companies (other than AHC) to have
irrevocably appointed AHC, and AHC to have accepted such appointment, as
such person's representative with respect to the Indemnification
Agreement, the Escrow Agreement and the Tax Matters Agreement pursuant to
a form of undertaking substantially in the form of Exhibit 3.01(a)(1);
(viii) and shall cause each of the Retained Subsidiaries to have
irrevocably appointed BMS as such person's representative with respect to
the Indemnification Agreement, the Escrow Agreement and the Tax Matters
Agreement pursuant to a form of undertaking
14
substantially in the form of Exhibit 3.01(a)(2) (the
"Retained Company Undertaking").
(b) Prior to the Time of Distribution, BMS shall (i) execute and
deliver the Tax Matters Agreement, the Indemnification Agreement and the Escrow
Agreement, (ii) cause BMS Sub to execute and deliver the Tax Matters Agreement,
the Indemnification Agreement and the Escrow Agreement and (iii) have accepted
the appointment as the Retained Companies' representative with respect to the
Indemnification Agreement, the Escrow Agreement and the Tax Matters Agreement
pursuant to the Retained Company Undertaking.
(c) Prior to the Time of Distribution, OnCare shall execute the
OnCare Supply Agreement and the OnCare Medstation Agreement.
SECTION 3.02. Formation of OPUS Sub. Prior to the Time of
Contribution, Axion shall cause OPUS Sub to be duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and Axion
shall not permit, prior to the Effective Time, OPUS Sub to engage in any other
business activities or to conduct its operations other than as contemplated by
the Distribution Agreement. The certificate of incorporation and by-laws for
OPUS Sub shall be reasonably acceptable in form and substance to BMS and its
counsel.
SECTION 3.03. Related Transactions. Axion shall cause all the
transactions set forth in Articles III and IV of the Distribution Agreement to
occur, subject in the case of Article IV to satisfaction of the terms and
conditions set forth in the Distribution Agreement.
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of Axion. Axion
represents and warrants to BMS as follows:
(a) Organization, Standing and Corporate Power. As used in this
Agreement (i) any reference to Axion and its Subsidiaries means Axion, each of
its Subsidiaries (including the AHC Companies (as defined below)) and the
Partnership, (ii) any reference to the "Retained Company"
15
and its Subsidiaries or the Surviving Corporation and its Subsidiaries or the
"Retained Companies" means Axion and those entities that will be direct or
indirect Subsidiaries of Axion immediately after giving effect to the
transactions set forth in the Distribution Agreement, (iii) references to
"Retained Subsidiaries" means those entities that will be direct or indirect
Subsidiaries of Axion immediately after giving effect to the transactions set
forth in the Distribution Agreement, (iv) any reference to AHC and its
Subsidiaries or the "AHC Companies" means AHC and those entities that will be
direct or indirect Subsidiaries of AHC immediately after giving effect to the
transactions set forth in the Distribution Agreement and (v) any reference to
OnCare and its Subsidiaries means OnCare and each of its Subsidiaries. As used
in this Agreement, any reference to any event, change, circumstance or
development having a material adverse effect on or with respect to Axion and its
Subsidiaries taken as a whole (an "Axion Material Adverse Effect") means such
event, change, circumstance or development is materially adverse to the
business, operations, assets, liabilities (including contingent liabilities),
results of operations, financial condition or prospects of such group of
entities taken as a whole, or on the ability of such group of entities taken as
a whole to consummate the transactions contemplated hereby or by the Documents,
including the Contributions, the Distribution and the Merger, or to perform its
obligations under this Agreement or any other Document to which it is or will be
a party; provided that an Axion Material Adverse Effect shall not include any
changes to the Retained Business (as defined in the Distribution Agreement)
occurring directly as a result of the pendency, announcement or consummation of
the Merger. As used in this Agreement, any reference to any event, change,
circumstance or development having a material adverse effect on or with respect
to the Retained Company and its Subsidiaries taken as a whole (a "Retained
Company Material Adverse Effect") means such event, change, circumstance or
development is materially adverse to the business, operation, assets,
liabilities (including contingent liabilities), results of operations, financial
condition or prospects of such group of entities taken as a whole, or on the
ability of such group of entities taken as a whole to consummate the
transactions contemplated hereby or by any other Document, including the
Contributions, the Distribution and the Merger, or to perform its obligations
under this Agreement or any other Document to which it is or will be a party;
provided that a Retained Company Material Adverse Effect shall not include any
changes to the Retained
16
Business occurring directly as a result of the pendency, announcement or
consummation of the Merger. As used in this Agreement, any reference to any
event, change, circumstance or development having a material adverse effect on
or with respect to AHC and its Subsidiaries taken as a whole (an "AHC Material
Adverse Effect") means such event, change, circumstance or development is
materially adverse to the business, operations, assets, liabilities (including
contingent liabilities), results of operations, financial condition or prospects
of such group of entities taken as a whole, or on the ability of such group of
entities taken as a whole to consummate the transactions contemplated hereby or
by any other Document, including the Contributions, the Distribution and the
Merger, or to perform its obligations under this Agreement or any other Document
to which it is or will be a party; provided that the fact that the business of
AHC and its Subsidiaries as currently conducted and as proposed to be conducted
immediately following the Effective Time is operating and is projected to
operate on a loss basis to the extent previously disclosed to BMS in writing
shall not be deemed to constitute an AHC Material Adverse Effect.
Each of Axion and AHC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Each
Subsidiary of the Retained Company and AHC is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation as set forth in Schedule 4.01(b). Each of the Retained Company and
its Subsidiaries and each of AHC and its Subsidiaries is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which the
properties owned, leased or operated, or the business conducted, by it require
such qualification, except for any such failure so to qualify or be in good
standing which, when taken together with all other such failures, does not have,
and could not be reasonably expected to have, a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect. Each of the Retained Company
and its Subsidiaries and each of AHC and its Subsidiaries has the requisite
corporate power and authority to carry on its businesses as they are now being
conducted and as proposed to be conducted immediately following the Effective
Time. Axion has delivered to BMS complete and correct copies of its Certificate
of Incorporation and By-laws of Axion and the certificates of incorporation and
by-laws, or comparable charter or organizational documents, of each Subsidiary
of the Retained
17
Company and of AHC and its Subsidiaries, in each case as amended to the date of
this Agreement and in full force and effect. Axion has made available to legal
counsel for BMS complete and correct copies of the minute books of Axion and its
Subsidiaries as maintained by Axion or such Subsidiary, as the case may be, as
of the date hereof for the period from April 26, 1988 to and including the date
hereof, and such minute books contain minutes of all meetings of and actions
taken by (including descriptions of all material actions taken at such meetings)
the boards of directors and the stockholders of Axion or the applicable
Subsidiary during such period.
(b) Subsidiaries. Schedule 4.01(b) sets forth each Subsidiary of
Axion (including each Subsidiary of the Retained Company and each Subsidiary of
AHC), together with the jurisdiction of incorporation of each such Subsidiary,
the outstanding capital stock of each such Subsidiary, the record owner of all
such shares of capital stock and a statement whether following the Distribution
such Subsidiary will be a Subsidiary of the Retained Company or of AHC. All the
outstanding shares of capital stock of each such Subsidiary have been validly
issued and are fully paid and nonassessable and are owned by Axion (or,
following the Time of Distribution (as such term is defined in the Distribution
Agreement), in the case of AHC, by the Former Axion Stockholders, and, in the
case of OPUS Sub, by AHC), free and clear of all adverse claims, restrictions on
voting or transfer (other than such restrictions on the transfer of shares of
AHC Preferred Stock as may be imposed as set forth in the No-Action Request (as
defined in Section 6.03(e)), pledges, claims, liens, charges, encumbrances and
security interests or other restrictions of any kind or nature whatsoever
(collectively, "Liens"). There are no securities convertible into or
exchangeable for, or any options, warrants, calls, subscriptions or other rights
(preemptive or otherwise) to acquire, any shares of capital stock of any of such
Subsidiaries or any agreements or contractual commitments other than this
Agreement and the Distribution Agreement obligating Axion, or restricting
Axion's rights, to transfer, sell or vote, the capital stock of any of such
Subsidiaries owned by it, directly or indirectly. Except as set forth in
Schedule 4.01(b), neither Axion nor any of its Subsidiaries owns, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity or have any agreement, understanding,
contract or commitment relating to an interest in any corporation, partnership,
joint venture or
18
other entity or Axion's or such Subsidiary's investment therein.
(c) Capital Structure. The authorized capital stock of Axion
consists of 15,000,000 shares of Axion Common Stock and 10,000,000 shares of
preferred stock, par value $.001 per share, of Axion (the "Axion Preferred
Stock"). At the close of business on the business day immediately preceding the
date of this Agreement, (i) 1,606,651 shares of Axion Common Stock, 3,135,000
shares of Series A Axion Preferred Stock, 882,353 shares of Series B Axion
Preferred Stock, 420,000 shares of Series C Axion Preferred Stock, 700,000
shares of Series D Axion Preferred Stock, 965,517 shares of Series E Axion
Preferred Stock and 638,020 shares of Series F Axion Preferred Stock, were
issued and outstanding and (ii) no shares of Axion Common Stock were held by
Axion in its treasury. Schedule 4.01(c) sets forth a list of the record holders
of all issued and outstanding shares of Axion Common Stock and Axion Preferred
Stock as of the date hereof. Except as set forth in Schedule 4.01(c), at the
close of business on the business day immediately preceding the date of this
Agreement, (i) no shares of Axion Common Stock were reserved for issuance, other
than (A) 6,740,890 shares of Axion Common Stock reserved for issuance upon
conversion of Axion Preferred Stock and (B) 2,600,000 shares of Axion Common
Stock reserved for issuance pursuant to the Stock Option and Restricted Stock
Plan of Axion and the Executive Stock Option Plan of Axion and (ii) no shares of
Axion Preferred Stock were reserved for issuance. All of the outstanding shares
of Axion Common Stock and Axion Preferred Stock have been, and all shares of
Axion Common Stock which may be issued pursuant to the terms of any Axion
Preferred Stock or any Axion Options will be, when issued, duly authorized and
validly issued, and are or will be, when issued, fully paid and nonassessable.
There are no bonds, debentures, notes or other obligations of Axion or any of
its Subsidiaries having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of Axion or such Subsidiary, as the case may be, may vote. Except as set forth
in Schedule 4.01(c) and except as provided for in this Agreement and the
Distribution Agreement, there are not, and immediately prior to the Effective
Time there will not be, any preemptive rights or any outstanding subscriptions,
options, puts, calls, warrants, rights, convertible or exchangeable securities
or other agreements or commitments of Axion or any of its Subsidiaries or by
which any of them is bound
19
obligating Axion or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
voting securities of Axion or any of its Subsidiaries or obligating Axion or any
of its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
Except as set forth in Schedule 4.01(c) and except as provided in this Agreement
and as expressly set forth in the Distribution Agreement, there are no
outstanding contractual obligations of Axion or any of its Subsidiaries to
issue, sell, purchase, redeem, convert, exchange, register, vote or transfer any
shares of capital stock of Axion or any of its Subsidiaries.
(d) Authority; Noncontravention. (i) Axion and each of its
Subsidiaries has the requisite corporate power and authority to execute and
deliver each Document to which it is or will be a party and to consummate the
transactions contemplated hereby and thereby (other than, with respect to the
Merger, (A) the election by the holders of not less than 66-2/3% of the
outstanding shares of Axion Preferred Stock voting together as a single class
(I) to convert all outstanding shares of Axion Preferred Stock into Axion Common
Stock in accordance with the Certificate of Incorporation of Axion and (II) that
the Merger, the Distribution and related transactions shall not be deemed to be
a liquidation, dissolution or winding up of Axion under the Certificate of
Incorporation of Axion, (B) the approval and adoption of this Agreement by the
affirmative vote of at least a majority of the total number of votes entitled to
be cast by holders of Axion Common Stock and holders of Axion Preferred Stock
voting together as a single class (the "Requisite Common Stockholders"), (C) the
approval and adoption of this Agreement by the affirmative vote of at least a
majority of the total number of votes entitled to be cast by holders of Axion
Preferred Stock (excluding from such vote the shares of any series of Preferred
Stock of which there are fewer than 100,000 shares outstanding) voting together
as a single class (the "Requisite Preferred Stockholders") and (D) formal
declaration of the Distribution by the Board of Directors of Axion (which will
be obtained prior to the Distribution) and other than, with respect to the
Distribution, the election by not less than 66-2/3% of the outstanding shares of
Axion Preferred Stock voting together as a single class to waive the right of
holders of Axion Preferred Stock to receive any dividend preference that such
holders may otherwise be entitled to
20
receive pursuant to the Certificate of Incorporation of Axion prior to any
distribution (as defined in the Certificate of Incorporation of Axion) to
holders of Axion Common Stock). The execution, delivery and performance of each
Document to which it is or will be a party and the consummation by Axion of the
Contributions, the Distribution and the Merger and the other transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Axion, and no other corporate proceedings on the part of Axion are
required by applicable law or necessary to authorize any Document or for Axion
to consummate the transactions so contemplated (other than as set forth in the
preceding sentence). The election by the holders of not less than 66-2/3% of the
outstanding shares of Axion Preferred Stock voting together as a single class
(I) to convert all outstanding shares of Axion Preferred Stock into Axion Common
Stock in accordance with the Certificate of Incorporation of Axion, (II) that
the Merger, the Distribution and related transactions shall not be deemed to be
a liquidation, dissolution or winding up of Axion under the Certificate of
Incorporation of Axion and (III) to waive the right of holders of Axion
Preferred Stock to receive any dividend preference that such holders may
otherwise be entitled to receive pursuant to the Certificate of Incorporation of
Axion prior to any distribution (as defined in the Certificate of Incorporation
of Axion) to holders of Axion Common Stock, and the affirmative vote of the
Requisite Preferred Stockholders voting as a single class and the Requisite
Common Stockholders voting as a single class approving and adopting this
Agreement are the only votes of the holders of any class or series of Axion's
capital stock required by applicable law or necessary to approve and adopt the
Contributions, the Distribution, the Merger, this Agreement or the other
Documents and the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Subsidiaries of Axion of each Document to which
it is or will be a party and the consummation of the transactions contemplated
hereby and thereby will be duly authorized by such entity's board of directors,
and no other corporate proceedings on the part of such entity will be required
by applicable law or necessary to authorize each Document to which it is or will
be a party or to consummate the transactions so contemplated. Each Document to
which Axion or any of its Subsidiaries is or will be a party has been or will be
duly executed and delivered by such entity, and constitutes, or upon such
execution and delivery will constitute, a valid and binding
21
obligation of such entity, enforceable against it in accordance with its terms.
(ii) None of the execution, delivery or performance by Axion and its
Subsidiaries of any Document to which Axion or its Subsidiaries is or will be a
party, the consummation of the transactions contemplated hereby and thereby or
the compliance by Axion and its Subsidiaries with the terms of each Document to
which Axion or any of its Subsidiaries is or will be a party will conflict with,
or result in any violation or breach of, or default (with or without notice or
lapse of time, or both) under, or give rise to any right of termination,
amendment, cancelation or acceleration of any obligation or to loss of a benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Axion or any of its Subsidiaries (i) under the Certificate of
Incorporation or By-laws or comparable charter or organizational documents of
Axion or any of its Subsidiaries, (ii) any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement, franchise, permit, concession or other instrument, obligation,
understanding, commitment or other arrangement (including oral and informal
arrangements) (a "Contract") to which Axion or any of its Subsidiaries is a
party or by which Axion or any of its Subsidiaries or any of their properties or
assets are bound or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Axion or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) or (iii), any such conflicts, violations, defaults, rights,
losses or Liens that individually or in the aggregate would not, and could not
be reasonably expected to, have a Retained Company Material Adverse Effect or an
AHC Material Adverse Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Federal, state or local government
or any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
by or with respect to Axion or any of its Subsidiaries in connection with the
execution, delivery or performance by Axion or any of its Subsidiaries of each
Document to which any of them is or will be a party or the consummation by Axion
or such Subsidiary, as the case may be, of the transactions contemplated hereby
or thereby or the compliance by Axion or any of its Subsidiaries with the terms
of each Document to
22
which any of them is or will be a party, except for (i) the filing of a
premerger notification and report form by Axion under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with the
Securities and Exchange Commission (the "SEC") or any state securities
commission or the delivery to the stockholders of Axion or, following the
Distribution, AHC, of (x) the Required AHC Documents in connection with the
distribution of shares of AHC Preferred Stock in connection with the
transactions contemplated by the Distribution Agreement and (y) a proxy
statement relating to the approval and adoption by Axion's stockholders of this
Agreement (as amended or supplemented from time to time, the "Proxy Statement"),
(iii) filing the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
Axion or any of its Subsidiaries is qualified to do business and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings which the failure to receive, individually or in the aggregate, would
not, and could not be reasonably expected to, have a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect. "Required AHC Documents" means
(x)(i) in the event the No-Action Request is granted by the SEC, an Information
Statement substantially complying with the requirements of Schedule 14C under
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act") (the "Information Statement") or
(ii) in the event the No-Action Request is not granted by the SEC, (A) a
registration statement on Form S-1 (the "Form S-1") or (B) an application for a
permit encompassing the distribution of AHC Preferred Stock and, if necessary,
the issuance of BMS Common Stock, containing such information and accompanied by
such documents as required by rule of the California Commissioner of
Corporations (the "Commissioner") in addition to the information specified by
the California Corporations Code in order for the Commissioner to approve the
terms and conditions of such issuance and the fairness of such terms and
conditions (the "Application") pursuant to Part 2 of the California Corporate
Securities Law of 1968 (the "California Corporations Code") and (y) any other
document filed with the SEC or any state securities commission or otherwise
required to be provided or delivered to the stockholders of Axion or, following
the Distribution, AHC, in connection with the transactions contemplated by the
Distribution Agreement.
23
(e) Financial Statements; Undisclosed Liabilities. (i) Axion.
Schedule 4.01(e)(i) sets forth (A) the audited consolidated balance sheets of
Axion and its Subsidiaries as of December 31, 1994 and 1995 and the related
audited consolidated statements of operations, stockholders' equity and cash
flows of Axion and its Subsidiaries as of December 31, 1993, 1994 and 1995,
together with the notes to such financial statements (collectively, the "Audited
Axion Financial Statements"), in each case audited by Ernst & Young LLP, and (B)
the unaudited consolidated balance sheet of Axion and its Subsidiaries as of
March 31, 1996, and the related unaudited consolidated statements of operations
and retained earnings and cash flows of Axion and its Subsidiaries for the
three-month period then ended, together with the notes to such financial
statements (collectively, the "Unaudited Axion Financial Statements", together
with the Audited Axion Financial Statements, the "Axion Financial Statements"),
certified by the chief financial officer of Axion as set forth in the next
sentence. The Axion Financial Statements comply as to form in all material
respects with applicable accounting requirements, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Axion
and its Subsidiaries as of the respective dates thereof and the consolidated
results of their operations and cash flows for the respective periods then ended
(subject, in the case of unaudited statements, to normal, recurring year-end
audit adjustments). Except (A) as disclosed, reflected or reserved against in
the Axion Financial Statements, (B) as disclosed in Schedule 4.01(e)(i) and (C)
for liabilities and obligations incurred since March 31, 1996, in the ordinary
course of business consistent with past practice and not in violation of this
Agreement, neither Axion nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, exceed $100,000.
(ii) The Retained Company. (A) The consolidated balance sheets of
the Retained Company and its Subsidiaries as of December 31, 1994 and 1995 and
the related audited consolidated statements of operations for the years ended
December 31, 1993, 1994 and 1995, as set forth in Note 11 to the Audited Axion
Financial Statements, and (B) The consolidated balance sheet of the Retained
Company and its Subsidiaries as of March 31, 1996 and the related unaudited
24
consolidated statement of operations for the three months ended March 31, 1996
as set forth in Note 3 to the Unaudited Financial Statements, in each case
certified by the chief financial officer of Axion as set forth in the next
sentence are hereinafter referred to as the "Retained Company Financial
Statements". The Retained Company Financial Statements comply as to form in all
material respects with applicable accounting requirements, have been prepared in
accordance with GAAP applied on a consistent basis during the period involved
(except for the absence of notes thereto) and fairly present the consolidated
financial position of the Retained Company and its Subsidiaries as of the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended (subject to normal, recurring
year-end audit adjustments). Except (A) as disclosed, reflected or reserved
against in the Retained Company Financial Statements, (B) as disclosed in
Schedule 4.01(e)(ii) and (C) for liabilities and obligations incurred since
March 31, 1996, in the ordinary course of business consistent with past practice
and not in violation of this Agreement, neither the Retained Company nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, exceed $100,000.
(iii) AHC. Schedule 4.01(e)(iii) sets forth (A) the audited combined
balance sheet of AHC and its Subsidiaries as of December 31, 1995 and the
related combined statements of operations and accumulated deficit and net
capital deficiency and cash flows for the year ended December 31, 1995, together
with the notes to such financial statements, in each case audited by Ernest &
Young LLP, and (B) the unaudited combined balance sheet of AHC and its
Subsidiaries as of March 31, 1996 and the related unaudited consolidated
statements of operations and accumulated deficit and net capital deficiency and
cash flows for the three months ended March 31, 1995 and 1996, together with the
notes to such financial statements, in each case certified by the chief
financial officer of Axion as set forth in the next sentence (the financial
statements described in clauses (A) and (B) above, together with the notes to
such financial statements, the "AHC Financial Statements"). The AHC Financial
Statements comply as to form in all material respects with applicable accounting
requirements, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly
25
present the consolidated financial position of AHC and its Subsidiaries as of
the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended (subject to normal,
recurring year-end audit adjustments). Except (A) as disclosed, reflected or
reserved against in AHC Financial Statements, (B) disclosed in Schedule
4.01(e)(iii) and (C) except for liabilities and obligations incurred since March
31, 1996, in the ordinary course of business consistent with past practice and
not in violation of this Agreement, neither AHC nor any of its Subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, exceed
$100,000.
(f) Information Supplied. None of the information supplied or to be
supplied by Axion or its representatives for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by BMS in connection with the issuance of BMS Common Stock in the Merger (the
"Form S-4") or the Form S-1, if required for the Distribution, will, at the time
such registration statements become effective under the Securities Act of 1933
(together with the rules and regulations thereunder, the "Securities Act") or at
the Effective Time, in the case of the Form S-4, or at the time of the
Stockholders' Meeting (as defined in Section 6.01(b)) to be held in connection
with the Merger or at the time of the Distribution, in the case of the Form S-1,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (ii) the Proxy Statement and the Information Statement will, at
the date first mailed to Axion's stockholders or at the time of the
Stockholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading; (iii) the Application, if required for the
Distribution, will, at the time filed with the Commissioner or at the time of
the Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein on necessary to
make the statements therein not misleading; and (iv) the other Required AHC
Documents or any other document filed or required to be filed with the SEC or
any state securities commission or otherwise provided, or required to be
delivered, to the Axion stockholders or,
26
following the Distribution, the AHC stockholders, in connection with the
transactions contemplated by this Agreement or the other Documents, any
preliminary or final form thereof or any amendment or supplement thereto will,
at the date first mailed to Axion's stockholders or at the time of the
Stockholders' Meeting, as applicable, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Proxy Statement and any proxy
materials sent to stockholders of Axion or AHC will comply in all material
respects with the substantive requirements of Schedule 14A under the Exchange
Act and will comply as to form in all material respects with the requirements of
Schedule 14A under the Exchange Act and the rules and regulations thereunder;
the Information Statement, if required for the Distribution, will substantially
comply with the requirements of Schedule 14C under the Exchange Act, as
applicable, and the rules and regulations thereunder; the Form S-1, if required
for the Distribution, will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations thereunder; and
the other Required AHC Documents (other than the Application), if any, will
comply as to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act, the California Corporations Code or any other
applicable state or Federal laws, and the rules and regulations thereunder,
except that no representation is made by Axion with respect to statements made
therein based on information supplied by BMS or its representatives for
inclusion in the Proxy Statement or the other Required AHC Documents,
respectively, or with respect to information concerning BMS or any of its
Subsidiaries incorporated by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Since December 31, 1995,
no event, change, circumstance or development has occurred that has had, or
could reasonably be expected to have, an Axion Material Adverse Effect, a
Retained Company Material Adverse Effect or an AHC Material Adverse Effect.
Except as set forth in Schedule 4.01(g) and except for the execution and
delivery of the Documents and consummation of the transactions contemplated
thereby, since December 31, 1995, Axion has caused the business of Axion and its
Subsidiaries to be conducted in the ordinary course and in substantially the
same manner as previously conducted (except that the capital stock of OnCare was
distributed on
27
December 31, 1995 to the stockholders of Axion and, accordingly, OnCare is no
longer a Subsidiary of Axion) and has made all reasonable best efforts to
preserve Axion's and its Subsidiaries' relationships with customers, suppliers,
licensors, licensees, distributors and others with whom Axion or any Subsidiary
deals. Except as set forth in Schedule 4.01(g), since December 31, 1995, to the
date of this Agreement, neither Axion nor any of its Subsidiaries has taken any
action that, if taken after the date hereof, would constitute a breach of any of
the covenants set forth in Section 5.01 or 5.02.
(h) Benefit Plans, Employment and Labor Relations. (i) Schedule
4.01(h) contains a list (and with respect to any Benefit Plans (as defined
below) that are not in written form, a brief description) of all "employee
pension benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) (sometimes referred to herein
as "Pension Plans"), "employee welfare benefit plans" (as defined in Section
3(1) of ERISA) and all other plans, agreements, policies or arrangements
relating to stock options, stock purchases, compensation, deferred compensation,
severance, and other employee benefits, in each case maintained or contributed
to as of the date of this Agreement by Axion or any of its Subsidiaries or any
other person or entity that, together with Axion, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (a "Commonly
Controlled Entity") for the benefit of any current or former employees, officers
or directors of Axion or any Commonly Controlled Entity (collectively, the
"Benefit Plans"). Axion has delivered to BMS true, complete and correct copies
of (w) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (x) the two most recent annual reports on Form 5500 filed
with the Internal Revenue Service ("IRS") with respect to each Benefit Plan (if
any such report was required), including all schedules and attachments thereto,
(y) the most recent summary plan description for each Benefit Plan for which
such summary plan description is required and (z) each trust agreement, group
annuity contract and other funding or financing arrangement relating to any
Benefit Plan. To the knowledge of Axion, each such Form 5500 and each such
summary plan description (or similar document) was and is as of the date hereof
true, complete and correct in all material respects.
(ii) Each Benefit Plan has been administered in all material
respects in accordance with its terms. Axion
28
and its Commonly Controlled Entities and all the Benefit Plans are in compliance
in all material respects with the applicable provisions of ERISA, the Code, all
other applicable laws and the terms of all applicable collective bargaining
agreements. All reports, returns and similar documents with respect to the
Benefit Plans required to be filed with any governmental agency or distributed
to any Benefit Plan participant have been duly and timely filed or distributed
and, to the knowledge of Axion, all reports, returns and similar documents
actually filed or distributed were true, complete and correct in all material
respects. There are no investigations by any governmental agency, termination
proceedings or other claims (except routine claims for benefits payable under
the Benefit Plans), suits or proceedings against or involving any Benefit Plan
or asserting any rights of or claims for benefits under any Benefit Plan that
could give rise to any material liability, and there are not any facts or
circumstances that could give rise to any material liability in the event of any
such investigation, claim, suit or proceeding.
(iii) The Datair Mass-Submitter Prototype Defined Contribution Plan
and Trust and related Adoption Agreement comprising the Axion Pharmaceuticals,
Inc. 401(k) Profit Sharing Plan and Trust is the subject of a valid opinion
letter from the IRS with respect to conformance with Sections 401 and 501(a) of
the Code, and Axion has adopted all amendments and is in compliance with all
applicable requirements in order to rely on such opinion letter for purposes of
maintaining a defined contribution plan qualified under Section 401 and 501(a)
of the Code.
(iv) All contributions to, and payments from, the Benefit Plans and
all insurance premiums that may have been required to be made in accordance with
the terms of the Benefit Plans and any applicable collective bargaining
agreement have been timely made. Neither Axion nor any Commonly Controlled
Entity sponsors, maintains or contributes to (or has ever sponsored, maintained
or contributed to) a Pension Plan subject to Title IV of ERISA or Section 412 of
the Code. None of Axion, any of its Subsidiaries, any officer of Axion or any of
its Subsidiaries or any of the Benefit Plans which are subject to ERISA,
including the Pension Plans, any trusts created thereunder or, to the knowledge
of Axion, any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) or any other breach of
29
fiduciary responsibility that could subject Axion, any of its Subsidiaries or
any officer of Axion or any of its Subsidiaries to the tax or penalty on
prohibited transactions imposed by such Section 4975 or to any liability under
Section 409 or Section 502(i) or (l) of ERISA.
(v) With respect to any Benefit Plan that is an employee welfare
benefit plan, (x) no such Benefit Plan is funded through a "welfare benefits
fund", as such term is defined in Section 419(e) of the Code, (y) each such
Benefit Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies with the applicable requirements of Section
498OB(f) of the Code and (z) each such Benefit Plan (including any such Plan
covering retirees or other former employees) may be amended or terminated
without material liability to Axion or any of its Subsidiaries on or at any time
after the Effective Time.
(vi) No Commonly Controlled Entity has acted in a manner that could,
or failed to act so as to, result in fines, penalties, taxes or related charges
under (A) Section 502(c), (i) or (l) of ERISA or (B) Chapter 43 of the Code.
(vii) Neither Axion nor any Commonly Controlled Entity contributes
or is obligated to contribute (or has ever been obligated to contribute) to a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA.
(viii) Except as set forth on Schedule 4.01(h), no employee of Axion
will be entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any Benefit Plan as a result of the
transactions contemplated by this Agreement or the other Documents.
(i) Absence of Changes in Benefit Plans. Except as set forth on
Schedule 4.01(i) and except in accordance with the provisions of Article VI of
the Distribution Agreement, since December 31, 1995, there has not been any
adoption or amendment in any material respect by Axion or any of its
Subsidiaries of any Benefit Plan.
(j) Taxes. (i) No liens for Taxes (as defined in Section 1 of the
Tax Matters Agreement) exist with respect to any of the assets or properties of
the Affiliated Group (as defined in the Tax Matters Agreement), other than
30
liens for Taxes that are not yet due and payable, (ii) all federal, state, local
and foreign Tax returns (including information returns), reports, declarations
or statements relating to Taxes, including any schedules or attachments thereto
or amendments thereof ("Tax Returns"), filed by or on behalf of any member of
the Affiliated Group and the Partnership have been timely filed, (iii) each such
Tax Return was complete and correct in all material respects, except to the
extent that an adequate reserve therefor has been established on the Axion
Financial Statements, (iv) all Taxes with respect to taxable periods covered by
such Tax Returns and all other Taxes that are currently due and payable for
which any member of the Affiliated Group and the Partnership is or might
otherwise be liable (together "Relevant Taxes") have been paid in full, except
to the extent that an adequate reserve therefor has been established on the
Axion Financial Statements, (v) except as set forth in Schedule 4.01(j), all Tax
Returns filed by or on behalf of the Affiliated Group and the Partnership have
been examined by and settled with the relevant governmental authorities ("Taxing
Authorities") and any deficiency resulting from any such audit, examination or
deficiency litigation has been paid in full (and no material issues were raised
by the relevant Taxing Authorities during any such audit or examination that
would apply to taxable periods other than the taxable period to which such audit
or examination related) or the statute of limitations with respect to such Tax
Returns has expired, (vi) there is no audit or examination in progress, and no
deficiency or refund litigation pending and no Taxing Authority has given oral
or written notice of the commencement of any audit, examination or deficiency
litigation, with respect to any Relevant Taxes, (vii) all requests for
extensions of time for filing of Tax Returns that have not been filed have been
granted and have not yet expired, (viii) none of the Retained Company, any
member of the Affiliated Group or the Partnership is a party to a tax sharing
agreement, other than the Tax Matters Agreement, (ix) except to the extent that
an adequate reserve therefor has been established on the Axion Financial
Statements, none of the Retained Company, any member of the Affiliated Group or
the Partnership shall be required to include in a taxable period ending after
the date on which the Effective Time occurs taxable income attributable to
income that economically accrued in a taxable period ending prior to the date on
which the Effective Time occurs, whether as a result of the installment method
of accounting, the completed contract method of accounting, the long-term method
of accounting,
31
the cash method of accounting or Section 481 of the Code or comparable
provisions of state, local or foreign Tax law, or otherwise, other than income
allocated from or otherwise attributable to operations of the Partnership,
(x)(A) no person has made with respect to the Retained Company, any member of
the Affiliated Group or the Partnership, or with respect to any property held by
the Retained Company, any member of the Affiliated Group or the Partnership, any
consent under Section 341 of the Code, (B) no property of the Retained Company,
any member of the Affiliated Group or the Partnership is "tax-exempt use
property" within the meaning of Section 168(f)(8) of the Code, (C) none of the
Retained Company, any member of the Affiliated Group or the Partnership is a
party to any lease made pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect prior to the date of enactment of the Tax
Equity and Fiscal Responsibility Act of 1982 and (D) none of the assets of the
Retained Company, any member of the Affiliated Group or the Partnership is
subject to a lease under Section 7701(h) of the Code or under any predecessor,
(xi) there is no agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Relevant Taxes and no
power of attorney with respect to any Relevant Taxes has been executed or filed
with any Taxing Authority and (xii) neither Axion nor any member of the
Affiliated Group nor any member of any controlled group (within the meaning of
Section 993(a)(3) of the Code) that includes Axion or any of its Subsidiaries
(other than any BMS Entity, as defined in the Tax Matters Agreement) nor the
Partnership, nor any of their respective officers, directors, employees or
independent contractors acting on their behalf, has participated in or
cooperated with an international boycott (within the meaning of Section
999(b)(3) of the Code).
(k) No Excess Parachute Payments. Except as set forth in Schedule
4.01(k), 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 Axion or any of its affiliates
who is a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.28OG-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 28OG(b)(1) of the Code).
32
(l) State Takeover Statutes. The Board of Directors of Axion has
approved the Merger, the Contributions, the Distribution and the Documents and
the transactions contemplated hereby and thereby. The provisions of Section 203
of the DGCL are not applicable to the Merger, the Contributions, the
Distribution, this Agreement and the Documents and the transactions contemplated
by this Agreement and the other Documents. The execution, delivery and
performance of this Agreement and consummation of the transactions contemplated
hereby will not cause to be applicable to Axion any "fair price", "moratorium",
"control share acquisition" or other similar antitakeover statute or regulation
enacted under (i) Delaware or California state laws or (ii) to the knowledge of
Axion, under any other state or federal laws in the United States or any foreign
jurisdiction (each a "Takeover Statute") (after giving effect to any actions
that will be taken prior to the Effective Time).
(m) Brokers; Fees and Expenses. No broker, investment banker,
financial advisor or other person, other than Alex. Brown & Sons Incorporated
("Alex. Brown"), is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement or the other Documents based upon arrangements made by or on
behalf of Axion, its Subsidiaries and its affiliates. As of the date hereof,
Axion Expenses including the fees of Alex. Brown, all Axion's expenses in
connection with printing and mailing of the Proxy Statement, the other Required
AHC Documents and the Form S-4 and all the fees and expenses of Axion's legal
counsel, independent accountants and other advisors are estimated to total not
more than $2,500,000.
(n) Matters Related to the Distribution Agreement. (i) Except as set
forth in Schedules 4.01(n)(i), no entity other than Axion or one of its
Subsidiaries on the date hereof owns, leases, subleases or has any other rights
in, to or under any Retained Assets.
(ii) To the knowledge of Axion, except as set forth on Schedule
4.01(n)(ii), the Assets of OTNC consist solely of the general partnership
interest of OTNC in the Partnership, and OTNC has no Liabilities other than (A)
those Liabilities solely and directly related to the Partnership, (B) Tax
Liabilities for which the BMS Indemnified Parties (as defined in the Tax Matters
Agreement) are entitled to indemnification pursuant to
33
Section 1 of the Tax Matters Agreement and (C) Retained Tax Liabilities (as
defined in the Tax Matters Agreement).
(iii) Schedule 4.01(n)(iii) sets forth all the intercompany
receivables and payables between Axion and its Subsidiaries as of March 31,
1996, together with a description of the nature of such obligations. Except as
set forth on Schedule 4.01(n)(iii), as of the Time of Contribution, there will
be no intercompany receivables or payables outstanding other than intercompany
receivables or payables (I) set forth in Schedule 4.01(n)(iii) to the extent not
paid prior to the Time of Contribution and (II) otherwise incurred in the
ordinary course of business consistent with past practice which are of the same
type as those intercompany payables and receivables incurred in the ordinary
course of business consistent with past practice identified in Schedule
4.01(n)(iii).
(o) Compliance with Applicable Laws. (i) Axion and its Subsidiaries
have complied in all material respects with all applicable statutes, laws,
regulations, rules, judgments, orders and decrees of all Governmental Entities
("Applicable Laws"), including the Federal Food, Drug, and Cosmetic Act (21
U.S.C. ss.ss.301-394) and regulations issued under that Act, similar state
statutes, the federal anti-kickback
statute (42 U.S.C. ss.1320a-7b)), the federal
"Stark" law (42 U.S.C. ss.1395nn), the federal false statements act (18 U.S.C.
ss.1001), the federal false claims act (31 U.S.C. ss.3729), the HSR Act (15
U.S.C. ss.18a), other federal and state statutes relating to fraud or abuse, and
state statutes relating to consumer protection or unlawful business practices.
Except as set forth in Schedule 4.01(o)(i), since January 1, 1991, neither Axion
nor any of its Subsidiaries has received any written notice from a Governmental
Entity or any other person alleging any non-compliance in a material respect
with any Applicable Laws. Except as disclosed in Schedule 4.01(o)(i), since
January 1, 1991, neither Axion nor any of its Subsidiaries has received any
notice, whether written or oral, of any administrative, civil or criminal
investigation regarding any Applicable Laws or any audit by a Governmental
Entity. This Section 4.01(o) does not apply to the specific labor, employment
and employee benefit matters referred to in Section 4.01(h), the specific
environmental matters referred to in Section 4.01(o)(iii) or to the specific tax
matters referred to in Section 4.01(j).
34
(ii) Axion and its Subsidiaries validly hold all material permits,
licenses, variances, exemptions, orders and approvals of, and have made all
filings, applications and registrations with, all Governmental Entities
(collectively, "Permits") that are necessary for the conduct of the business of
Axion and its Subsidiaries taken as a whole as such businesses are presently
conducted or are otherwise currently maintained by Axion or any of its
Subsidiaries. At the Effective Time, the Retained Company and its Subsidiaries
will validly hold all Permits that are necessary for the conduct of the business
of the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise held or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Schedule 4.01(o)(ii) sets forth
a true and complete list of all Permits which are necessary for the conduct of
the business of the Retained Company and its Subsidiaries immediately following
the Effective Time or are otherwise held or maintained by or for the benefit of
the Retained Company and its Subsidiaries on the date hereof. Axion and its
Subsidiaries have complied in all material respects with all material terms and
conditions of all Permits and the same will not be subject to suspension,
modification, revocation or nonrenewal as a result of the execution, delivery or
performance of the Documents or the consummation of the Contributions, the
Distribution or the Merger or the other transactions contemplated hereby or by
the other Documents. All Permits which are held in the name of any employee,
officer, director, stockholder, agent or otherwise on behalf of Axion or its
Subsidiary shall be deemed included under this warranty.
(iii) Since December 31, 1995, neither Axion nor any of its
Subsidiaries has received any written communication from a Governmental Entity
that alleges that Axion or any of its Subsidiaries is not in compliance in any
material respect with any Environmental Laws (as defined below). Axion and its
Subsidiaries hold, and are in compliance in all material respects with, all
permits, licenses and governmental authorizations required for Axion and its
Subsidiaries to conduct their respective businesses under the Environmental
Laws, and are in compliance in all material respects with all Environmental
Laws. Axion and its Subsidiaries are not subject to any pending, or to the
knowledge of Axion any threatened, claim, judgment, decree, order or any other
enforcement action relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Materials (as defined below) under any
35
Environmental Law. Neither Axion nor any of its Subsidiaries has any contingent
liabilities in respect of its business in connection with any Hazardous
Materials. There are no aboveground or underground storage tanks on any Axion
Property (as defined in Section 4.01(s)). As used in this Agreement, the term
"Environmental Laws" means any and all applicable treaties, laws, regulations,
enforceable requirements, binding determinations, orders, decrees, judgments,
injunctions, permits, approvals, authorizations, licenses, variances,
permissions, notices or binding agreements issued, promulgated or entered into
by any Governmental Entity, relating to the environment, preservation or
reclamation of natural resources, or to the management, release or threatened
release of Hazardous Materials. As used in this Agreement, the term "Hazardous
Materials" means all explosive or regulated radioactive materials or substances,
hazardous or toxic substances, wastes or chemicals, petroleum distillates,
asbestos or asbestos containing materials, and all other materials or chemicals
regulated pursuant to any Environmental Law.
(p) Retained Business. (i) Except as set forth in Schedule 4.01(p),
from and after the Effective Time, except as provided in the Documents, neither
AHC nor any of its Subsidiaries nor OnCare or any of its Subsidiaries will use
in the conduct of its business or own or have rights to use any assets or
property (other than assets or property that are available to the general public
in the public domain), whether tangible, intangible or mixed, that are also used
in the conduct of the Retained Business. From and after the Effective Time,
except as set forth in Schedule 4.01(p) or as expressly provided for in the
Documents, neither AHC nor any of its Subsidiaries nor OnCare or any of its
Subsidiaries will be a party to any agreement, arrangement or understanding with
the Retained Company or any of its Subsidiaries, including any Contract,
providing for the furnishing of material, equipment, products or services or the
rental of real or personal property to or from, or otherwise relating to the
business or operations of, the Retained Company or any of its Subsidiaries or
pursuant to which the Retained Company or any of its Subsidiaries may have any
obligation or liability. From and after the Effective Time, neither the Retained
Company nor any of its Subsidiaries will have any Liabilities (as defined in the
Distribution Agreement) in any way relating to the business, operations,
indebtedness, assets or liabilities of AHC or any of its Subsidiaries or OnCare
or any of its Subsidiaries, except as otherwise
36
expressly provided for in the Documents and except for Liabilities for which the
BMS Indemnified Parties (as defined in the Indemnification Agreement) are fully
indemnified pursuant to the Indemnification Agreement.
(ii) The Retained Assets are sufficient to conduct the business of the
Partnership and the OPUS Station Business (as defined in the Distribution
Agreement) in each case as presently conducted on a stand-alone basis (A)
assuming the Limited Partnership Agreement between OTNC and Bristol-Myers
Oncology Therapeutic Network Inc. dated as of July 8, 1993 (the "Partnership
Agreement"), the Sales Agency Agreement between BMS and the Partnership, the
Trademark License Agreement between BMS and the Partnership, the Guarantee by
Axion and the Guarantee by BMS, each dated as of July 8, 1993, remain in place
and (B) it being understood that (i) the OPUS Station Business as currently
conducted and as proposed to be conducted immediately following the Effective
Time is operating and is projected to operate on a loss basis to the extent
previously disclosed to BMS in writing and (ii) the OPUS Station Business when
contributed to Axion in accordance with the provisions of Article II of the
Distribution Agreement will not include any cash or cash equivalents. None of
the foregoing shall be interpreted as a representation that sufficient cash will
remain in the Partnership to operate the business of the Partnership consistent
with past practice.
(q) Intellectual Property. Schedule 4.01(q)(i) sets forth a true and
complete list of all patents, trademarks (registered or unregistered),
tradenames, servicemarks and copyrights and applications therefor and a general
description of other material intellectual property and proprietary rights,
whether or not subject to statutory registration or protection (collectively,
"Intellectual Property"), owned, used, filed by or licensed to Axion or any of
its Subsidiaries. With respect to registered trademarks, Schedule 4.01(q)(i)
sets forth a list of all jurisdictions in which such trademarks are registered
or applied for and all registration and application numbers. Schedule
4.01(q)(ii) sets forth a true and complete list of all Intellectual Property
which is necessary for the conduct of the business of the Retained Company and
its Subsidiaries immediately following the Effective Time or are otherwise
owned, used, filed by or licensed to the Retained Company and its Subsidiaries
on the date hereof. Except as set forth in Schedules 4.01(q)(i) and 4.01(q)(ii),
all such
37
Intellectual Property is validly held by Axion or the relevant Subsidiary (or,
in the case of any Intellectual Property that is necessary for the conduct of
the business of the Retained Company and its Subsidiaries immediately following
the Effective Time or are otherwise owned, used, filed by or licensed to the
Retained Company and its Subsidiaries on the date hereof, will be validly held
by the Retained Company or one of its Subsidiaries immediately following the
Effective Time). Axion and its Subsidiaries have the right with respect to all
Intellectual Property listed in Schedule 4.01(q)(i), and immediately following
the Effective Time the Retained Company and its Subsidiaries will have the right
with respect to all Intellectual Property listed in Schedule 4.01(q)(ii), to
use, execute, reproduce, display, perform, modify, enhance, distribute, prepare
derivative works of and sublicense, without payment to any other person, all
such Intellectual Property. The execution, delivery or performance of the
Documents or the consummation of the Contributions, the Distribution or the
Merger or the other transactions contemplated hereby or thereby will not
conflict with, alter or impair any such rights of the Retained Companies.
Except as set forth in the Documents or in Schedule 4.01(q)(i),
neither Axion nor any of its Subsidiaries has granted any options, licenses or
agreements of any kind relating to Intellectual Property listed in Schedules
4.01(q)(i) or 4.01(q)(ii) or the marketing or distribution thereof. Neither
Axion nor any of its Subsidiaries is bound by or a party to any options,
licenses or agreements of any kind relating to the Intellectual Property of any
other person, except as set forth in the Documents or in Schedules 4.01(q)(i) or
4.01(q)(ii). All Intellectual Property listed in Schedules 4.01(q)(i) and
4.01(q)(ii) is free and clear of the claims of others and of all Liens. The
conduct of the business of Axion and its Subsidiaries as presently conducted and
the conduct of the business of the Retained Company and its Subsidiaries as
proposed to be conducted immediately following the Effective Time does not
violate, conflict with or infringe the Intellectual Property of any other person
other than any such violations, conflicts or infringements that individually or
in the aggregate, have not had, and could not reasonably be expected to have, a
Retained Company Material Adverse Effect or an Axion Material Adverse Effect.
There are no claims pending or, to the knowledge of Axion, threatened, against
Axion or any Subsidiary by any person with respect to the ownership, validity,
enforceability,
38
effectiveness or use of any Intellectual Property. Since January 1, 1993, Axion
and its Subsidiaries have not received any communications alleging that Axion or
any Subsidiary has violated any rights relating to Intellectual Property of any
person.
The Intellectual Property listed in Schedule 4.01(q)(ii) has been
maintained in confidence in accordance with protection procedures customarily
used in the industries of Axion and its Subsidiaries to protect rights of like
importance. All former and current members of management and key personnel of
Axion or any of its Subsidiaries, including all former and current employees of
Axion or any of its Subsidiaries and all agents, consultants and independent
contractors retained by Axion or any of its Subsidiaries, in each case who have
contributed to or participated in the conception and development of software or
other Intellectual Property listed in Schedule 4.01(q)(ii) (collectively,
"Personnel"), have executed and delivered to Axion or such Subsidiary a
proprietary information agreement restricting such person's right to disclose
proprietary information of Axion, its Subsidiaries and their respective clients.
All former and current Personnel either (i) have been party to a "work-for-hire"
arrangement or agreement with Axion, in accordance with applicable Federal and
state law, that has accorded Axion or its Subsidiaries full, effective,
exclusive and original ownership of all tangible and intangible property thereby
arising or (ii) have executed appropriate instruments of assignment in favor of
Axion or its Subsidiary as assignee that have conveyed to Axion or its
Subsidiary full, effective and exclusive ownership of all tangible and
intangible property thereby arising. No former or current Personnel have any
valid claim against Axion or any of its Subsidiaries in connection with such
person's involvement in the conception and development of any Intellectual
Property which is necessary for the conduct of the business of the Retained
Company and its Subsidiaries immediately following the Effective Time or are
otherwise owned, used, filed by or licensed to the Retained Company and its
Subsidiaries on the date hereof, and no such claim has been asserted or, to the
knowledge of Axion, is threatened. None of the current officers and employees of
Axion or any of its Subsidiaries have any patents issued or applications pending
for any device, process, design or invention of any kind now used or needed by
Axion or any of its Subsidiaries in the furtherance of its business operations,
which patents or applications have not been
39
assigned to Axion or its Subsidiary, with such assignment duly recorded in the
United States Patent Office.
(r) Assets Other than Real Property Interests. Axion or one of its
Subsidiaries has good and valid title to all assets reflected on the December
31, 1995 audited consolidated balance sheet included in the Axion Financial
Statements (the "December 31, 1995 Axion Balance Sheet") or thereafter acquired
("Axion Personal Property"), except (x) those sold or otherwise disposed of for
fair value since December 31, 1995 in the ordinary course of business consistent
with past practice and not in violation of this Agreement and (y) those
transferred to OnCare in connection with the distribution of the capital stock
of OnCare on December 31, 1995 to the Axion stockholders as reflected in Note 2
("Investment in Oncare Inc.") to the Audited Axion Financial Statements, in each
case free and clear of all mortgages, Liens, security interests or encumbrances
of any kind except (i) such as are set forth in Schedule 4.01(r)(i), (ii)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business, liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business and liens for Taxes and
other governmental charges which are not due and payable or which may thereafter
be paid without penalty, (iii) mortgages, Liens, security interests and
encumbrances which secure debt that is reflected as a liability on the December
31, 1995 Axion Balance Sheet and the existence of which is indicated in the
notes thereto and (iv) other imperfections of title or encumbrances, if any,
which do not, individually or in the aggregate, materially impair the continued
use and operation of the assets to which they relate in the business of Axion
and its Subsidiaries taken as a whole as presently conducted (the mortgages,
Liens, security interests, encumbrances and imperfections of title described in
clauses (ii), (iii) and (iv) above are hereinafter referred to collectively as
"Permitted Liens"). Schedule 4.01(r)(ii) sets forth a true and complete list of
all Axion Personal Property which is necessary for the conduct of the business
of the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise used or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Title to all Axion Personal
Property is validly held by Axion or the relevant Subsidiary (or, in the case of
any Axion Personal Property that is necessary for the conduct of the business of
the
40
Retained Company and its Subsidiaries immediately following the Effective Time
or are otherwise used or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof, will be validly held by the
Retained Company or one of its Subsidiaries). Immediately following the
Effective Time the Retained Company and its Subsidiaries will have the right
with respect to Axion Personal Property listed in Schedule 4.01(r)(ii) to the
continued use and operation of such Axion Personal Property. The execution,
delivery or performance of the Documents or the consummation of the
Contributions, the Distribution or the Merger or the other transactions
contemplated hereby or thereby will not conflict with, alter or impair any such
rights of the Retained Companies.
All material Axion Personal Property has been maintained in all
material respects in accordance with the past practice of Axion and its
Subsidiaries and generally accepted industry practice. Each item of material
Axion Personal Property is in all material respects in good operating condition
and repair, ordinary wear and tear excepted. All leased Axion Personal Property
is in all material respects in the condition required of such property by the
terms of the lease applicable thereto during the term of the lease and upon the
expiration thereof.
This Section 4.01(r) does not relate to real property or interests
in real property, such items being the subject of Section 4.01(s).
(s) Title to Real Property. Schedule 4.01(s)(i) sets forth a
complete list of all real property and interests in real property owned in fee
by Axion and its Subsidiaries (individually, an "Owned Property") and identifies
any material reciprocal easement or operating agreements relating thereto.
Schedule 4.01(s)(i) sets forth a complete list of all real property and
interests in real property leased by Axion and its Subsidiaries (individually, a
"Leased Property", an Owned Property or Leased Property being sometimes referred
to herein, individually, as an "Axion Property" and, collectively, as "Axion
Properties"), and identifies any material base leases and reciprocal easement or
operating agreements relating thereto. Schedule 4.01(s)(ii) sets forth a true
and complete list of all Axion Property which is necessary for the conduct of
the business of the Retained Company and its Subsidiaries immediately following
the Effective Time or are otherwise used or maintained by or for the benefit of
the Retained
41
Company and its Subsidiaries on the date hereof. Either Axion or its Subsidiary
has (or in the case of any Axion Property that is necessary for the conduct of
the business of the Retained Company and its Subsidiaries immediately following
the Effective Time or are otherwise used or maintained by or for the benefit of
the Retained Company and its Subsidiaries on the date hereof, the Retained
Company and its Subsidiaries will have) (i) good and insurable fee title to all
Owned Property and (ii) good and valid title to the leasehold estates in all
Leased Property, in each case free and clear of all mortgages, Liens, security
interests, encumbrances, leases, assignments, subleases, easements, covenants,
rights-of-way and other similar restrictions of any nature whatsoever, except
(A) such as are set forth in Schedules 4.01(s)(i) or 4.01(s)(ii), (B) leases,
subleases and similar agreements set forth in Schedules 4.01(v,, (C) easements,
covenants, rights-of-way and other similar restrictions of record, (D) any
conditions that may be shown by a current, accurate survey or physical
inspection of any Axion Property made prior to Closing and (E) (I) zoning,
building and other similar restrictions, (II) mortgages, Liens, security
interests, encumbrances, easements, covenants, rights-of-way and other similar
restrictions that have been placed by any developer, landlord or other third
party on property over which Axion or its Subsidiary has easement rights or on
any Leased Property and subordination or similar agreements relating thereto,
and (III) unrecorded easements, covenants, rights-of-way and other similar
restrictions, none of which items set forth in clauses (I), (II) and (III),
individually or in the aggregate, materially impair the continued use and
operation of the property to which they relate in the business of the Retained
Company and its Subsidiaries taken as a whole or AHC and its Subsidiaries taken
as a whole as presently conducted. The current use by Axion and its Subsidiaries
does not and the proposed use by the Retained Company and its Subsidiaries of
the plants, offices and other facilities located on Axion Property does not
violate any local zoning or similar land use or government regulations in any
material respect. Axion and its Subsidiaries have with respect to the Axion
Property listed in Schedule 4.01(s)(i), and immediately following the Effective
Time the Retained Company and its Subsidiaries will have the right with respect
to the Axion Property listed in Schedule 4.01(s)(ii), to use such Axion
Property. The execution, delivery or performance of the Documents or the
consummation of the Contributions, the Distribution or the merger or the other
transactions
42
contemplated hereby or thereby will not conflict with, alter or impair any such
rights of the Retained Companies.
(t) Litigation. Schedule 4.01(t) sets forth a list of all pending
claims, actions, suits, inquiries or proceedings ("claims"), with respect to
which Axion or any of its Subsidiaries has been contacted in writing by counsel
for the plaintiff or claimant, against or affecting Axion or any of its
Subsidiaries or any of their respective properties, assets, operations or
businesses and which (i) relate to or involve more than $10,000, (ii) seek any
injunctive or other equitable relief or (iii) relate to the Contributions, the
Distribution, the Merger or any of the other transactions contemplated by the
Documents. None of the lawsuits or claims listed in Schedule 4.01(t) as to which
there is at least a reasonable possibility of adverse determination has had, or
could reasonably be expected to have, if so determined, individually or in the
aggregate, a Retained Company Material Adverse Effect or an AHC Material Adverse
Effect. Axion is not aware of any unasserted claims (or of any facts which would
support any such claims) of the type that would be required to be disclosed in
Schedule 4.01(t) if counsel for the claimant had contacted Axion or any of its
Subsidiaries. Neither Axion nor any of its Subsidiaries is a party or subject to
or in default under any judgment, order, injunction or decree of any
Governmental Entity or arbitration tribunal applicable to it or any of its
respective properties, assets, operations or business. There is no lawsuit or
claim by Axion or any of its Subsidiaries pending, or which Axion or any of its
Subsidiaries intends to initiate, against any other person. Except as set forth
in Schedule 4.01(t), neither Axion nor any of its Subsidiaries has received
written notice of any pending or threatened investigation of or affecting Axion
or any of its Subsidiaries by any Governmental Authority, and to the knowledge
of Axion (without making any inquiry of any Governmental Authority), there is no
pending or threatened investigation of or affecting Axion or any of its
Subsidiaries by any Governmental Entity. Schedule 4.01(t) also sets forth a
brief summary of all claims, investigations, suits, actions or proceedings
against Axion or any of its Subsidiaries that have been settled or otherwise
determined, disposed of or abandoned or withdrawn at any time since January 1,
1991.
(u) Employee and Labor Matters. Except as set forth in Schedule
4.01(u), (i) there is, and since January 1, 1991, there has been, no labor
strike, labor
43
dispute, work stoppage or lockout pending, or, to the knowledge of Axion,
threatened, against or affecting Axion or any of its Subsidiaries; (ii) to the
knowledge of Axion, no union organizational campaign is in progress with respect
to the employees of Axion or any of its Subsidiaries and no question concerning
representation exists respecting such employees; (iii) neither Axion nor any of
its Subsidiaries is engaged in any unfair labor practice; (iv) there is no
unfair labor practice charge or complaint against Axion or any of its
Subsidiaries pending, or, to the knowledge of Axion, threatened, before the
National Labor Relations Board; (v) there are no pending, or, to the knowledge
of Axion, threatened, union grievances against Axion or any of its Subsidiaries
as to which there is a reasonable possibility of adverse determination and that,
if so determined, has had, or could reasonably be expected to have, individually
or in the aggregate, a Retained Company Material Adverse Effect or an AHC
Material Adverse Effect; (vi) there are no pending, or, to the knowledge of
Axion, threatened, charges against Axion, any of its Subsidiaries or any current
or former employee of Axion or any of its Subsidiaries before the Equal
Employment Opportunity Commission or any state or local agency responsible for
the prevention of unlawful employment practices; and (vii) none of Axion or any
of its Subsidiaries has received notice since January 1, 1993, of the intent of
any Governmental Entity responsible for the enforcement of labor or employment
laws to conduct an investigation of or affecting Axion or any of its
Subsidiaries and, to the knowledge of Axion, no such investigation is in
progress.
Except as set forth in Schedule 4.01(v)(iv), neither Axion nor any
of its Subsidiaries is a party to, or bound by, (A) any contract of employment
or consulting agreement or (B) any Contract with any labor union or association,
including any collective bargaining, labor or similar agreement. Axion and each
of its Subsidiaries is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours.
Except as set forth in Schedule 4.01(u), no officer or director of
Axion or any of its Subsidiaries is, and, to the knowledge of Axion, no other
employee of Axion or any of its Subsidiaries is, a party to or bound by any
contract, license, covenant or agreement of any nature, or subject to any
judgment, decree or order of any Governmental Entity, that may interfere with
the use of such person's
44
reasonable best efforts to promote the interests of Axion or any of its
Subsidiaries, conflict with the business of Axion or any of its Subsidiaries or
have, or could reasonably be expected to have, a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect, provided that no
representation or warranty is made hereunder with respect to any officer or
director of AHC or OPUS Sub or any Transferred Employee (as such term is defined
in the Distribution Agreement) after the Effective Time. To the knowledge of
Axion, no activity of any employee of Axion or any of its Subsidiaries as or
while an employee of Axion or any of its Subsidiaries has caused a violation of
any employment contract, confidentiality agreement, patent disclosure agreement,
or other contract or agreement. To the knowledge of Axion, neither the execution
and delivery of this Agreement or the other Documents, nor the conduct of the
business of Axion and its Subsidiaries by the employees of Axion and its
Subsidiaries, nor the conduct of the business of the Retained Company and its
Subsidiaries immediately following the Effective Time, conflicts or will
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any such employees are now obligated.
(v) Contracts. Except as set forth in Schedule 4.01(v), neither
Axion nor any of its Subsidiaries is a party to or bound by any of the following
types of Contract:
(i) other than the Employment Agreements, employment agreement or
employment contract that has an aggregate future liability in excess of
$25,000 or is not terminable by Axion or such Subsidiary by notice of not
more than 60 days for a cost of less than $25,000;
(ii) employee collective bargaining agreement or other contract with
any labor union;
(iii) other than the Non-Competition Agreements, covenant of Axion
or any of its Subsidiaries not to compete (other than pursuant to any
radius restriction contained in any lease, reciprocal easement or
development, construction, operating or similar agreement) or other
covenant of Axion or any of its Subsidiaries restricting the development,
manufacture, marketing or distribution of the products and services
45
of Axion or any of its Subsidiaries or the Retained Company or any of its
Subsidiaries;
(iv) other than the Documents, agreement, contract or other
arrangement with (A) any Subsidiary or affiliate of Axion (including
OnCare and its Subsidiaries) or (B) any current or former officer,
director or employee of Axion or any of its Subsidiaries or any affiliate
of Axion (including OnCare and its Subsidiaries) (other than employment
agreements covered by clause (i) above);
(v) lease, sublease or similar agreement with any person other than
Axion or its Subsidiary under which Axion or its Subsidiary is a lessor or
sublessor of, or makes available for use to any person (including Axion
and its Subsidiaries) (A) any Axion Property or (B) any portion of any
premises otherwise occupied by Axion or its Subsidiary;
(vi) lease or similar agreement with any person (including Axion and
its Subsidiaries) under which (A) Axion or its Subsidiary is lessee of, or
holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by any person or (B) Axion or its Subsidiary is a
lessor or sublessor of, or makes available for use by any person, any
tangible personal property owned or leased by Axion or its Subsidiary, in
any such case which has an aggregate future liability or receivable, as
the case may be, in excess of $25,000 or is not terminable by Axion or
such Subsidiary by notice of not more than 60 days for a cost of less than
$25,000;
(vii) (A) continuing contract for the future purchase of materials,
supplies or equipment (other than purchase contracts and orders for
inventory in the ordinary course of business consistent with past
practice), (B) management, service, consulting or other similar type of
contract or (C) advertising agreement or arrangement, in any such case
which has an aggregate future liability to any person (other than Axion or
its Subsidiary) in excess of $25,000 or is not terminable by Axion or such
Subsidiary by notice of not more than 60 days for a cost of less than
$25,000;
(viii) other than the License Agreement and the Distribution
Agreement, license, option or other
46
agreement relating in whole or in part to the Intellectual Property set
forth in Schedules 4.01(q)(i) and 4.01(q)(ii) (including any license or
other agreement under which Axion or its Subsidiary is licensee or
licensor of any such Intellectual Property) or to trade secrets,
confidential information or proprietary rights and processes of Axion, any
of its Subsidiaries or any other person;
(ix) agreement, Contract or other instrument under which Axion or
any of its Subsidiaries has borrowed any money from, or issued any note,
bond, debenture or other evidence of indebtedness to, any person (other
than Axion or its Subsidiary) or any other note, bond, debenture or other
evidence of indebtedness issued to any person (other than Axion or its
Subsidiary);
(x) agreement, Contract or other instrument (including so-called
take-or-pay or keepwell agreements) under which (A) any person (including
Axion or any of its Subsidiaries) has directly or indirectly guaranteed
indebtedness, liabilities or obligations of Axion or any of its
Subsidiaries or (B) Axion or any of its Subsidiaries has directly or
indirectly guaranteed indebtedness, liabilities or obligations of any
person (in each case other than endorsements for the purpose of collection
in the ordinary course of business);
(xi) agreement, Contract or other instrument under which Axion or
any of its Subsidiaries has, directly or indirectly, made any advance,
loan, extension of credit or capital contribution to, or other investment
in, any person (other than Axion or any of its Subsidiaries);
(xii) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any Axion Property;
(xiii) other than the Documents, agreement, Contract or instrument
providing for indemnification of any person with respect to liabilities
relating to any current or former business of Axion or any of its
Subsidiaries or any predecessor person; or
(xiv) other than the Documents, agreement, Contract, lease, license,
commitment or instrument to which Axion or any of its Subsidiaries is a
party or by or to which it or any of its assets or business is bound or
subject
47
which has an aggregate future liability to any person (including Axion or
any of its Subsidiaries) in excess of $25,000 or is not terminable by
Axion or such Subsidiary by notice of not more than 60 days for a cost of
less than $25,000.
All agreements, Contracts, leases, licenses, commitments or instruments of Axion
or any of its Subsidiaries listed in the Schedules hereto (collectively, the
"Scheduled Contracts") are valid, binding and in full force and effect (except
to the extent that any such Scheduled Contracts automatically terminate in
accordance with their terms after the date hereof) and are enforceable by Axion
or its relevant Subsidiary in accordance with their respective terms (except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditor' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law). Neither Axion nor any of its Subsidiaries has
received written notice of, and Axion does not otherwise have actual knowledge
of, any pending or threatened proceedings under bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditor's rights
generally by or with respect to any party (other than Axion or its Subsidiaries)
to any Scheduled Contract or any pending or threatened claims challenging the
enforceability of any Scheduled Contract under the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. Axion and
its Subsidiaries have performed all material obligations required to be
performed by them to date under the Scheduled Contracts and they are not (with
or without the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder and, to the knowledge of Axion, no
other party to any of the Scheduled Contracts is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any material
respect thereunder. Complete and correct copies of all Scheduled Contracts,
together with all amendments or modifications thereto (including any waivers
related thereto), have been provided to BMS or its counsel.
(w) Insurance. The insurance policies (other than any Benefit Plans)
maintained with respect to Axion and its Subsidiaries and their respective
assets and properties are listed in Schedule 4.01(w). All such policies are in
full force and effect, all premiums due and payable thereon have been paid
(other than retroactive or retrospective
48
premium adjustments that are not yet, but may be, required to be paid with
respect to any period ending prior to the Closing Date under comprehensive
general liability and workmen's compensation insurance policies), and no notice
of cancelation or termination has been received with respect to any such policy
which has not been replaced on substantially similar terms on or prior to the
date of such cancelation. The activities and operations of Axion and its
Subsidiaries have been conducted in a manner so as to conform in all material
respects to all applicable provisions of such insurance policies. Axion and its
Subsidiaries maintain policies of fire and casualty, liability and other forms
of insurance in such amounts, with such deductibles and against such risks and
losses as are, in Axion's judgment, reasonable for the business and assets of
Axion and its Subsidiaries taken as a whole. Except as set forth in Schedule
4.01(w), none of the insurance policies will be canceled or terminated (or give
the insurer the right to cancel or terminate the insurance policies) as a result
of the execution, delivery or performance of the Documents or the consummation
of the Contributions, the Distribution or the Merger or the other transactions
contemplated hereby or thereby. Schedule 4.01(w) sets forth a true a complete
list of all insurance policies which are necessary for the conduct of the
business of the Retained Company and its Subsidiaries immediately following the
Effective Time or are otherwise maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Except as set forth in Schedule
4.01(w), all such insurance policies are validly owned by Axion or the relevant
Subsidiary (or in the case of any insurance policies that are necessary for the
conduct of the business of the Retained Company and its Subsidiaries immediately
following the Effective Time or are otherwise maintained by or for the benefit
of the Retained Company and its Subsidiaries on the date hereof, will be held or
owned by the Retained Company or one of its Subsidiaries) and immediately
following the Effective Time Axion and its Subsidiaries will have the right to
hold or own all insurance policies listed in Schedule 4.01(w), or in the case of
any insurance policies that are necessary for the conduct of the business of the
Retained Company and its Subsidiaries immediately following the Effective Time
or are otherwise maintained by or for the benefit of the Retained Company and
its Subsidiaries on the date hereof, the Retained Company and its Subsidiaries
will immediately following the Effective Time have the right to hold or own all
such insurance policies.
49
(x) Customer Accounts Receivable; Inventories. (i) All customer
accounts receivable of the Retained Company and its Subsidiaries, whether
reflected on the December 31, 1995 unaudited consolidated balance sheet of Axion
included in the Retained Company Financial Statements (the "December 31, 1995
Retained Company Balance Sheet") or subsequently created, have arisen from bona
fide transactions in the ordinary course of business. All such customer accounts
receivable are good and collectible at the aggregate recorded amounts thereof,
net of any applicable reserves for doubtful accounts reflected on the December
31, 1995 Retained Company Balance Sheet. The Retained Company and its
Subsidiaries have good and marketable title to their respective accounts
receivable, free and clear of all Liens, except as set forth in Schedule
4.01(x). Since December 31, 1995, there have not been any write-offs as
uncollectible of any notes or accounts receivable related to the Retained
Business, except for write-offs in the ordinary course of business and
consistent with past practice which have not had, and could not reasonably be
expected to have, either individually or in the aggregate, a Retained Company
Material Adverse Effect.
(ii) The inventories of the Retained Company and its Subsidiaries,
whether reflected on the December 31, 1995 Retained Company Balance Sheet or
subsequently acquired, are generally of a quality and quantity usable and
salable at customary gross margins and with customary markdowns consistent in
all material respects with past practice in the ordinary course of business. The
inventories of the Retained Company and its Subsidiaries are reflected on the
December 31, 1995 Retained Company Balance Sheet and in their respective books
and records in accordance with generally accepted accounting principles applied
on a basis consistent with past practice. Since December 31, 1995, there have
not been any write-downs of the value of, or establishment of any reserves
against, any inventory of the Retained Company and its Subsidiaries, except for
write-downs and reserves in the ordinary course of business and consistent with
past practice which have not had, and could not reasonably be expected to have,
either individually or in the aggregate, a Retained Company Material Adverse
Effect.
(y) Accounts; Safe Deposit Boxes; Powers of Attorney; Officers and
Directors. Schedules 4.01(y)(i), (y)(ii) and (y)(iii) set forth (i) a true and
correct list of all bank and savings accounts, certificates of deposit
50
and safe deposit boxes of Axion and its Subsidiaries and those persons
authorized to sign thereon, (ii) true and correct copies of all corporate
borrowing, depository and transfer resolutions and those persons entitled to act
thereunder, (iii) a true and correct list of all powers of attorney granted by
Axion and its Subsidiaries and those persons authorized to act thereunder and
(iv) a true and correct list of all officers and directors of Axion and its
Subsidiaries.
(z) Transactions with Affiliates. Except as set forth in Schedule
4.01(z), none of the Scheduled Contracts between the Retained Company or any of
its Subsidiaries, on the one hand, and AHC or any of its Subsidiaries or
affiliates (including OnCare and its Subsidiaries), on the other hand, will
continue in effect subsequent to the Closing. Neither Axion nor any of its
Subsidiaries have directly or indirectly entered into or permitted to exist any
transaction with any affiliate on terms that are less favorable to such person
than those that could be obtained in an arm's-length transaction with a third
party. Neither AHC or any of its Subsidiaries nor OnCare or any of its
Subsidiaries nor, to the knowledge of Axion, any of their respective senior
officers, (a) has any direct or indirect ownership interest in any person in
which the Retained Company or any of its Subsidiaries has any direct or indirect
ownership interest in any person or (b) has, individually or in the aggregate,
any direct or indirect controlling ownership interest in any person with which
the Retained Company or any of its Subsidiaries competes or has a business
relationship (other than persons engaged in the pharmaceutical manufacturing
industry).
(aa) Effect of Transaction. As of the date of this Agreement no
creditor, employee, client, customer or other person having a material business
relationship with the Retained Company or any of its Subsidiaries has informed
Axion or any of its Subsidiaries (orally or in writing) that such person intends
to change such relationship because of the Contributions, the Distribution, the
Merger or any of the other transactions contemplated by the Documents, which
change, individually or in the aggregate with other such changes, have had, or
could reasonably be expected to have, a Retained Company Material Adverse
Effect.
(bb) Disclosure. (i) No representation or warranty of Axion or any
of its Subsidiaries contained in any Document, (ii) no statement by Axion or any
of its
51
Subsidiaries to BMS or any of its representatives contained in any document,
certificate or schedule furnished or to be furnished by or on behalf of Axion or
any of its Subsidiaries to BMS or any of its representatives pursuant to any
Document, and (iii) to the knowledge of Axion, no other statement by Axion or
any of its Subsidiaries and no statement by any unaffiliated third party
contained in any such document, certificate or schedule furnished or to be
furnished to BMS or any of its representatives pursuant to any Document, in each
case, contains or will contain any untrue statement of a material fact, or omits
or will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading or necessary in order to fully and fairly provide the
information required to be provided by Axion or its Subsidiaries in any Document
or in any such document, certificate or schedule. The financial projections and
valuations relating to the Retained Company and its Subsidiaries and to AHC and
its Subsidiaries delivered to BMS by Axion or its representatives (including
Alex. Brown and Ernst & Young LLP) were prepared on the basis of assumptions
Axion reasonably believed in good faith at the time of preparation to be
reasonable, and Axion has no knowledge of any fact or information that would
lead it to believe that such assumptions are incorrect or misleading in any
material respect.
(cc) Suppliers. Neither Axion nor any of its Subsidiaries has
entered into or made any Contract which has an aggregate future liability to any
person (other than Axion or any of its Subsidiaries) in excess of $25,000 for
the purchase of merchandise other than in the ordinary course of business
consistent with past practice and other than any Contract that terminated on or
prior to December 31, 1995 (and in respect of which neither Axion nor any of its
Subsidiaries has any further liability). Except for the suppliers named in
Schedule 4.01(cc), neither Axion nor any of its Subsidiaries has any supplier
(other than Axion or its Subsidiaries) from whom it purchased more than 5% of
the merchandise which it purchased during its most recent full fiscal year.
Since December 31, 1995, there has not been (i) any material adverse change in
the business relationship of Axion or its Subsidiaries with any supplier of
merchandise named in Schedule 4.01(cc) or (ii) any change in any material term
(including credit terms) of the supply agreements or related arrangements with
any such supplier.
52
(dd) Customers. Neither Axion nor any of its Subsidiaries has
entered into or made any Contract for the sale of merchandise which,
individually or in the aggregate, would be material to the business of the
Retained Company and its Subsidiaries other than in the ordinary course of
business consistent with past practice and other than Contracts that terminated
on or prior to December 31, 1995 (and in respect of which neither Axion nor any
of its Subsidiaries has any further liability). Except for the customers named
in Schedule 4.01(dd), neither the Retained Company nor any of its Subsidiaries
has any customer to whom it made more than 5% of its sales during its most
recent full fiscal year. Since December 31, 1995, there has not been (i) any
material adverse change in the business relationship of Axion or any of its
Subsidiaries with any customer named in Schedule 4.01(dd) or (ii) any change in
any material term (including credit terms) of the sales agreements or related
agreements with any such customer. Since January 1, 1993, the Retained Company
and its Subsidiaries have received no customer complaints concerning their
products and services, nor have they had any of their products returned by a
purchaser thereof, other than complaints and returns in the ordinary course of
business which have not had, and could not reasonably be expected to have,
individually or in the aggregate, a Retained Company Material Adverse Effect.
(ee) Accuracy of Representations and Warranties. No representation
made by Axion or any of its Subsidiaries in any Document or any of the schedules
hereto or thereto is false or misleading in any material respect or contains any
material misstatement of fact.
SECTION 4.02. Representations and Warranties of BMS. BMS represents
and warrants to Axion as follows:
(a) Organization, Standing and Corporate Power. Each of BMS and BMS
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of BMS and BMS
Sub is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
53
the business, operations, assets, liabilities (including contingent
liabilities), results of operations, financial condition or prospects of BMS and
its Subsidiaries taken as a whole (a "BMS Material Adverse Effect"). BMS has
delivered to Axion complete and correct copies of the Certificate of
Incorporation and By-laws of each of BMS and BMS Sub, in each case as amended to
the date hereof.
(b) Validly Issued. All shares of BMS Common Stock which may be
issued pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable, not subject to preemptive rights and free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof.
(c) Authority; Noncontravention. (i) Each of BMS and BMS Sub has all
requisite corporate power and authority to execute and deliver each Document to
which it is or will be a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of each Document to
which it is or will be a party and the consummation of the Merger and the other
transactions contemplated hereby and thereby in accordance with their respective
terms in each case by BMS or BMS Sub, as the case may be, have been duly
authorized by all necessary corporate action on the part of BMS and BMS Sub, and
no other corporate proceedings are required on the part of BMS or BMS Sub to
consummate the transactions so contemplated. Each Document to which BMS or BMS
Sub is or will be a party has been, or will be, duly executed and delivered by
BMS or BMS Sub, as applicable, and constitutes or, upon such execution and
delivery will constitute, a valid and binding obligation of such party,
enforceable against such party, in accordance with its terms.
(ii) None of the execution, delivery or performance by BMS or BMS
Sub of any Document to which BMS or BMS Sub is or will be a party, the
consummation of the transactions contemplated hereby and thereby or the
compliance by BMS or BMS Sub with the terms of each Document to which BMS or BMS
Sub is or will be a party will conflict with, or result in any violation or
breach of, or default (with or without notice or lapse of time, or both) under,
or give rise to any right of termination, amendment, cancelation or acceleration
of any material obligation or to loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of BMS or BMS Sub
(i) under the Certificate of Incorporation or
54
By-laws of BMS or BMS Sub or the comparable charter or organizational documents
of any other Subsidiary of BMS, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to BMS or any Subsidiary of BMS or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to BMS or any
Subsidiary of BMS or their respective properties or assets, other than, in the
case of clause (ii), any such conflicts, violations, defaults, rights or Liens
that individually or in the aggregate would not be reasonably expected to have a
BMS Material Adverse Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to BMS or BMS Sub in connection with the execution, delivery or
performance by BMS or BMS Sub of each Document to which any of them is or will
be a party or the consummation by BMS or BMS Sub, as the case may be, of the
transactions contemplated hereby or thereby or the compliance by BMS or BMS Sub
with the terms of each Document to which any of them is or will be a party,
except for (i) the filing of a premerger notification and report form under the
HSR Act, (ii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which Axion is qualified to do business, (iii) the filing with
the SEC of the Form S-4 and (iv) such consents, approvals, orders,
authorizations, registrations, declarations or filings as may be required under
the "takeover" or "blue sky" laws of various states.
(d) SEC Documents. BMS has filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1995 (the
"BMS SEC Documents"). As of their respective dates, the BMS SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such BMS SEC Documents, and none of the BMS
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of BMS included in the BMS SEC
Documents comply as to form in all material respects with applicable
55
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of BMS and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal, recurring year-end audit
adjustments).
(e) Absence of Certain Changes or Events. Except as disclosed in any
BMS SEC Documents filed and publicly available on or prior to the date of this
Agreement, since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to have,
a BMS Material Adverse Effect other than any BMS Material Adverse Effect arising
out of, relating to or resulting from changes in the economy in general or the
pharmaceutical industry or consumer products industry in general and not
relating to BMS or any of its Subsidiaries in particular including any BMS
Material Adverse Effect arising out of, relating to or resulting from any
developments in the pharmaceutical industry with respect to any existing or
proposed regulation or legislation related to health care or health care reform
(including, but not limited to, any such regulation or legislation relating to
the pricing or marketing of pharmaceutical products) or the adoption, enactment
or application of any such regulation or legislation, or (ii) any BMS Material
Adverse Effect arising out of, relating to or resulting from matters disclosed
in the BMS Securities Documents filed on or prior to the date of this Agreement
(or that could reasonably be foreseen to arise out of, relate to or result from
such matters).
(f) Litigation. Except as disclosed in any BMS SEC Documents filed
and publicly available on or prior to the date of this Agreement, there is no
claim, investigation, suit, action or proceeding pending or, to the knowledge of
BMS, threatened against BMS or any of its Subsidiaries that, satisfies each of
the following conditions: (i) BMS would be required to disclose such suit,
action or proceeding in its Annual Report on Form 10-K pursuant to the standards
for disclosure set forth in Item 103 of Regulation S-K promulgated under the
Securities
56
Act, (ii) such suit, action or proceeding is reasonably likely to be adversely
determined; and (iii) if such suit, action or proceeding were adversely
determined, it could reasonably be expected (A) to have a BMS Material Adverse
Effect or (B) to materially impair the ability of BMS or BMS Sub to perform
their respective obligations under this Agreement or the other Documents to
which either of them is or will be a party.
(g) Accuracy of Representations and Warranties. No representation or
warranty made by BMS or BMS Sub in any Document or any of the schedules hereto
or thereto is false or misleading in any material respect or contains any
material misstatement of fact.
(h) Information Supplied. None of the information supplied by BMS or
its representatives for inclusion or incorporation by reference in the Proxy
Statement or the Form S-4 will, at the date mailed to stockholders and at the
time of the Stockholders' Meeting to be held in connection with the Merger, in
the case of the Proxy Statement, and at the time the Form S-4 becomes effective
under the Securities Act or at the Effective Time, in the case of the Form S-4,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by BMS with respect to
statements made therein based on information supplied by Axion, its Subsidiaries
or its representatives for inclusion in the Proxy Statement or the Form S-4.
(i) Voting Requirements. No action by the stockholders of BMS is
required to approve this Agreement and the transactions contemplated by this
Agreement or any of the other Documents.
(j) Interim Operations of BMS Sub. BMS Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has engaged in
no other activities.
(k) Brokers, Fees and Expenses. No broker, investment banker,
financial advisor or other person, other than Goldman, Sachs & Co., is entitled
to any broker's, finder's, financial advisor's or other similar fee or
57
commission in connection with the transactions contemplated by this Agreement.
ARTICLE V
Covenants
SECTION 5.01. Ordinary Conduct of Axion and its Subsidiaries. During
the period from the date of this Agreement and continuing to the Effective Time,
Axion agrees as to itself and to its Subsidiaries that, except for the
Contributions, the Distribution, the Merger and the other transactions expressly
provided for in the Documents, as expressly contemplated or permitted by this
Agreement or to the extent that BMS shall otherwise consent in writing (it being
understood that BMS shall be deemed to have consented to any action or failure
to act that would constitute a breach of this Section 5.01 if and to the extent
such action or failure to act was taken pursuant to the express written
direction of the Deciding Member (as defined in the Partnership Agreement
Amendment (as defined in Section 6.08(c)) in accordance with the provisions of
Section 7.7 of the Partnership Agreement, as amended by the Partnership
Agreement Amendment) with such consent to be within BMS's sole discretion:
(a) Ordinary Course. Axion and its Subsidiaries shall each carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as presently conducted consistent with past
practice and shall make all reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with the Retained Business with the goal that the goodwill and ongoing
businesses of the Retained Business shall be unimpaired at the Effective Time it
being understood that the failure of any employee of the Retained Company to be
an employee of the Retained Company or its Subsidiaries at the Effective Time
(other than James W. Adams, Michael B. Cunningham, Warren M. Dodge, Lynn B.
Hammerschmidt and David L. Levison) shall not constitute a breach of this
covenant; provided, that no employee of the Retained Company may be terminated
by Axion or any of its Subsidiaries prior to the Effective Time, except with
cause or with the prior written consent of BMS which consent shall
58
not be unreasonably withheld; provided further, that the satisfaction of any
Pre-JV Sales Taxes and JV Sales Taxes shall not constitute a breach of this
covenant. Axion, its Subsidiaries and their respective directors, officers or
employees shall each continue to use their respective reasonable best efforts to
promote the interests of Axion and its Subsidiaries, and Axion shall not, nor
shall it permit any of its Subsidiaries or any of their respective directors,
officers or employees to, take any action that would conflict with the business
of Axion or any of its Subsidiaries or that would have or could reasonably be
expected to have, a Retained Company Material Adverse Effect or an AHC Material
Adverse Effect.
(b) Changes in Stock; Dividends. Axion shall not, nor shall it
permit any of its Subsidiaries to, (i) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock; (ii)
repurchase, redeem or otherwise acquire any shares of capital stock of Axion or
any of its Subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities except as disclosed in
Schedule 5.01(b); (iii) transfer or sell, or authorize or propose or agree to
the issuance, transfer or sale by Axion or any such Subsidiary of any shares of
its capital stock of any class or other equity interests, any other voting
securities or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities, other than the issuance, transfer, sale
or disposition of Axion Common Stock upon the exercise of Axion Options
outstanding as of the date of this Agreement in accordance with their terms on
the date hereof or (iv) issue, declare, set aside, make or pay any dividends on
or other distributions with respect to its capital stock.
(c) Governing Documents. Axion shall not, nor shall it permit any of
its Subsidiaries to, amend or propose to amend its Certificate of Incorporation,
By-laws or other comparable charter or organizational documents.
(d) Change in Business. Axion shall not, nor shall it permit any of
its Subsidiaries to, make any change in the lines of business engaged in by (i)
the Retained Company or any of its Subsidiaries as of the date hereof or (ii)
AHC or any of its Subsidiaries as of the date hereof
59
that would, based on the facts and circumstances and conduct of the particular
business, materially increase the potential liability of the Retained Company or
any of its Subsidiaries under statutes or legal doctrines permitting the
imposition of liability on a parent corporation in respect of the liabilities of
its subsidiaries.
(e) No Acquisitions. Axion shall not, nor shall it permit any of its
Subsidiaries to, (i) acquire (A) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any material assets except as
provided in Section 5.01(h) or purchases of inventory in the ordinary course of
business consistent with past practice or (ii) make or agree to make any other
investment in any person (whether by means of loan, capital contribution,
purchase of capital stock, obligations or other securities, purchase of all or
any integral part of the business of the person or any commitment or option to
make an investment or otherwise)(other than loans to Axion employees to fund the
purchase of Axion Common Stock in connection with the exercise of such
employee's respective Axion Options).
(f) No Dispositions. Axion shall not, nor shall it permit any of its
Subsidiaries to, sell, lease, license or otherwise dispose of any of its
material assets, except sales of inventory in the ordinary course of business
consistent with past practice.
(g) Indebtedness. Axion shall not, nor shall it permit any of its
Subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Axion or such
Subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice under the Loan Agreement dated
as of December 2, 1994, between Bank of America National Trust and Savings
Association and the Partnership, as amended (the "Loan Agreement"), (ii) permit,
allow or suffer to exist any mortgage, Lien, encumbrance, easement, covenant,
right-of-way or other similar
60
restriction of any nature whatsoever which would have been required to be set
forth in Schedules 4.01(q)(i), 4.01(q)(ii), 4.01(r)(i), 4.01(r)(ii), 4.01(s)(i),
4.01(s)(ii) or 4.01(v) if existing on the date of this Agreement or (iii) cancel
any material indebtedness (individually or in the aggregate) or waive any claims
or rights of substantial value.
(h) Capital Expenditures. Axion shall not, nor shall it permit any
of its Subsidiaries to, make or agree to make any capital expenditure or
expenditures which, in the aggregate, are in excess of $3,000,000 other than
capital expenditures that will constitute part of the Acquired Assets.
(i) Benefit Plans; Compensation. Axion shall not, nor shall it
permit any of its Subsidiaries to, (i) adopt or amend any Benefit Plan or
collective bargaining agreement, (ii) grant to any executive officer or employee
any increase in compensation or benefits or (iii) amend the Oncology
Therapeutics Network Corporation Officers Severance Plan to add any additional
persons to the List of Participants attached as Schedule A to such Plan;
provided, however, that Axion may, and may permit its Subsidiaries to, grant an
executive officer or employee of AHC an increase in compensation (but not
including benefits) so long as immediately following the Effective Time neither
the Retained Company nor any of its Subsidiaries has any direct or indirect
liability whatsoever resulting from such change or increase.
(j) Accounting Policies. Axion shall not, nor shall it permit any of
its Subsidiaries to, change any of its accounting principles, practices,
policies or procedures, except such changes as may be required by GAAP.
(k) Affiliate Transactions. Except as disclosed in Schedule 5.02(k)
and for (i) the Preference Amount distributed pursuant to Section 2.2 of the
Distribution Agreement and (ii) the intercompany transactions between Axion and
its current Subsidiaries in the ordinary course of business consistent with past
practice of the type identified in Schedule 4.01(n)(iii), Axion shall not, nor
shall it permit any of its Subsidiaries to, pay, loan or advance any amount to,
or sell, transfer or lease any of its assets or enter into any agreement with
Axion or any of its Subsidiaries or affiliates (including OnCare and its
Subsidiaries).
61
(l) Maintenance of Properties. Axion shall, and shall cause the
Retained Company and its Subsidiaries to, maintain and preserve, consistent with
past practice, in good repair, working order and condition all property material
to the Retained Business and will timely make or cause to be timely made all
appropriate repairs, renewals and replacements thereof, consistent with past
practice.
(m) Real Property Matters. Except as set forth in Schedule 5.01(m),
Axion shall not, nor shall it permit any of its Subsidiaries to, (i) enter into
any lease of real property, except any renewals of existing leases in the
ordinary course of business with respect to which BMS shall have the right to
participate and the terms and conditions of which shall be approved by BMS
(which approval shall not be unreasonably withheld) or (ii) modify, amend,
terminate or permit the lapse of any lease of, or reciprocal easement agreement,
operating agreement or other material agreement relating to, real property
(except modifications or amendments associated with renewals of existing leases
in the ordinary course of business with respect to which BMS shall have the
right to participate).
(n) Material Contracts. Axion shall not, nor shall it permit any of
its Subsidiaries to, (i) enter into any Contract that is required to be assigned
to any of the Retained Companies or to AHC or OPUS Sub in connection with the
transactions contemplated in the Distribution Agreement unless such Contract may
be so assigned without any liability to the Retained Company or any of its
Subsidiaries or the consent of any third party or (ii) enter into, terminate or
modify in any material respect any material Contract other than in the ordinary
course of business consistent with past practice.
(o) Agreements. Axion shall not, nor shall it permit any of its
Subsidiaries to, agree, whether in writing or otherwise to take any of the
actions prohibited by this Section 5.01.
SECTION 5.02. Additional Covenants of Axion. During the period from
the date of this Agreement and continuing to the Effective Time, Axion agrees as
to itself and its Subsidiaries that, except as expressly provided for in the
Documents:
(a) Actions Affecting the Contributions, the Distribution or the
Merger. Notwithstanding the fact that
62
such action might otherwise be permitted pursuant to this Article V, Axion shall
not, nor shall it permit any of its Subsidiaries to, take any action that would
or is reasonably likely to result in (i) any of the conditions to the Merger set
forth in Article VII not being satisfied, (ii) any of the representations and
warranties of Axion set forth in this Agreement that are qualified as to
materiality becoming untrue or (iii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect, or that would
materially impair the ability of Axion to consummate the Contributions or the
Distribution in accordance with the terms of the Distribution Agreement or the
Merger in accordance with the terms hereof or would materially delay such
consummation or that would, to the knowledge of Axion, disqualify the
Distribution as a tax-free spinoff within the meaning of Section 355 of the Code
or disqualify the Merger as a tax-free reorganization under Section 368(1)(B) of
the Code.
(b) Intercompany Transactions. Axion shall (i) not engage in or
allow transfers of assets or liabilities or engage or enter into other
transactions between (A) the Retained Company and its Subsidiaries, on the one
hand, and (B) (I) AHC and its Subsidiaries, (II) OnCare and its Subsidiaries or
(III) any affiliate of AHC or OnCare, on the other hand, except as expressly
contemplated hereby and by the other Documents, (ii) abide and cause AHC and its
Subsidiaries to abide by their respective obligations under the Documents and
(iii) not terminate or amend, or waive compliance with any obligations under,
the Documents (other than the waiver by Axion of the conditions to its
obligations to close under Sections 7.01 and 7.03 of this Agreement and other
than by termination of this Agreement by Axion in accordance with the provisions
of Section 8.01) without the consent of BMS which consent can be withheld in its
sole discretion.
(c) Advice of Changes; Filings. Axion shall promptly advise BMS
orally and in writing of any change or development or combination of changes or
developments that would cause the representation in Section 4.01(g) to be
untrue. Axion will promptly provide BMS (or its counsel) copies of all filings
made by Axion with any Federal, state or foreign Governmental Entity in
connection with the Documents and the transactions contemplated hereby and
thereby.
63
(d) Insurance. Axion shall keep, or cause to be kept, all insurance
policies set forth in Schedule 4.01(w), or suitable replacements therefor, in
full force and effect through the close of business on the Closing Date. Axion
shall, and shall cause its Subsidiaries to, use its reasonable best efforts to
renew the insurance policies set forth in Schedule 4.01(w), or suitable
replacements therefor, maintained with respect to Axion and its Subsidiaries and
their respective assets and properties upon expiration or termination of such
policies on a month-to-month basis.
(e) Resignations. On the Closing Date, Axion shall cause to be
delivered to BMS duly signed resignations (from the applicable board of
directors), effective immediately after the Closing, of all directors of the
Retained Company and each of its Subsidiaries and shall take such other action
as is necessary to accomplish the foregoing.
(f) Supplemental Disclosure. (i) From the date hereof through the
Closing, Axion shall give prompt notice to BMS of (A) the occurrence, or failure
to occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement or any other Document to
be untrue or inaccurate in any material respect and (B) any material failure of
Axion or any of its Subsidiaries or affiliates, or of any of its stockholders or
holders of Axion Options, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or any
other Document; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Axion shall promptly notify BMS of any default, the
threat or commencement of any action, or any development that occurs before the
Closing that could in any way materially affect the Retained Business, the
Retained Company and its Subsidiaries or AHC and its Subsidiaries. Axion shall
have the continuing obligation until the Closing to supplement or amend the
Schedules hereto on a monthly basis with the final supplement or amendment to
such Schedules to occur not later than two business days prior to the Closing.
(ii) Axion shall promptly notify BMS of and furnish BMS any
information it may reasonably request with respect to, the occurrence to Axion's
actual knowledge of any event or condition or the existence to Axion's actual
64
knowledge of any fact that would cause any of the conditions to BMS's obligation
to consummate the Merger and the other transactions contemplated hereby not to
be fulfilled.
(g) Exclusivity. (i) Axion shall, and shall direct and use its best
efforts to cause its officers, directors, employees, representatives and agents
to, immediately cease any discussions or negotiations with any parties that may
be ongoing with respect to a Acquisition Proposal (as hereinafter defined).
Axion shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly, (A) solicit, initiate or knowingly encourage (including by way of
furnishing information), or take any other action designed or reasonably likely
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal or (B)
participate in any discussions or negotiations regarding any Acquisition
Proposal. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding sentence by any director or
executive officer of Axion or any of its Subsidiaries, whether or not such
person is purporting to act on behalf of Axion or any of its Subsidiaries or
otherwise, shall be deemed to be a breach of this Section 5.02(g) by Axion. For
purposes of this Agreement, "Acquisition Proposal" means any inquiry, proposal
or offer from any person with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, the Retained Business, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or which would reasonably be expected to
dilute materially the benefits to BMS of the transactions contemplated by this
Agreement and the other Documents.
(ii) Neither the Board of Directors of Axion nor any committee thereof
shall (A) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to BMS, the approval or recommendation by such Board of Directors
or such committee of the Merger or this Agreement, (B) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal or (C) cause
Axion to
65
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal.
(iii) In addition to the obligations of Axion set forth in
paragraphs (i) and (ii) of this Section 5.02(g), Axion shall immediately advise
BMS orally and in writing of any request for information or of any Acquisition
Proposal, the material terms and conditions of such request or Acquisition
Proposal and the identity of the person making such request or Acquisition
Proposal. Axion will keep BMS fully informed of the status and details
(including amendments or proposed amendments) of any such request or Acquisition
Proposal.
SECTION 5.03. Covenants of BMS. During the period from the date of
this Agreement and continuing to the Effective Time, BMS agrees as to itself and
its subsidiaries that, except to the extent that Axion shall otherwise consent
in writing with such consent to be within Axion's sole discretion:
(a) Actions Affecting the Merger. Notwithstanding the fact that such
action might otherwise be permitted pursuant to this Article V, BMS shall not,
and shall not permit any of its Subsidiaries to, take any action that would or
could reasonably be likely to result in (i) any of the conditions to the Merger
set forth in Article VII not being satisfied, (ii) any of the representations
and warranties of BMS set forth in this Agreement that are qualified as to
materiality becoming untrue, or (iii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or materially
impairing the ability of BMS to consummate the Merger in accordance with the
terms hereof.
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Form S-4, Required AHC Documents and
the Proxy Statement; Stockholders' Meeting; Consent of Holders of Axion
Preferred Stock to Waiver of Dividend Preference. (a)(i) As soon as practicable
following the date of this Agreement and in any event within one business day
after the date hereof, Axion and BMS shall file with the SEC the Form S-4. Each
of Axion
66
and BMS shall use its best efforts to have the Form S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Axion will use
its best efforts to cause the Proxy Statement to be mailed to Axion's
stockholders as promptly as practicable after the Form S-4 is declared effective
under the Securities Act. BMS shall also take any action (other than qualifying
to do business in any jurisdiction in which it is not now so qualified) required
to be taken under any applicable state securities laws in connection with the
issuance of BMS Common Stock in the Merger, and Axion shall furnish all
information concerning Axion and the holders of Axion Common Stock as may be
reasonably requested in connection with any such action.
(ii) In addition, as soon as practicable and in any event within two
business days following the date hereof, Axion shall request no-action relief
from the SEC with respect to the distribution of AHC Preferred Stock to the
holders of Axion Common Stock on a pro rata basis without registration under the
Securities Act (the "No-Action Request"). In the event such no-action relief is
not obtained from the SEC, (A) (I) each of Axion and BMS shall use its best
efforts to (a) cause the Application to be made to the Commissioner within ten
business days after Axion has been advised orally or in writing that no-action
relief will not be granted, (b) diligently respond as promptly as practicable to
all requests and comments regarding the Application within a reasonably prompt
period after receipt by the applicants or their respective counsel of any such
requests or comments and (c) cause a hearing to be held and the Commissioner to
issue a permit to approve the distribution of the AHC Preferred Stock and, if
necessary, the BMS Common Stock to be issued in the Distribution and (II) Axion
shall use its best efforts to provide, and cause its representatives to provide,
the information with respect to Axion and its Subsidiaries required to be
included in the Application to the applicant or applicants within five business
days after Axion has been finally advised orally or in writing that no-action
relief will not be granted or (B) Axion shall use its best efforts to (I) cause
the Form S-1 to be filed within ten business days after Axion has been finally
advised orally or in writing that no-action relief will not be granted and (II)
diligently respond to all SEC comments to the Form S-1 within five business days
after receipt by Axion or its counsel of any initial SEC comments to the Form
S-1 and within a reasonably prompt period under the circumstances after receipt
by Axion or its counsel of
67
any subsequent SEC comments to the Form S-1. Axion shall cause the prospectus
included in the Form S-1 to be mailed to Axion's stockholders as promptly as
practicable after the Form S-1 is declared effective under the Securities Act.
If neither the Form S-1 nor the Application is required for the Distribution,
Axion shall cause the Information Statement to be distributed to Axion's
stockholders no later than the time at which the Proxy Statement is delivered to
Axion's stockholders.
(b) Axion shall within two business days following the date on which
the Form S-4 is declared effective, duly call and give notice of a meeting of
its stockholders (the "Stockholders' Meeting") with such Stockholders' Meeting
to be held 20 business days after the date such meeting is called for the
purpose of (i) the election by the holders of not less than 66-2/3% of the
outstanding shares of Axion Preferred Stock voting together as a single class
(A) to convert all outstanding shares of Axion Preferred Stock into Axion Common
Stock in accordance with the Certificate of Incorporation of Axion and (B) that
the Merger, the Distribution and related transactions shall not be deemed to be
a liquidation, dissolution or winding up of Axion under the Certificate of
Incorporation of Axion, (ii) the approval and adoption of this Agreement by the
Requisite Common Stockholders voting together as a single class and the
Requisite Preferred Stockholders voting together as a single class and (iii)
taking any other action necessary or appropriate in connection with the
transactions contemplated hereby or by the other Documents. Without limiting the
generality of the foregoing, Axion agrees that its obligations pursuant to this
Section 6.01(b) shall not be affected by (i) the commencement, public proposal,
public disclosure or communication to Axion of any Acquisition Proposal or (ii)
the withdrawal or modification by the Board of Directors of Axion of its
approval or recommendation of this Agreement or the Merger.
(c) Axion shall, no later than the date on which the Form S-4 is
declared effective, obtain the consent of the holders of not less than 66-2/3%
of the outstanding shares of Axion Preferred Stock voting together as a single
class to waive the right of holders of Axion Preferred Stock to receive any
dividend preference that holders of Axion Preferred Stock may otherwise be
entitled to receive pursuant to the Certificate of Incorporation of Axion prior
to any distribution (as defined in the Certificate of Incorporation of Axion) to
holders of Axion Common Stock
68
between a date no later than the date on which the Form S-4 is declared
effective and December 31, 1996.
SECTION 6.02. Accountants' Letters. Each party hereto agrees to use
its reasonable best efforts to cause to be delivered to the other party hereto
and their respective directors a letter of its independent accountants, dated
the date on which the Form S-4 shall become effective, in form and substance
customary for "comfort" letters delivered by independent accounts in connection
with registration statements similar to the Form S-4.
SECTION 6.03. Access to Information; Confidentiality. (a) Upon
reasonable notice, and except as may otherwise be required by applicable law,
Axion shall, and shall cause each of its Subsidiaries to, afford to BMS and to
the officers, employees, accountants, counsel, financial advisors and other
representatives of BMS, reasonable access during normal business hours during
the period prior to the Effective Time to (i) except with respect to AHC and
other matters related solely to the Acquired Businesses (as defined in the
Distribution Agreement), all their respective properties, books, contracts,
commitments, personnel and records and (ii) with respect to AHC and other
matters related solely to the Acquired Businesses, to all its properties, books,
contracts, commitments, personnel and records of AHC, as BMS may reasonably
request for the express purpose of monitoring compliance with and assuring
proper implementation of the transactions contemplated by the Documents and
complying with applicable securities laws. During such period, Axion shall, and
shall cause each of its Subsidiaries to, furnish promptly to BMS all other
information concerning the business, properties and personnel of the Retained
Business as BMS may reasonably request.
(b) During the period prior to the Effective Time, BMS shall furnish
promptly to Axion a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
Section 13(a) and 15(d) of the Exchange Act.
(c) (i) On or prior to August 25, 1996, Axion will furnish to BMS a
copy of (A) the unaudited consolidated balance sheet of Axion and its
Subsidiaries as of June 30, 1996, and the related unaudited consolidated
statements of operations and cash flows of Axion and its Subsidiaries for the
six-month period then ended, together with the notes to
69
such financial statements, certified by the chief financial officer of Axion as
complying with the requirements set forth in the next sentence, (B) the
consolidated balance sheet of the Retained Business as of June 30, 1996, and the
related unaudited consolidated statement of operations of the Retained Business
for the six-month period then ended certified by the chief financial officer of
Axion as complying with the requirements set forth in the next sentence and (C)
the unaudited combined balance sheet of the Acquired Business as of June 30,
1996, and the related unaudited combined statements of operations and
accumulated deficit and net capital deficiency and cash flows of the Acquired
Business for the six-month period then ended, together with the notes to such
financial statements, certified by the chief financial officer of Axion as
complying with the requirements set forth in the next sentence. Each of the
financial statements referred to in clauses (A), (B) and (C) above will comply
as to form in all material respects with applicable accounting requirements will
be prepared in accordance with GAAP applied on a consistent basis during the
period involved (except for the absence of notes thereto) and will fairly
present the consolidated financial position of the relevant company and its
Subsidiaries or business as of the respective dates thereof and the consolidated
results of their respective operations and cash flows for the six-month period
then ended (subject to normal, recurring year-end audit adjustments). Such
financial statements and notes thereto shall be furnished for use in the Form
S-4, Proxy Statement or the Information Statement, as applicable, and shall in
each case (i) be consistent with the financial statements included in the Form
S-4 filed with the SEC pursuant to the first sentence of Section 6.01(a)(i) and
(ii) be accompanied by management's discussion and analysis of financial
condition and result of operations for the six-month period ended June 30, 1996,
including appropriate comparisons to the six-month period ended June 30, 1995.
(ii) During the period prior to the Effective Time, Axion will
furnish to BMS on or prior to 30 days after the end of each month commencing
with the month ended July 31, 1996, a copy of (i) each monthly unaudited
consolidated balance sheet of Axion and its Subsidiaries and the related
unaudited consolidated statements of operations and cash flows for such month,
together with the notes to such financial statements, (ii) each monthly
unaudited consolidated balance sheet of the Retained Company and its
Subsidiaries and the related unaudited consolidated
70
statements of operations and cash flows for such month, together with the notes
to such financial statements, (iii) each monthly unaudited consolidated balance
sheet of AHC and its Subsidiaries and the related unaudited consolidated
statements of operations and cash flows for such month, together with the notes
to such financial statements and (iv) each monthly unaudited balance sheet of
the Partnership and the related unaudited statements of operations and cash
flows for such month, together with the notes to such financial statements.
(d) All such information as may be furnished by or on behalf of
Axion or any of its Subsidiaries to BMS or its representatives pursuant to this
Section 6.03 shall be subject to the terms of the Confidentiality Agreement
dated as of June 20, 1996 between Axion and BMS (the "Confidentiality
Agreement").
SECTION 6.04. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each of Axion and BMS shall use its reasonable
best efforts to cause the Closing to occur. Without limiting the foregoing, each
of Axion and BMS shall use its reasonable best efforts to cause the Closing to
occur on or prior to September 30, 1996.
SECTION 6.05. Legal Conditions to Distribution and Merger; Legal
Compliance. (a) BMS shall use reasonable best efforts to comply promptly with
all legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Merger (which actions shall include furnishing
all information required in connection with approvals of or filings with
Governmental Entities required to be made or obtained by BMS or its
Subsidiaries). Subject to the terms and conditions hereof, BMS shall, and shall
cause its Subsidiaries to, promptly use its reasonable best efforts to obtain
any consent, authorization, order or approval of, or any exemption by, and to
satisfy any condition or requirement imposed by, any Governmental Entity or
other public or private third party, required to be obtained, made or satisfied
by BMS or any of its Subsidiaries in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement or the other Documents;
provided, however, that for purposes of this Section 6.05, the "reasonable best
efforts" of BMS shall not require BMS to agree to any prohibition, limitation or
other requirement of the type set forth in clauses (ii), (iii) or (iv) of
Section 7.02(f).
71
(b) Axion shall use reasonable best efforts to comply promptly with
all legal and regulatory requirements which may be imposed on itself or its
respective Subsidiaries with respect to the Contributions, the Distribution and
the Merger (which actions shall include furnishing all information required in
connection with approvals of or filings with Governmental Entities required to
be made or obtained by Axion or its Subsidiaries). Subject to the terms and
conditions hereof, Axion shall, and shall cause its Subsidiaries to, promptly
use its reasonable best efforts to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or requirement
imposed by, any Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by Axion or any of its Subsidiaries
in connection with the Contributions, the Distribution or the Merger or the
taking of any action contemplated thereby or by this Agreement or the other
Documents. Axion agrees that it shall use its reasonable best efforts to take,
and to cause its Subsidiaries to take, such actions as are necessary to assure
material compliance by the Retained Company and its Subsidiaries with all
applicable legal and regulatory requirements which may be imposed with respect
to the Contributions, the Distribution or the Merger relating to employment and
benefits matters and other applicable governmental regulations (and in this
connection will have due regard to any reasonable request of BMS as to what, if
any, such actions should be taken) which may be imposed with respect to the
Contributions, the Distribution or the Merger or the taking of any action
contemplated thereby or by this Agreement or the other Documents.
Notwithstanding anything to the contrary set forth in this Agreement or any
other Document, in connection with obtaining any consent, waiver or release of,
by or from any third party as contemplated by this Section 6.05(a) at or prior
to the Effective Time, Axion (i) shall not cause or permit the Partnership to
expend money or to offer or grant any financial accommodation and (ii) shall
not, and shall not permit OTNC or OPUS, to offer or grant any financial
accommodation in respect of the Retained Business or any Retained Asset or that
would create or result in a Retained Liability.
(c) Each of Axion and BMS will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them or any of their respective Subsidiaries in connection with the
Contributions, the Distribution or the Merger.
72
(d) Nothing herein shall obligate any party to take any action
pursuant to the foregoing if the taking of such action or such compliance or the
obtaining of such consent, authorization, order, approval or exemption is
likely, in such party's reasonable opinion, (i) to be materially burdensome to
such party and its Subsidiaries taken as a whole or to impact in a materially
adverse manner the economic or business benefits of the transactions
contemplated by this Agreement or the other Documents so as to render
inadvisable the consummation of the Contributions, the Distribution or the
Merger or (ii) to result in the imposition of a condition or restriction on such
party or on the Surviving Corporation of the type referred to in Section
7.01(e). Nothing herein shall obligate BMS to take any action pursuant to the
foregoing if the taking of such action or such compliance or the obtaining of
such consent, authorization, order, approval or exemption is likely, in BMS's
reasonable opinion, to require BMS to agree to any prohibition, limitation or
other requirement of the type set forth in clauses (ii), (iii) or (iv) of
Section 7.02(f). Each of BMS and Axion shall promptly cooperate with and furnish
information to the other in connection with any such burden suffered by, or
requirement imposed upon, any of them or any of their respective Subsidiaries in
connection with the foregoing.
SECTION 6.06. Options. Immediately prior to the Time of
Contribution, all options, warrants or other rights to acquire Axion Common
Stock ("Axion Options") shall be fully vested, and all such Axion Options shall
have been exercised or canceled. No Axion Options shall be assumed by the
Surviving Corporation.
SECTION 6.07. Fees and Expenses. Except as provided in Section
2.01(b), all out-of-pocket fees and expenses incurred in connection with the
Merger, the Distribution or the consummation of any of the transactions
contemplated by this Agreement and the Documents and the negotiation,
preparation, review and delivery of the agreements contemplated hereby and
thereby, including all fees and expenses of accountants, legal counsel,
investment bankers and other advisors shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that expenses
incurred in connection with printing and mailing the Proxy Statement and the
Form S-4 shall be shared equally by BMS and Axion. Expenses incurred in
connection with the Required AHC Documents shall be paid by Axion.
73
SECTION 6.08. Pre-Signing and Certain Other Transactions. (a) On or
prior to the date hereof, mutually acceptable (i) employment agreements (the
"Employment Agreements") shall have been executed and delivered by each of James
W. Adams, Bret Brodowy, Michael G. Cunningham, Warren M. Dodge, Lynn B.
Hammerschmidt and David L. Levison in substantially the forms set forth in
Exhibits 6.08(a)(1)-(6) and (ii) non-competition agreements (the
"Non-Competition Agreements") shall have been executed and delivered by each of
AHC and its Subsidiaries, OnCare and its Subsidiaries, Michael D. Goldberg and
Garrett J. Roper in substantially the form set forth in Exhibit 6.08(a).
(b) On or prior to the date hereof, a stockholders agreement in
substantially the form set forth in Exhibit 6.08(b) shall have been executed and
delivered to BMS by each of the stockholders listed in Schedule 6.08(b).
(c) On or prior to the date hereof, Axion and BMS shall cause the
amendment of the Partnership Agreement substantially in the form of Exhibit
6.08(c) (the "Partnership Agreement Amendment").
(d) On or prior to the date hereof, counsel to Axion shall have
provided to BMS and its counsel drafts of each of the following: the No-Action
Request; the Information Statement; and the disclosure to be included in the
Form S-4 with respect to Axion and its Subsidiaries (including AHC and its
Subsidiaries).
(e) (x) On or prior to the date hereof (i) BMS shall have received
an opinion, based on appropriate representations of Axion and BMS, of its
counsel, Cravath, Swaine & Moore, to the effect that the Merger will be treated
for Federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Code, (ii) Axion shall have received an opinion,
based on appropriate representations of Axion and BMS, of its counsel, Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the effect that the
Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a)(1)(B) of the code and (iii)
BMS, Axion and AHC shall have received an opinion dated as of the date hereof of
Ernst & Young LLP, tax advisors to Axion, substantially in the form of Exhibit
6.08(e).
74
(y) On or prior to the date on which the Form S-4 is declared
effective by the Commission, BMS, Axion and AHC shall have received an updated
version of the opinion referred to in Section 6.08(e)(x) dated as of such date
of Ernst & Young LLP, tax advisors to Axion, substantially in the form of
Exhibit 6.08(e)(ii).
(f) On or prior to the date hereof, each of OnCare and the
Partnership shall have executed a letter substantially in the form of Exhibit
6.08(f).
SECTION 6.09. Public Announcements. BMS and BMS Sub, on the one
hand, and Axion, on the other hand, will consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to the transactions contemplated
by this Agreement and the Distribution Agreement, including the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the other
Documents shall be as set forth in Exhibit 6.09.
SECTION 6.10. Affiliates. Prior to the Closing Date, Axion shall
deliver to BMS a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of Axion, "affiliates"
of Axion for purposes of Rule 145 under the Securities Act. Axion shall use its
reasonable best efforts to cause each such person to deliver to BMS on or prior
to the Closing Date a written agreement substantially in the form attached as
Exhibit 6.10. If any such person refuses to provide such Agreement, BMS may
place appropriate legends on the BMS Certificates evidencing the shares of BMS
Common Stock to be received by such person and to issue appropriate stop
transfer orders to the transfer agent.
SECTION 6.11. Stock Exchange Listing. BMS shall use its reasonable
best efforts to cause the shares of BMS Common Stock to be issued in the Merger
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
75
SECTION 6.12. Tax Representation Letters. For purposes of the tax
opinions to be delivered pursuant to Section 6.08(e), (a) BMS will deliver a
representation letter substantially in the form of Exhibit 6.12(a) dated as of
the date hereof and as of the Closing Date, (b) Axion will deliver a
representation letter substantially in the form of Exhibit 6.12(b) dated as of
the date hereof and as of the Closing Date and (c) Axion will cause stockholders
reasonably satisfactory to BMS to deliver a representation letter substantially
in the form of Exhibit 6.12(c) dated as of the date hereof, in each case to
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to Axion,
to Ernst & Young LLP, tax advisors to Axion, and to Cravath, Swaine & Moore,
counsel to BMS.
SECTION 6.13. Transfer and Assumption Documentation. (a) All deeds,
bills of sale, stock powers, certificates of title, assignment of leases and
contracts and other instruments of delivery necessary to evidence such
distribution, grant, assignment, transfer, conveyance, contribution and
delivery, executed and delivered in accordance with Section 5.1 of the
Distribution Agreement shall be in form and substance satisfactory to BMS and
its counsel. Axion shall cause each of the Retained Companies and any entity
that will be an affiliate of any of the Retained Companies immediately after
giving effect to the transactions set forth in the Distribution Agreement to be
released, pursuant to documentation reasonably satisfactory to BMS and its
counsel, from any and all Liens arising under any Scheduled Contract that
constitutes an Acquired Asset from and after the Effective Time.
SECTION 6.14. EDS Contract. Each of Axion and BMS agree to use its
reasonable best efforts to negotiate and enter into (or cause to be entered
into) separate agreements with Electronic Data Systems Corporation ("EDS") with
respect to certain business and information systems-related services utilized by
the Retained Companies and AHC Companies, respectively, which separate
agreements would supersede and replace the Agreement for Information Technology
Services dated as of July 29, 1993, between EDS and OPUS, as amended (the "EDS
Contract"), on substantially the same terms and conditions as are set forth in
the EDS Contract.
SECTION 6.15. Conversion of Axion Preferred Stock. Immediately after
the Distribution and immediately prior to the Effective Time, each issued and
outstanding
76
share of Axion Preferred Stock shall be converted into fully paid and
nonassessable shares of Axion Common Stock pursuant to and in accordance with
the terms of such Axion Preferred Stock.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing of the following
conditions:
(a) Stockholder Approval. (i) The holders of not less than 66-2/3%
of the outstanding shares of Axion Preferred Stock voting together as a single
class shall have elected (a) to convert all outstanding Axion Preferred Stock
into Axion Common Stock in accordance with the Certificate of Incorporation of
Axion, and (b) that the Merger, the Distribution and related transactions shall
not be deemed to be a liquidation, dissolution or winding up of Axion under the
Certificate of Incorporation of Axion; (ii) the holders of not less than 66-2/3%
of the outstanding shares of Axion Preferred Stock voting together as a single
class shall have elected to waive the right of holders of Axion Preferred Stock
to receive any dividend preference that holders of Axion Preferred Stock may
otherwise be entitled to receive pursuant to the Certificate of Incorporation of
Axion prior to any distribution (as defined in the Certificate of Incorporation
of Axion) to holders of Axion Common Stock between a date no later than the date
on which the Form S-4 is declared effective and December 31, 1996; (iii) the
Requisite Common Stockholders voting together as a single class shall have
approved and adopted this Agreement; and (iv) the Requisite Preferred
Stockholders voting together as a single class shall have approved and adopted
this Agreement, in each case in accordance with the DGCL, other applicable law,
the Certificate of Incorporation and the By-laws of Axion.
(b) NYSE Listing. The shares of BMS Common Stock issuable to Axion's
stockholders pursuant to this Agreement shall have been approved for listing on
the NYSE, subject to official notice of issuance.
77
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(d) Other Governmental Filings and Consents. All filings required to
be made prior to the Closing Date with, and all consents, approvals and
authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity in connection with the execution, delivery and performance
of the Documents or the consummation of the Contributions, the Distribution, the
Merger and the other transactions contemplated by the Documents shall have been
made or obtained.
(e) No Injunctions or Restraints. (i) No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used its reasonable best efforts to prevent the entry of
any such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may be entered and (ii) no action, suit or
other proceeding shall be pending or, to the knowledge of Axion and BMS,
threatened by any Governmental Entity that, if successful, would restrict or
prohibit the consummation of the transactions contemplated in this Agreement or
other Documents.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(g) Required AHC Documents. Axion's No-Action Request shall have
been granted by the SEC, or in the event such no-action relief is not obtained
either (i) the Form S-1 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order or (ii) the Application shall have been made to the Commissioner, the
hearing upon the fairness of the terms and conditions of the issuance and
exchange of the securities shall have been held by the Commissioner, the
Commissioner shall have approved the terms and conditions of the issuance and
exchange and the fairness of such terms and conditions and a permit for the
issuance and exchange of the securities shall have been issued by the
Commissioner.
78
(h) Consummation of the Transactions. The transactions contemplated
by Article III, including the Contributions and the Distribution, shall have
become effective in accordance with the terms of the Distribution Agreement and
each of the agreements contemplated thereby.
SECTION 7.02. Conditions to Obligations of BMS and BMS Sub. The
obligations of BMS and BMS Sub to effect the Merger are further subject to each
of the following conditions prior to the Closing, unless waived by BMS:
(a) Representations and Warranties. The representations and
warranties of Axion set forth in this Agreement and the other Documents that are
qualified as to materiality shall be true and correct, and the representations
and warranties of Axion set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except that the accuracy of representations and warranties that by
their terms speak as of the date of this Agreement or some other date shall be
determined as of such date, and BMS shall have received a certificate signed on
behalf of Axion by the chief executive officer and the chief financial officer
of Axion to such effect.
(b) Performance of Obligations of Axion. Each of Axion and its
Subsidiaries shall have performed in all material respects all obligations
required to be performed by it under this Agreement and the other Documents at
or prior to the Closing Date, and BMS shall have received a certificate signed
on behalf of Axion by the chief executive officer and the chief financial
officer of Axion to such effect.
(c) No Material Adverse Change. Since December 31, 1995, no event,
change, circumstance or development has occurred that has had, or could
reasonably be expected to have, a Retained Company Material Adverse Effect or an
AHC Material Adverse Effect.
(d) Documents. Each of the Documents shall have been executed
substantially in the forms attached as Exhibits hereto or, if not included as
Exhibits, in the form mutually agreed to as the parties thereto and BMS, as the
case may be, by the applicable parties thereto (other than BMS and its
affiliates) and shall have become effective in
79
accordance with its terms and be in full force and effect. Axion shall have
delivered to BMS true, correct and complete copies of each Document to which BMS
is not a party.
(e) Tax Opinion. BMS shall have received (i) a letter of its
counsel, Cravath, Swaine & Moore, to the effect that they reaffirm the opinion
furnished pursuant to Section 6.08(e) and (ii) a letter of Axion's advisors,
Ernst & Young LLP, to the effect that they reaffirm the opinion furnished
pursuant to Section 6.08(e), except in the case of each of the letters referred
to in clauses (i) and (ii), the specified date referred to shall be a date not
more than five days prior to Closing.
(f) No Litigation. There shall not be pending or threatened any
suit, action or proceeding by any Governmental Entity or any other person, or
before any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a reasonable likelihood of success, (i)
challenging the acquisition by BMS or BMS Sub of any shares of Axion Common
Stock, seeking to restrain or prohibit the consummation of the Merger, the
Contributions and the Distribution or any of the other transactions contemplated
by this Agreement or seeking to obtain from Axion, BMS or BMS Sub any damages
that are material in relation to the Retained Company and its Subsidiaries taken
as a whole or AHC and its Subsidiaries taken as a whole, (ii) seeking to
prohibit or limit the ownership or operation by BMS or BMS Sub, or to compel BMS
or BMS Sub to dispose of or hold separate any material portion, of the Retained
Business, (iii) seeking to impose limitations on the ability of BMS or BMS Sub
to acquire or hold, or exercise full rights of ownership of, any shares of Axion
Common Stock, including the right to vote the Axion Common Stock purchased by it
on all matters properly presented to the stockholders of Axion, (iv) seeking to
prohibit BMS or any of its Subsidiaries from effectively controlling in any
material respect the Retained Business or (v) which otherwise would have, or
could reasonably be expected to have, a Retained Company Material Adverse Effect
or an AHC Material Adverse Effect.
(g) Amendments to SEC Documents. Since the effective date of the
Form S-4 or the date of the Proxy Statement or the date of the Information
Statement, as applicable, or in the event the No-Action Request is not granted
by the SEC, since the effective date of the Form S-1 or at the time the
Application is filed with the Commission,
80
as applicable, no event with respect to Axion, any Subsidiary of Axion or any
security holder of Axion has occurred which should have been set forth in an
amendment to the Form S-4 or the Form S-1 or a supplement to the Proxy
Statement, the Information Statement or the Application or an amendment or
supplement to any other Required AHC Document which has not been set forth in
such an amendment or supplement.
(h) Third Party Consents. All consents and approvals of all persons
(other than Governmental Entities) required to be obtained prior to the Closing
Date in connection with the execution, delivery and performance of the Documents
and the consummation of the Contributions, the Distribution, the Merger and the
other transactions contemplated by the Documents and all releases referred to in
Section 6.13 shall have been obtained and shall be in full force and effect.
(i) No Bankruptcy Proceedings. No involuntary proceeding shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of Axion or any of its Subsidiaries,
or of a substantial part of the property or assets of Axion or any of its
Subsidiaries, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Axion or any of its
Subsidiaries or for a substantial part of their respective assets or (iii) the
winding up or liquidation of Axion or any of its Subsidiaries; and such
proceeding or petition shall continue undismissed for 30 days or an order or
decree approving or ordering any of the foregoing shall be entered. None of
Axion or any of its Subsidiaries shall have (i) voluntarily commenced any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (ii) consented to the
institution of, or failed to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described above, (iii) applied for or
consented to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Axion or any of its Subsidiaries or for a
substantial part of the property or assets of Axion or any of its Subsidiaries,
(iv) filed an answer admitting the material allegations of a
81
petition filed against it in any such proceeding, (v) made a general assignment
for the benefit of creditors, (vi) become unable, admit in writing its inability
or failed generally to pay its debts as they become due or (vii) taken any
action for the purpose of effecting any of the foregoing.
(j) Termination of Agreements. All existing arrangements between the
Surviving Corporation and its Subsidiaries on the one hand and OnCare and AHC
and their respective Subsidiaries and affiliates on the other hand shall be
terminated, including, but not limited to, termination of the Supply Agreement
dated January 1, 1996 between the Partnership and OnCare but excluding the AHC
and OnCare Supply Agreements and the AHC and OnCare Medstation Agreements.
(k) Conversion of Axion Preferred Stock; No Dissenters' Shares.
Immediately after the Distribution and immediately prior to the Effective Time,
each issued and outstanding share of Axion Preferred Stock shall have been
converted into fully paid and nonassessable shares of Axion Common Stock
pursuant to and in accordance with the terms of such Axion Preferred Stock. No
Dissenters' Shares shall be outstanding.
(l) Axion Options. All Axion Options shall have been exercised or
canceled prior to the Time of Contribution, and no Axion Options shall be
assumed by the Surviving Corporation.
(m) Indebtedness. Immediately prior to the Effective Time, there
shall not be outstanding any indebtedness for borrowed money, or any guarantees
in respect of any indebtedness for borrowed money of any third party, in respect
of which the Retained Company or any of its Subsidiaries is obligated, other
than indebtedness in an aggregate principal amount of $35,617,000, consisting
only of outstandings under the Loan Agreement, and BMS shall have received a
certificate signed on behalf of Axion by the chief executive officer and chief
financial officer of Axion to such effect. Immediately prior to the Effective
Time, (i) a certificate of a vice president of Bank of America National Trust
and Savings Association shall be executed and delivered to BMS certifying that
the aggregate principal amount outstanding under the Loan Agreement as of such
date does not exceed $35,617,000 and (ii) an amendment or waiver of the Loan
Agreement shall be executed and delivered
82
permitting the Merger and the other transactions contemplated by the Documents.
(n) Opinions. (i) BMS and BMS Sub shall have received an opinion
dated the Closing Date of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to Axion, with respect to such matters as BMS and its
counsel shall reasonably request in form and substance reasonably satisfactory
to BMS and its counsel.
(ii) BMS and BMS Sub shall have received an opinion dated the
Closing Date of Shearman & Sterling, special counsel to Axion, in form and
substance reasonably satisfactory to BMS and its counsel, that, after giving
effect to the Contributions, the Distribution and the Merger, AHC is not an
"investment company", as such term is defined in Section 3 of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which opinion
shall include a statement to the effect that it is Shearman & Sterling's view
that a court, properly presented with the question, would conclude that the
2,700,000 shares of Series A Preferred Stock of OnCare owned by AHC do not
constitute a "security", as such term is defined in Section 2(a)(36) of the
Investment Company Act.
SECTION 7.03. Conditions to Obligation of Axion. The obligations of
Axion to effect the Merger are further subject to each of the following
conditions prior to the Closing, unless waived by Axion:
(a) Representations and Warranties. The representations and
warranties of BMS set forth in this Agreement and the other Documents that are
qualified as to materiality shall be true and correct, and the representations
and warranties of BMS set forth in this Agreement that are not so qualified
shall be true and correct, in all material respects, in each case as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except that the accuracy of representations and warranties that by
their terms speak as of the date of this Agreement or some other date shall be
determined as of such date, and Axion shall have received a certificate signed
on behalf of BMS by an authorized officer of BMS to such effect.
(b) Performance of Obligations of BMS and BMS Sub. Each of BMS and
BMS Sub shall have performed in all material respects all obligations required
to be performed
83
by it under this Agreement and the other Documents at or prior to the Closing
Date, and Axion shall have received a certificate signed on behalf of BMS by an
authorized officer of BMS to such effect.
(c) No Material Adverse Change. Except as disclosed in any BMS SEC
Documents filed and publicly available on or prior to the date of this
Agreement, since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to have,
a BMS Material Adverse Effect.
(d) Documents. Each of the Documents to which BMS or BMS Sub is a
party shall have been executed substantially in the forms attached as Exhibits
hereto or, if not included as Exhibits, in the form mutually agreed to by the
parties thereto and Axion, as the case may be, by the applicable parties thereto
(other than Axion and its affiliates) and shall have become effective in
accordance with its terms and be in full force and effect. BMS shall have
delivered to Axion, true, correct and complete copies of each Document to which
Axion is not a party.
(e) Tax Opinion. (i) Axion shall have received a letter of its
counsel, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the
effect that they reaffirm the opinion furnished pursuant to Section 6.08(e) and
(ii) Axion and AHC shall have received a letter of Axion's advisors, Ernst &
Young LLP, to the effect that they reaffirm the opinion furnished pursuant to
Section 6.08(e), except in the case of each of the letters referred to in
clauses (i) and (ii), the specified date referred to shall be a date not more
than five days prior to Closing.
(f) Amendment to SEC Documents. Since the effective date of the Form
S-4 or the Proxy Statement, as applicable, no event with respect to BMS, any
Subsidiary of BMS or any security holder of BMS has occurred which should have
been set forth in an amendment to the Form S-4 or a supplement to the Proxy
Statement which has not been set forth in such an amendment or supplement.
(g) Opinion. Axion and AHC shall have received an opinion dated the
Closing Date of Cravath, Swaine & Moore, counsel to BMS, with respect to such
matters as Axion and its counsel shall reasonably request in form and substance
reasonably satisfactory to Axion and its counsel.
84
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of Axion:
(a) by mutual written consent of BMS, BMS Sub and Axion;
(b) by either BMS or Axion
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of
Axion shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
October 31, 1996, unless the failure to consummate the Merger is the
result of a wilful and material breach of this Agreement by the
party seeking to terminate this Agreement; provided, however, that
the passage of such period shall be tolled for any part thereof (but
in no event beyond December 31, 1996) during which any party shall
be subject to a nonfinal order, decree, ruling or action
restraining, enjoining or otherwise prohibiting the consummation of
the Merger or the calling or holding of the Stockholders Meeting; or
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable;
(c) by Axion if BMS or BMS Sub shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement or any other Document to be performed by BMS or BMS Sub at or
prior to the time of termination, which breach shall not have been cured
within 30 days following written notice of such breach; or
85
(d) by BMS if Axion or any of its Subsidiaries shall have failed to
comply in any material respect with any of the covenants or agreements
contained in this Agreement or any other Document to be performed by Axion
or any of its Subsidiaries at or prior to the time of termination, which
breach shall not have been cured within 30 days following written notice
of such breach.
SECTION 8.02. Effect of Termination. In the event of termination of
this Agreement by either Axion or BMS as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of BMS, BMS Sub or Axion, other than the provisions of
Section 6.02, Section 6.09, this Section 8.02 and Article IX, all of which shall
survive such termination and except to the extent that such termination results
from the wilful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement, the
Distribution Agreement or any agreement contemplated thereby.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties at any time before or after any required approval of matters presented
in connection with the Merger by the stockholders of Axion; provided, however,
that after any such approval, there shall be made no amendment that by law
requires further approval by such stockholders without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
ARTICLE IX
General Provisions
SECTION 9.01. Survival of Representations and Warranties. The
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant to this Agreement (other than the representations, warranties
and covenants relating to Taxes in Section 4.01(j)) shall survive the Closing
for purposes of the Indemnification Agreement and shall terminate upon the
termination of the indemnification obligations as set forth in the
Indemnification Agreement. Representations, warranties and
86
covenants relating to Taxes shall survive the Closing for purposes of the Tax
Matters Agreement and shall terminate at the close of business on the sixtieth
day following the expiration of the applicable statute of limitations.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to BMS or BMS Sub, to
Bristol-Myers Squibb Company
345 Park Avenue
New York, New York 10154
Attention: Robert E. Ewers, Jr.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Susan Webster
(b) if to Axion, to
Axion Inc.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
Attention: Garrett J. Roper
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, California 94304
Attention: Steven M. Spurlock
87
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such first person; for purposes of
this definition OnCare and its Subsidiaries shall be considered affiliates
of Axion prior to the Effective Time;
(b) "Documents" mean this Agreement, the Distribution Agreement, the
Indemnification Agreement, the Tax Matters Agreement, the Escrow
Agreement, the Transitional Services Agreement, each of the AHC and OnCare
Supply Agreements, each of the AHC and OnCare Medstation Agreement, each
of the Non-Competition Agreements, each of the Employment Agreements, the
License Agreement and all the transfer and assumption documentation
executed pursuant to Section 5.1 of the Distribution Agreement.
(c) "knowledge" of any person means what such person knows or could
reasonably be expected to know after due inquiry (which shall consist of
the review of such documents and the consideration of such matters and the
making of such other inquiries as such person reasonably deems appropriate
in its judgment under the circumstances);
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(e) a "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; for purposes of this definition, the
Partnership shall be considered a Subsidiary of each of Axion and the
Retained Company.
SECTION 9.04. Interpretation. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or
88
Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.05. Counterparts. This Agreement may be executed in one or
more counterparts, all of, which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Documents, the Confidentiality Letter dated as of June 20, 1996
and the agreements referred to herein and therein and required to be delivered
in connection with the transactions contemplated by the Documents (a) constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement and (b) except for the provisions of Article II are not intended
to confer upon any person other than the parties any rights or remedies.
SECTION 9.07. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 9.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that BMS Sub may assign,
in its sole discretion, any of or all its rights, interests and obligations
under this Agreement to BMS or to any direct or indirect wholly owned Subsidiary
of BMS, but no such assignment shall relieve BMS Sub of any of its obligations
under this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.09. Captions. The Article, Section and paragraph captions
herein are for convenience of reference
89
only, and do not constitute part of this Agreement and shall not be deemed to
limit or otherwise affect any of the provisions hereof.
SECTION 9.10. Severability. If any provision of this Agreement or
the Documents or the application thereof to any person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions thereof, or the application of such
provision to persons or circumstances other than those as to which it has been
held invalid or unenforceable, shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby, so long as the economic
or legal substance of the transactions contemplated thereby is not affected in
any manner adverse to any party. Upon any such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
SECTION 9.11. Schedules; Exhibits. All Schedules and Exhibits
attached hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Capitalized terms used in any
Schedule or Exhibit but not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
SECTION 9.12. Enforcement; Consent to Jurisdiction. The parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court located in the State of Delaware or in Delaware state
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any
90
of the transactions contemplated by this Agreement in any court other than a
Federal court sitting in the State of Delaware or a Delaware state court.
SECTION 9.13. Waiver, Remedies. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a 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. No delay on the party of either BMS or Axion in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of either BMS or Axion of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. Unless otherwise
provided, the
91
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties may otherwise have at law or in equity.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
BRISTOL-MYERS SQUIBB COMPANY,
by
/s/ Michael J. Howerton
-----------------------
Name: Michael J. Howerton
Title: Vice President
OTN ACQUISITION SUB INC.,
by
/s/ Michael J. Howerton
-----------------------
Name: Michael J. Howerton
Title: Treasurer
AXION INC.,
by
/s/ Garrett J. Roper
--------------------
Name: Garrett J. Roper
Title: Vice President and
Chief Financial
Officer
APPENDIX B
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION
dated as of [ ], 1996
among
AXION INC.,
AXION HEALTHCARE INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION,
OPUS HEALTH SYSTEMS INC.,
OPUS SUB, INC.
and
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.
================================================================================
TABLE OF CONTENTS
SECTION Page
----
ARTICLE I
Definitions
1.1 Definitions.................................................3
1.2 Interpretation..............................................11
ARTICLE II
Preliminary Transactions
2.1 Formation of OPUS Sub.......................................11
2.2 Preference Amount...........................................11
2.3 Employee Loans; Cancelation or Termination of
Axion Options.............................................12
ARTICLE III
Contributions of Assets and
Assumptions of Liabilities
3.1 Contribution of OPUS Sub Assets; Assumption of
OPUS Sub Liabilities; Distribution of
OPUS Sub..................................................12
3.2 Contribution of Acquired Assets.............................13
3.3 Assumption of Assumed Liabilities...........................14
3.4 Transfer and Assumption Documentation.......................14
3.5 Nonassignable Contracts.....................................15
3.6 Cooperation.................................................16
ARTICLE IV
The Distribution
4.1 Recapitalization of AHC.....................................17
2
SECTION Page
----
4.2 Mechanics of Distribution...................................17
4.3 Timing of Distribution......................................17
ARTICLE V
Other Agreements
5.1 Insurance...................................................18
5.2 Settlement of Intercompany Balances.........................19
5.3 Access to Information.......................................20
5.4 Valuations..................................................20
ARTICLE VI
Employee Matters
6.1 Transferred Employees.......................................21
6.2 Continuing Axion Employees..................................22
6.3 Savings Plan................................................22
6.4 Medical and Dental Benefits.................................22
6.5 Other Welfare Benefits......................................23
6.6 Disability Coverage.........................................23
6.7 Indemnification.............................................24
ARTICLE VII
Conditions 25
ARTICLE VIII
Tax Matters 26
ARTICLE IX
Termination, Amendment and Waiver
9.1 Termination.................................................26
9.2 Amendments and Waivers......................................27
3
SECTION Page
----
ARTICLE X
General Provisions
10.1 Counterparts................................................27
10.2 Governing Law...............................................27
10.3 Notices.....................................................27
10.4 Captions....................................................28
10.5 Successors and Assigns......................................28
10.6 Assignment..................................................29
10.7 Entire Agreement; No Third Party
Beneficiaries.............................................29
10.8 Enforcement; Consent to Jurisdiction........................29
10.9 Schedules...................................................29
Schedules
SCHEDULE 1 Acquired Assets
SCHEDULE 2 Assumed Liabilities
SCHEDULE 3 OPUS Matrix(TM)Software
SCHEDULE 4 OPUS Station Assets
SCHEDULE 5 OPUS Station Data
SCHEDULE 6 OPUS Station Liabilities
SCHEDULE 7 OPUS Sub Assets
SCHEDULE 8 OPUS Sub Liabilities
SCHEDULE 9 Retained Assets
SCHEDULE 10 Retained Liabilities
Exhibits
EXHIBIT A Transferred Employees
EXHIBIT B Continuing Axion Employees
AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION,
dated as of [ ], 1996 (the "Agreement"), among AXION INC., a
Delaware corporation ("Axion"), AXION HEALTHCARE INC., a
Delaware corporation and a wholly owned subsidiary of Axion
("AHC"), ONCOLOGY THERAPEUTICS NETWORK CORPORATION, a Delaware
corporation and a wholly owned subsidiary of Axion ("OTNC"),
OPUS HEALTH SYSTEMS INC., a Delaware corporation and a wholly
owned subsidiary of Axion ("OPUS"), OPUS SUB, INC., a Delaware
corporation and a wholly owned subsidiary of OPUS ("OPUS
Sub"); and ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
a Delaware limited partnership ("OTN" or the "Partnership").
WHEREAS, Bristol-Myers Squibb Company, a Delaware corporation
("BMS"), OTN Acquisition Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of BMS ("BMS Sub"), and Axion have entered into an Amended and
Restated Agreement and Plan of Merger, dated as of August 2, 1996 (the "Merger
Agreement"), providing for the merger of BMS Sub with and into Axion, with Axion
as the Surviving Corporation (the "Merger"), following the Distribution (as
defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to such terms in the Merger
Agreement;
WHEREAS, in connection with the Merger, all Axion Options
outstanding immediately prior to the Time of Contribution (as defined in Section
1.1) will, immediately prior to the Time of Contribution, be exercised or
canceled;
WHEREAS, in connection with the Merger, all shares of Axion
Preferred Stock outstanding immediately after the Time of Distribution (as
defined in Section 1.1) and immediately prior to the Effective Time will,
immediately after the Time of Distribution and immediately prior to the
Effective Time, be converted into Axion Common Stock in accordance with the
terms of such Axion Preferred Stock;
WHEREAS, the purpose of the Distribution is to make possible the
Merger by divesting Axion of the businesses and operations other than the
Retained Business which BMS is unwilling to acquire;
2
WHEREAS, in furtherance of such purpose, (a) immediately prior to
the Time of Contribution, OTN will distribute to OTNC which will in turn
distribute to Axion the Preference Amount (as defined in Section 2.2), (b)
immediately prior to the Time of Distribution, (i) OPUS will contribute the OPUS
Sub Assets (as defined in Section 1.1) to OPUS Sub and OPUS Sub will assume the
OPUS Sub Liabilities (as defined in Section 1.1), (ii) OPUS will distribute the
outstanding capital stock of OPUS Sub to Axion and (iii) Axion will contribute
all the Assets (as defined in Section 1.1) of Axion and its Subsidiaries
(including the outstanding capital stock of OPUS Sub) other than the OPUS Sub
Assets (which will remain Assets of OPUS Sub) and the Retained Assets (as
defined in Section 1.1) to AHC and AHC will assume all the Liabilities (as
defined in Section 1.1) of Axion and its Subsidiaries other than the OPUS Sub
Liabilities (which will remain Liabilities of OPUS Sub) and the Retained
Liabilities (as defined in Section 1.1) (the transactions in clauses (i), (ii)
and (iii), collectively, the "Contributions"), (c) immediately following the
Contributions and immediately prior to the Time of Distribution, each issued and
outstanding share of AHC Common Stock, par value $.0001 per share ("AHC Common
Stock"), will be converted into a number of shares of AHC Series A Preferred
Stock, par value $.0001 per share ("AHC Preferred Stock") as shall be equal to
the quotient of (i)(A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the exercise of Axion Options in
connection with the consummation of the Merger) plus (B) the number of shares of
Axion Common Stock to be issued in connection with the conversion of Axion
Preferred Stock in connection with the consummation of the Merger divided by
(ii) the number of shares of AHC Common Stock outstanding immediately prior to
the Time of Distribution, and (d) immediately following the Contributions and
the conversion referred to in clause (c) above and immediately prior to the
Effective Time, subject to the satisfaction or waiver of the conditions set
forth in Article VII of this Agreement, the Board of Directors of Axion will
cause Axion to distribute to the holders of Axion Common Stock and the holders
of Axion Preferred Stock all the then outstanding shares of AHC Preferred Stock
(the "Distribution");
WHEREAS, for Federal income tax purposes, it is intended that the
Distribution shall qualify as a tax-free
3
spinoff under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, this Agreement sets forth or provides for certain
agreements among Axion and AHC in consideration of the separation of their
ownership.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Distribution Agreement, the parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Distribution Agreement, the
following terms shall have the following respective meanings:
"Acquired Assets" shall mean all the Assets of Axion and its
Subsidiaries, other than Retained Assets, and shall include the following:
(i) the "Access Biotechnology", "Access Biotechnology (logo)", "Logo
(Distribution Services)", "Logo (Pharmaceutical Goods)", "Axion", "Axion
HealthCare", "Axion (TM)", "A Axion (& Design)", "OnCare Systems", "OnCare
Health", "OnCare Practice Utilization System", "OPUS", "OPUS & Design" and
"OPUS Health Systems" trademarks, trade names, service marks, service
names and all derivatives thereof;
(ii) a copy of the OPUS Station Data collected from installed OPUS
Stations through the Time of Contribution, including the installed OPUS
Stations listed on Schedule 4, to the extent that provision of such OPUS
Station Data to AHC is permitted under the terms of the applicable
agreements related to such OPUS Stations, provided that in no event shall
such OPUS Station Data be provided by AHC or any of its Subsidiaries to
any third party (other than to OnCare and its Subsidiaries who shall also
be prohibited from providing such OPUS Station Data to any third parties);
(iii) the OPUS Sub Assets;
4
(iv) all the issued and outstanding shares of the capital stock of
OPUS Sub;
(v) any AHC Tax Refunds (as such term is defined in the Tax Matters
Agreement);
(vi) all cash and cash equivalents and all interest and dividends
receivable on cash invested in various short-term cash equivalent
securities held by Axion and its Subsidiaries (including the Preference
Amount distributed by the Partnership to OTNC and then by OTNC to Axion in
accordance with the provisions of Section 2.2), other than the Retained
Cash;
(vii) the Employee Loans;
(viii) the 2,700,000 shares of Series A Preferred Stock of OnCare
owned by Axion;
(ix) Insurance Proceeds to the extent provided by Section 5.1(b); and
(x) the Assets listed on Schedule 1.
"Acquired Businesses" shall mean all the businesses of Axion and its
Subsidiaries, other than the OPUS Station Business, the business of the
Partnership, the Retained Assets and the Retained Liabilities.
"Assets" shall mean any and all assets, properties and rights,
whether tangible or intangible, whether real, personal or mixed, whether fixed,
contingent or otherwise, and wherever located, including the following:
(i) real property interests (including leases), and improvements;
(ii) equipment, vehicles, furniture and fixtures, leasehold
improvements, office equipment and other tangible personal property,
together with any rights or claims arising out of the breach of any
express or implied warranty by the manufacturers or sellers of any of such
assets or any component part thereof;
(iii) inventories, including supplies;
5
(iv) bank accounts, notes, loans and accounts receivable (whether
current or not current), interests as beneficiary under letters of credit
and advances;
(v) financial, accounting and operating data and records, including
books, records, notes, sales and sales promotional data, advertising
materials, credit information, cost and pricing information, customer and
supplier lists, reference catalogs, payroll and personnel records, minute
books, stock ledgers, stock transfer records and other similar property,
rights and information;
(vi) Intellectual Property;
(vii) agreements, leases, contracts, sale orders, purchase orders and
other commitments and all rights therein;
(viii) prepaid expenses and deposits;
(ix) claims, causes of action, choses in action, rights under
insurance policies, rights under express or implied warranties, rights of
recovery, rights of set-off, rights of subrogation and all other rights of
any kind;
(x) licenses, permits, authorization and approvals; and
(xi) goodwill and going concern value.
"Assumed Liabilities" shall mean all Liabilities of Axion and its
Subsidiaries, other than Retained Liabilities, and shall include the following:
(i) the Liabilities set forth in Section 6.7 of this Agreement;
(ii) those Taxes for which the Axion Indemnifying Parties (as defined
in the Tax Matters Agreement) have agreed to indemnify the BMS Indemnified
Parties (as defined in the Tax Matters Agreement) pursuant to Section
1(a)(i) of the Tax Matters Agreement;
(iii) the OPUS Sub Liabilities; and
(iv) those Liabilities set forth in Schedule 2.
6
"Best Closing Efforts" shall mean, in addition to Axion not
otherwise knowingly taking any action to frustrate or delay the Merger, the
following:
(i) Axion shall have diligently responded to all SEC comments to the
Form S-4 related to Axion or its Subsidiaries (A) within five business
days after receipt by Axion or its counsel of any initial SEC comments to
the Form S-4 and (B) within a reasonably prompt period under the
circumstances after receipt by Axion or its counsel of any subsequent SEC
comments to the Form S-4;
(ii)(A) in the event that the no-action relief requested by Axion from
the SEC with respect to the distribution of AHC Preferred Stock without
registration under the Securities Act is obtained from the SEC, the
Information Statement shall have been distributed to Axion stockholders at
the same time as the Proxy Statement is distributed to such Axion
stockholders or (B) in the event such no-action relief is not obtained
from the SEC either (I)(x) cause the Form S-1 to be filed within ten
business days after Axion has been finally advised orally or in writing
that no-action relief will not be granted and (y) diligently respond to
all SEC comments to the Form S-1 (1) within five business days after
receipt by Axion or its counsel of any initial SEC comments to the Form
S-1 and (2) within a reasonably prompt period under the circumstances
after receipt by Axion or its counsel of any subsequent SEC comments to
the Form S-1, or (II)(x) provide, and cause its representatives to
provide, the information with respect to Axion and its Subsidiaries
required to be included in the Application to the applicant or applicants
within five business days after Axion has been finally advised orally or
in writing that no-action relief will not be granted, (y) diligently
respond as promptly as practicable to all requests and comments regarding
the Application within a reasonably prompt period under the circumstances
after receipt by Axion or its counsel of any such requests or comments and
(z) use its reasonable best efforts to cause a fairness hearing to be held
and the Commissioner to issue a permit encompassing the distribution of
the AHC Preferred Stock and, if necessary, the BMS Common Stock to be
issued in the Distribution; and
7
(iii) Axion shall have within two business days following notice to
Axion of clearance by the SEC of the Form S-4 called a meeting of its
stockholders for the purpose of approving the Merger and the transactions
contemplated by the Merger Agreement and the other Documents, with such
meeting to be held within twenty business days after the date such meeting
is called.
"Employee Loans" shall have the meaning assigned to such term in
Section 2.3.
"Insurance Proceeds" shall have the meaning assigned to such terms
in Section 5.1(b).
"Liabilities" shall mean any and all debts, liabilities, commitments
and obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or
however arising and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto.
"OPUS Matrix Software" shall mean the Intellectual Property
described in Schedule 3.
"OPUS Station Assets" shall mean all the Assets of Axion and its
Subsidiaries that are primarily used by or are held for use in or are necessary
for the conduct of the OPUS Station Business and shall include the following:
(i) the Pyxis Contract, as the same shall be amended and in effect as
of the Time of Contribution;
(ii) all rental contracts for all installed OPUS Station sites and all
commitments for future installation of OPUS Station sites, as the same
shall be amended and in effect as of the Time of Contribution, including
the contracts and commitments listed on Schedule 4;
(iii) all Intellectual Property related to the OPUS Station Business
(including plans, drawings, product software and other software used or
useful to access data from and to operate OPUS Stations), other than the
OPUS Matrix Software;
8
(iv) all OPUS Station Data collected from installed OPUS Stations
prior to, at and after the Time of Contribution, including the installed
OPUS Stations at the sites subject to the contracts and commitments listed
on Schedule 4; and
(v) those assets listed on Schedule 4;
provided, however, that no cash or cash equivalents of Axion or any of its
Subsidiaries and no guarantees, letters of credit or foreign exchange contracts
of Axion or any of its Subsidiaries (other than the Partnership) shall
constitute OPUS Station Assets.
"OPUS Station Business" shall mean Axion's automated drug dispensing
and inventory tracking systems business.
"OPUS Station Data" shall mean information derived from OPUS Station
installations as described in Schedule 5.
"OPUS Station Liabilities" shall mean any Liabilities of Axion, its
Subsidiaries and OTN directly and solely related to the OPUS Station Business
and shall include the Liabilities listed on Schedule 6.
"OPUS Sub Assets" shall mean all the Assets of OPUS other than any
such Assets that are OPUS Station Assets and shall include:
(i) the OPUS Matrix Software;
(ii) all Contracts relating to the development, use and installation
of OPUS Matrix Software and all commitments relating to the future
development, use and installation of OPUS Matrix Software, including the
contracts and commitments listed on Schedule 7; and
(iii) the Assets listed on Schedule 7.
"OPUS Sub Liabilities" shall mean all the Liabilities of OPUS other
than any such Liabilities that are OPUS Station Liabilities or are otherwise
Retained Liabilities and shall include the Liabilities listed on Schedule 8.
"Partnership Interest" shall mean the general partnership interest
of OTNC in the Partnership.
9
"Preference Amount" shall have the meaning assigned to such term in
Section 2.2.
"Retained Assets" shall mean
(i) the OPUS Station Assets;
(ii) all the Assets of the Partnership and any other Assets of Axion
and its Subsidiaries that are primarily used by or are held for use in or
are necessary for the conduct of the business of OTNC or the Partnership;
(iii) all the outstanding capital stock of OTNC and OPUS and the
Partnership Interest;
(iv) subject to the provisions of Section 5.1(b), all current and
former insurance policies of Axion and its Subsidiaries in effect at or
immediately prior to the Time of Contribution (other than any insurance
policy that is a Benefit Plan) and the right to Insurance Proceeds
thereunder;
(v) the Retained Cash;
(vi) any BMS Tax Refunds (as such term is defined in the Tax Matters
Agreement);
(vii) the "Oncology Therapeutics Network(R)" trademarks, trade names,
service marks, service names and all derivatives thereof; and
(viii) the Assets listed on Schedule 9.
"Retained Business" shall mean the OPUS Station Business, the
business of the Partnership, the Retained Assets and the Retained Liabilities.
"Retained Cash" means (a) an amount in cash equal to the excess, if
any, of the Axion Expenses listed in the Transaction Expense Schedule over
$2,000,000, (b) any cash and cash equivalents held by the Partnership (after
giving effect to the payment of the Preference Amount in accordance with the
provisions of Section 2.2), (c) an amount in cash equal to the sum of (i) the
amount of any Pre-JV Sales Taxes paid by the Partnership on behalf of Axion at
or prior to the Time of Contribution and (ii) the amount, if any, by which the
amount of JV Sales Taxes paid by the Partnership
10
at or prior to the Time of Contribution exceeds $667,402 and (d) an amount in
cash equal to any amounts withheld from Continuing Axion Employees as of the
Closing Date related to employee benefit arrangements or in respect of payroll
taxes (to the extent such payroll taxes shall not have been paid to the relevant
taxing authorities at the Time of Contribution) and employee contributions to
any Benefit Plan.
"Retained Liabilities" shall mean:
(i) OPUS Station Liabilities;
(ii) any Liabilities of Axion and its Subsidiaries directly and solely
related to the business of OTN including those liabilities set forth on
Schedule 10;
(iii) those Taxes (as defined in the Tax Matters Agreement) and other
items for which the BMS Indemnifying Parties (as defined in the Tax
Matters Agreement) have agreed to indemnify the Axion Indemnified Parties
(as defined in the Tax Matters Agreement) pursuant to Section (2)(a)(i) of
the Tax Matters Agreement;
(iv) such other Liabilities of Axion and its Subsidiaries to the
extent they are directly and primarily related to OTN and/or the OPUS
Station Business including those Liabilities set forth on Schedule 10;
(v) the Axion Expenses, but only to the extent that such expenses do
not exceed $2 million;
(vi) any Liabilities of the Retained Companies to the extent such
Liabilities solely relate to or arise from events, occurrences, actions,
omissions, facts or circumstances that occur after the Effective Time;
(vii) all Liabilities of Axion and its Subsidiaries related to the
amounts described in clause (d) of the definition of Retained Cash; and
(viii) the Liabilities listed on Schedule 10;
provided, however, notwithstanding the foregoing, that Retained Liabilities
shall not include any Liabilities
11
described in clauses (i) through (iv) of the definition of Assumed Liabilities.
"Time Of Contribution" shall mean the time immediately prior to the
Time of Distribution as of which the Contributions are effective.
"Time Of Distribution" shall mean the time as of which the
Distribution is effective.
"Transfer Agent" shall mean Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, the transfer agent for Axion.
1.2 Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "included", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings determined by GAAP.
ARTICLE II
PRELIMINARY TRANSACTIONS
2.1 Formation of OPUS Sub. Prior to the execution of this Agreement,
Axion shall have caused OPUS Sub to be duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. Prior to the Effective
Time, Axion and AHC, as applicable, shall not permit OPUS Sub to engage in any
other business activities or to conduct its operations other than as
contemplated by this Agreement.
2.2 Preference Amount. Immediately prior to the Time of
Contribution, Axion shall cause OTNC to cause OTN to distribute to OTNC an
amount equal to $13,615,147 (the "Preference Amount"), in full satisfaction of
all amounts that may be due as of, or in respect of any period ending on or
prior to, the Closing Date to OTNC in respect of its Capital Account Prime Rate
Amount and the General Partner Cumulative Preference Amount (as each such term
is defined
12
in the Partnership Agreement). Notwithstanding the preceding sentence, if the
Closing Date occurs after September 30, 1996 and Axion shall not have used Best
Closing Efforts to cause the Closing to occur on or prior to September 30, 1996,
the payment referred to therein shall be made only to the extent of cash and
cash equivalents held by OTN as of September 30, 1996 (it being understood that
for purposes of this Section 2.2 the amount of cash and cash equivalents held by
OTN as of September 30, 1996 shall be reduced by the amount, if any, by which
outstanding indebtedness for borrowed money, or any guaranties in respect of any
indebtedness for borrowed money of any third party, in respect of which OTN is
obligated on September 30, 1996 shall exceed $35,617,000).
2.3 Employee Loans; Cancelation or Termination of Axion Options.
Prior to the Time of Contribution, Axion intends to advance to certain of its
holders of Axion Options loans for the purpose of allowing such holders of Axion
Options to exercise the Axion Options held by such holders of Axion Options (the
"Employee Loans"). Immediately prior to the Time of Contribution, all Axion
Options outstanding immediately prior to the Time of Contribution shall have
been exercised or canceled.
ARTICLE III
CONTRIBUTIONS OF ASSETS AND ASSUMPTIONS OF LIABILITIES
3.1 Contribution of OPUS Sub Assets; Assumption of OPUS Sub
Liabilities; Distribution of OPUS Sub. (a)(i) Effective as of the Time of
Contribution, OPUS hereby grants, assigns, transfers, conveys, contributes and
delivers to OPUS Sub, and OPUS Sub hereby acquires all right, title and interest
of OPUS in, to and under any and all OPUS Sub Assets as the same shall exist at
the Time of Contribution.
(ii) Effective as of the Time of Contribution, OPUS Sub hereby
assumes and undertakes to pay, perform and discharge when due in accordance with
their terms, the OPUS Sub Liabilities.
(b) Effective as of the Time of Contribution, OPUS hereby
distributes, grants, assigns, transfers, conveys, and delivers to Axion, and
Axion hereby acquires, all the outstanding capital stock of OPUS Sub.
13
3.2 Contribution of Acquired Assets. (a) Effective as of the Time of
Contribution, Axion hereby grants, assigns, transfers, conveys, contributes and
delivers to AHC, and AHC hereby acquires all Axion and its Subsidiaries' right,
title and interest in, to and under any and all Acquired Assets (other than the
OPUS Sub Assets, which shall remain Assets of OPUS Sub) as the same shall exist
at the Time of Contribution. Notwithstanding anything to the contrary set forth
in this Agreement, $25,000 of the cash included in the Acquired Assets shall
represent payment by Axion to AHC for the granting by AHC to Axion of the right
to use the OPUS Intellectual Property and the Axion Intellectual Property (each
as defined in the License Agreement), on the terms and conditions set forth in
the License Agreement.
(b) If any Acquired Assets are held by Axion or in a Subsidiary of
Axion other than AHC or OPUS Sub after giving effect to the transactions
described in Sections 3.1(a) and 3.2(a), then Axion shall, and shall cause each
such Subsidiary to, contribute such Acquired Assets to either AHC or OPUS Sub as
specified by AHC. If any Retained Assets are held in a current or former
Subsidiary of Axion other than OTNC, the Partnership or OPUS after giving effect
to the transactions described in Sections 3.1(a) and 3.2(a), then AHC shall, and
shall cause each such Subsidiary to, contribute such Retained Assets to Axion,
OTNC, the Partnership or OPUS as specified by Axion.
(c) THE TRANSFER OF THE ACQUIRED ASSETS HEREUNDER IS MADE WITHOUT
RECOURSE TO AXION OR ANY OF THE RETAINED COMPANIES. AHC AND ITS SUBSIDIARIES
EACH UNDERSTANDS AND AGREES THAT NONE OF AXION, ANY RETAINED COMPANY OR ANY
OTHER PERSON IS, IN THIS AGREEMENT AND THE OTHER DOCUMENTS OR OTHERWISE,
REPRESENTING OR WARRANTING IN ANY WAY, EXPRESS OR IMPLIED, AS TO THE ACQUIRED
BUSINESSES, THE ACQUIRED ASSETS OR THE ASSUMED LIABILITIES TRANSFERRED TO OR
ASSUMED BY AHC AND ITS SUBSIDIARIES AS CONTEMPLATED HEREBY OR AS TO ANY CONSENTS
OR APPROVALS REQUIRED IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, IT BEING AGREED AND UNDERSTOOD THAT AHC AND ITS
SUBSIDIARIES SHALL TAKE OR KEEP ALL THE ACQUIRED ASSETS "AS IS WHERE IS" AND
THAT AHC AND ITS SUBSIDIARIES SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT
CONVEYANCE OF SUCH ACQUIRED ASSETS SHALL PROVE TO BE INSUFFICIENT OR THAT THE
TITLE TO ANY ACQUIRED ASSETS SHALL BE OTHER THAN GOOD AND MARKETABLE AND FREE
FROM ENCUMBRANCES OF ANY NATURE WHATSOEVER. NO REPRESENTATION OR WARRANTY IS
MADE BY AXION TO AHC
14
CONCERNING (I) THE MERCHANTABILITY, FITNESS, COLLECTIBILITY, QUALITY,
ENFORCEABILITY OR FITNESS OF ANY ACQUIRED ASSETS OR (II) THE SUFFICIENCY OF THE
ACQUIRED ASSETS OR THE ACQUIRED BUSINESSES TO CONDUCT THE BUSINESS OF AHC AND
ITS SUBSIDIARIES FOLLOWING THE CLOSING.
3.3 Assumption of Assumed Liabilities. (a) Effective as of the Time
of Contribution, AHC hereby assumes and undertakes to pay, perform and discharge
when due in accordance with their terms, the Assumed Liabilities (other than the
OPUS Sub Liabilities, which shall remain Liabilities of OPUS Sub).
(b) If any Assumed Liabilities are obligations of a Subsidiary of
Axion other than AHC or OPUS Sub after giving effect to the transactions
described in Sections 3.1(a)(i) and 3.2(a) as a result of the allocation of
assets of Axion and its Subsidiaries set forth in this Article III, then
notwithstanding the transactions described in Section 3.1(a)(i) or 3.3(a) or the
allocation of assets of Axion set forth in this Article III, AHC shall, or shall
cause OPUS Sub to, assume each such Assumed Liability. If any Retained
Liabilities are obligations of a Subsidiary of Axion other than OTNC, the
Partnership or OPUS after giving effect to the transactions described in
Sections 3.1(a)(i) and 3.2(a) as a result of the allocation of assets set forth
in this Article III, then, notwithstanding the transactions described in Section
3.1(a)(ii) or 3.3(a) or the allocation of assets set forth in this Article III,
Axion shall, or shall cause OTNC, the Partnership or OPUS to, assume each such
Retained Liability.
3.4 Transfer and Assumption Documentation. In furtherance of the
distribution, grant, assignment, transfer, conveyance, contribution and delivery
of the Assets, and the assumption of the Liabilities set forth in Article III,
at the Time of Contribution or as promptly as practicable thereafter (i) each of
Axion and AHC shall execute and deliver, and shall cause its respective
Subsidiaries to execute and deliver, such deeds, bills of sale, stock powers,
certificates of title, assignments of leases and contracts and other instruments
of contribution, grant, conveyance, assignment, transfer and delivery necessary
to evidence such distribution, grant, assignment, transfer, conveyance,
contribution and delivery and (ii) each of Axion and AHC shall execute and
deliver, and shall cause its respective Subsidiaries to execute and
15
deliver, such instruments of assumption to the extent necessary to evidence such
assumption.
3.5 Nonassignable Contracts. (a) Anything contained herein to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any Contract or other commitment or asset if an assignment or attempted
assignment of the same without the consent of the other party or parties thereto
would constitute a breach thereof or in any way impair the rights of AHC and its
Subsidiaries or the Retained Company and its Subsidiaries thereunder.
(b) If any consent necessary to convey any Acquired Asset is not
obtained or if an attempted assignment would be ineffective or would impair any
party's rights under any such Contract or other Asset so that AHC or OPUS Sub
would not receive all such rights, then (x) Axion shall use its reasonable best
efforts (it being understood that such efforts shall not include any requirement
of Axion or its Subsidiaries or the Retained Company or its Subsidiaries to
expend money or offer or grant any financial accommodation) to provide or cause
to be provided to AHC or OPUS Sub, as applicable, to the extent permitted by
law, the benefits of any such Contract or other Asset, and Axion shall promptly
pay or cause to be paid to AHC or OPUS Sub, as applicable, when received all
moneys received by Axion or its Subsidiaries or the Retained Company or its
Subsidiaries with respect to any such Contract or other Asset and (y) in
consideration thereof AHC shall, and shall cause OPUS Sub to, pay, perform and
discharge on behalf of Axion and the Retained Company or its Subsidiaries all
Axion and its Subsidiaries' (and the Retained Company and its Subsidiaries')
debts, liabilities, obligations and commitments thereunder in a timely manner
and in accordance with the terms thereof. In addition, Axion shall take such
other actions (at the expense of AHC or OPUS Sub, as designated by AHC) as may
reasonably be requested by AHC in order to place AHC and OPUS Sub, insofar as
reasonably possible, in the same position as if such Contract or other Asset had
been transferred as contemplated hereby and so all the benefits and burdens
relating thereto, including possession, use, risk of loss, potential for gain
and dominion, control and command are to inure to AHC or OPUS Sub, as
applicable. If and when such consents and approvals are obtained, the transfer
of the applicable asset shall be effected in accordance with the terms of this
Agreement.
16
(c) If any consent necessary to convey to the Retained Companies
the Retained Assets is not obtained or if any attempted assignment would be
ineffective or would impair any party's rights under any such Contract or other
Asset so that Axion or its Subsidiaries would not receive all such rights, then
(x) AHC shall, and shall cause its Subsidiaries to, use its best efforts to
provide or cause to be provided to Axion or its Subsidiaries, to the extent
permitted by law, the benefits of any such Contract or other Asset, and AHC
shall, and shall cause its Subsidiaries to, promptly pay or cause to be paid to
Axion or its Subsidiaries when received all moneys received by AHC or its
Subsidiaries with respect to any such Contract or other commitment or asset and
(y) in consideration thereof Axion and its Subsidiaries shall pay, perform and
discharge on behalf of AHC and its Subsidiaries all AHC and its Subsidiaries'
debts, liabilities, obligations and commitments thereunder in a timely manner
and in accordance with the terms thereof. In addition, AHC shall take such other
actions (at AHC's expense) as may reasonably be requested by Axion or BMS in
order to place Axion and its Subsidiaries, insofar as reasonably possible, in
the same position as if such Contract or other Asset had been transferred as
contemplated hereby and so all the benefits and burdens relating thereto,
including possession, use, risk of loss, potential for gain and dominion,
control and command are to inure to Axion and its Subsidiaries. If and when such
consents and approvals are obtained, the transfer of the applicable asset shall
be effected in accordance with the terms of this Agreement.
3.6 Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure the transfer to AHC or to its Subsidiaries of the
Acquired Businesses, including the Acquired Assets and the Assumed Liabilities
and the retention by the Retained Company and its Subsidiaries of the Retained
Business, including the Retained Assets and the Retained Liabilities. Consistent
with the terms and conditions hereof, each party hereto shall execute and
deliver such instruments and take such other actions as the other parties may
reasonably require in order to carry out the provisions hereof and to consummate
the transactions contemplated hereby.
17
ARTICLE IV
THE DISTRIBUTION
4.1 Recapitalization of AHC. Effective immediately following the
Contributions and immediately prior to the Effective Time, each issued and
outstanding share of AHC Common Stock shall be converted into that number of
shares of AHC Preferred Stock as shall be equal to the quotient of (a)(i) the
number of shares of Axion Common Stock outstanding immediately prior to the Time
of Distribution (including any shares of Axion Common Stock issued in connection
with the exercise of Axion Options in connection with the consummation of the
Merger) plus (ii) the number of shares of Axion Common Stock to be issued in
connection with the conversion of Axion Preferred Stock in connection with the
consummation of the Merger divided by (b) the number of shares of AHC Common
Stock outstanding immediately prior to the Time of Distribution.
4.2 Mechanics of Distribution. Axion shall declare and pay a
dividend of all the outstanding AHC Preferred Stock to the holders of Axion
Common Stock and the holders of Axion Preferred Stock followed by the
distribution of certificates representing (a) one share of AHC Preferred Stock
for each share of Axion Common Stock held by each holder of record of Axion
Common Stock, in the case of holders of Axion Common Stock, and (b) one share of
AHC Preferred Stock for each share of Axion Common Stock into which each share
of Axion Preferred Stock held by each holder of record of Axion Preferred Stock
is then convertible in accordance with the Certificate of Incorporation of
Axion, in the case of holders of Axion Preferred Stock, in each case at the Time
of Distribution.
4.3 Timing of Distribution. Immediately following the Contributions
and immediately prior to the Effective Time, subject to the satisfaction or
waiver of the conditions set forth in Article VII, the Board of Directors of
Axion shall formally declare the Distribution and Axion shall effect the
Distribution by delivery of certificates for AHC Preferred Stock to the Transfer
Agent for delivery to the holders of Axion Common Stock and the holders of Axion
Preferred Stock entitled thereto. The Distribution shall be deemed to be
effective upon notification by Axion to the Transfer Agent that the Distribution
has been declared and that the Transfer Agent is authorized to proceed with the
distribution of AHC Preferred Stock, which
18
notification Axion agrees to deliver promptly following such declaration.
ARTICLE V
OTHER AGREEMENTS
5.1 Insurance. (a) Except as provided in Article VI, all current
policies of liability, fire, extended coverage, fidelity, fiduciary, workers'
compensation and other forms of insurance in force as of the Time of
Distribution covering Axion and its directors and officers immediately prior to
the Time of Distribution shall be treated as Retained Assets and not as Acquired
Assets under this Agreement. All coverage under such policies with respect to
AHC and its Subsidiaries shall terminate as of the Effective Time.
(b) Axion agrees that following the Effective Time, AHC and OPUS Sub
each shall retain the rights of an insured party under all current and former
policies of Axion and its Subsidiaries in effect at or immediately prior to the
Time of Contribution ("Axion Policy") with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred prior to
the Time of Distribution by any party that is an Assumed Liability to the extent
that such injury, loss, liability, damage or expense may arise out of insured or
insurable occurrences or events under one or more of such Axion Policies. Axion
shall direct the insurance carriers to pay Insurance Proceeds with respect to
such claims, costs and expenses under such policies directly to AHC or OPUS Sub,
as applicable, with respect to those liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of such policies,
whether or not subject to deductibles, co-insurance, uncollectibility or
retrospectively rated premium adjustments, but only to the extent that such
liabilities are within applicable policy limits, including aggregates.
"Insurance Proceeds" means those funds (i) received by the insured from the
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of the insured. Nothing set forth in this Section 5.1(b) shall be deemed
or interpreted to limit or restrict in any manner the rights of any Retained
Company as
19
an insured party under any Axion Policy to make any claim under any Axion Policy
with respect to any Retained Liability and to receive Insurance Proceeds with
respect thereto to the extent that such liabilities are within applicable
limits, including aggregates.
5.2 Settlement of Intercompany Balances. Except for the Specified
Intercompany Amounts (as defined in Section 5.2(b)), each of (i) the Retained
Company and its Subsidiaries, and (ii) AHC and its Subsidiaries shall submit to
the other not later than five business days prior to Closing a true and complete
schedule (with a copy to BMS) of all (i) unpaid intercompany receivables that
would, if not satisfied immediately subsequent to the Contributions constitute
intercompany receivables between the Retained Company and its Subsidiaries, on
the one hand, and AHC and its Subsidiaries, on the other hand (the "Unpaid
Intercompany Receivables"), and (ii) unpaid intercompany payables that would, if
not satisfied immediately subsequent to the Contributions constitute
intercompany payables between the Retained Company and its Subsidiaries, on the
one hand, and AHC and its Subsidiaries, on the other hand (the "Unpaid
Intercompany Payables"). Subject to the provisions of Section 2.2, all Unpaid
Intercompany Receivables and all Unpaid Intercompany Payables set forth on such
schedules outstanding immediately prior to the Time of Distribution shall be
satisfied immediately prior to the Time of Distribution; provided, however, that
in the event any such Unpaid Intercompany Receivables or such Unpaid
Intercompany Payables cannot be determined immediately prior to the Time of
Distribution (a) each of BMS and Axion shall deliver, within 30 days after
Closing, to the other party a notice in sufficient detail to enable the other
party to confirm the nature and amount of such party's Unpaid Intercompany
Receivables and Unpaid Intercompany Payables together with a reasonably detailed
calculation of the amounts thereof and (b) not more than 10 days subsequent to
receipt of such notice, all Unpaid Intercompany Receivables and Unpaid
Intercompany Payables listed in such notice shall be satisfied as follows: (i)
the Unpaid Intercompany Receivables and the Unpaid Intercompany Payables of the
Retained Company and its Subsidiaries shall be netted (the "Retained Company
Intercompany Balance"), (ii) the Unpaid Intercompany Receivables and the Unpaid
Intercompany Payables of AHC and its Subsidiaries shall be netted the ("AHC
Intercompany Balance") and (iii) whichever amount set forth in clause (i) or
(ii) represents a net payable shall be paid by AHC or the Retained Company, as
applicable.
20
(b) The Specified Intercompany Amounts shall be settled in the
manner set forth in Schedule 4.01(n)(iii) to the Merger Agreement. For purposes
of this Agreement, Specified Intercompany Amounts shall mean the intercompany
receivables and payables identified as such Schedule 4.01(n)(iii) to the Merger
Agreement.
5.3 Access to Information. From and after the Time of Contribution,
each of Axion and AHC shall afford to the other and to the other's
representatives reasonable access and duplicating rights (at the requesting
party's expense) during normal business hours and upon reasonable advanced
notice to all information within the possession or control of any member of
Axion and its Subsidiaries or AHC and its Subsidiaries, as the case may be,
relating to the business, Assets or Liabilities as they existed prior to the
Time of Contribution or relating to or arising in connection with the
relationship between the constituent elements of Axion and its Subsidiaries, on
the one hand, and AHC and its Subsidiaries, on the other hand, on or prior to
the Time of Contribution, insofar as such access is reasonably required for a
reasonable purpose, subject to the provisions in the Documents regarding the
confidentiality of information. Without limiting the foregoing, information may
be requested under this Section 5.3 for audit, accounting, claims, litigation
and Tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations.
5.4 Valuations. At the Effective Time, Axion shall deposit, or cause
to be deposited, into escrow with Cravath, Swaine & Moore (the "Valuation Escrow
Agent"), and the Valuation Escrow Agent shall acknowledge receipt of, copies of
the valuations prepared by Ernst & Young and all supporting documents (i)
prepared in connection with the distribution of the capital stock of OnCare on
December 31, 1995 to the stockholders of Axion and (ii) regarding the Acquired
Businesses and the OPUS Station Business (collectively, the "Valuations"). The
Escrow Valuation Agent shall hold the Valuations in its possession until
requested by either Axion or AHC in writing to deliver copies of such Valuations
in accordance with the provisions of this Section 5.4. Either Axion or AHC may
request the release of the applicable Valuations if any information contained in
such Valuations and not otherwise available to the requesting party is relevant
to the resolution of any issue that has been raised in any audit or examination
by any Taxing authority, or in any claim, action, suit, inquiry, investigation
or proceeding relating to any such
21
audit or examination or to any other claim, action, suit, inquiry, investigation
or proceeding to which such Valuations may be relevant.
ARTICLE VI
EMPLOYEE MATTERS
6.1 Transferred Employees. Exhibit A sets forth the name, title and
current employer of each employee of AHC and each employee of Axion, OPUS, OTN
and OTNC whose employment will be transferred to AHC effective upon the Time of
Distribution, such transfer being effected upon the terms and conditions set
forth below in this Section 6.1 (all such employees hereinafter referred to as
"Transferred Employees"). It is intended that all employees of Axion, OPUS, OTN
and OTNC who are not listed on Exhibit B shall be deemed Transferred Employees
whether or not listed on Exhibit A. Prior to the Time of Distribution, AHC shall
offer employment to each employee of Axion, OPUS, OTN and OTNC set forth on
Exhibit A on such terms and conditions (including salary and benefit level) that
are substantially equivalent to the terms and conditions of the employee's
employment with Axion, OPUS, OTN or OTNC, as the case may be, immediately prior
to the Time of Distribution. Any Transferred Employee not actively-at-work as of
the date immediately following the Time of Distribution shall nonetheless be
deemed to be an employee of AHC as of such date for all purposes and shall be
covered under the benefit plans and arrangements of AHC to the fullest extent
permitted by such plans and arrangements. To the extent any Transferred Employee
is not able to be covered under any benefit plans or arrangements of AHC to the
same extent that such Transferred Employee would have been covered had he or she
not been included as a Transferred Employee, AHC shall bear full responsibility
to provide the level of benefits that such Transferred Employee would have
otherwise received. AHC shall recognize each Transferred Employee's prior
service with Axion, AHC, OPUS, OTN and OTNC and all members of Axion's
controlled group within the meaning of Section 414(b), (c), (m), and (o) of the
Code for all purposes under each employee benefit plan, policy or arrangement of
AHC. AHC shall be solely liable for all liabilities, costs and expenses arising
from any Transferred Employee's failure or inability, for any reason, to accept
AHC's offer of employment and commence or continue such employment with AHC
following the Time of Distribution,
22
including any and all severance or termination benefits, benefit continuation
obligations, or employment-related claims.
6.2 Continuing Axion Employees. Exhibit B sets forth the name,
title, annual base salary and current employer of each employee of Axion, AHC,
OPUS, OTN and OTNC who is intended to be a continuing employee of Axion on and
after the Time of Distribution (each a "Continuing Axion Employee").
6.3 Savings Plan. Immediately prior to the Time of Distribution, the
Axion, Inc. 401K Profit Sharing Plan (the "Axion 401K Plan") shall be divided
into two plans, each plan substantially identical to the Axion 401K Plan. One
such plan shall be maintained by Axion and shall cover only those participants
who are Continuing Axion Employees (the "New Axion 401K Plan") and one such plan
shall cover all other participants in the Axion 401K Plan, including all
participants who are Transferred Employees, retirees and vested terminated
participants in the Axion 401K Plan on the Time of Distribution (the "AHC 401K
Plan"). As of the Time of Distribution, the AHC 401K Plan shall be transferred
to and assumed by AHC. As soon as practicable following the Time of
Distribution, Axion shall cause an amount in cash (or property acceptable to
AHC) to be transferred from the trust under the Axion 401K Plan to the trust
under the AHC 401K Plan equal to the sum of the account balances of (i) all
Transferred Employees, (ii) all retirees and (iii) all vested terminated
participants in the Axion 401K Plan with account balances under the Axion 401K
Plan. Assets relating to the accounts of Continuing Axion Employees shall be
retained by the Axion 401K Plan trust which shall be renamed the New Axion 401K
Plan Trust. Axion and AHC shall cooperate in good faith to expedite the
trust-to-trust transfer and to assure the ongoing operation and administration
of the New Axion 401K Plan and the AHC 401K Plan.
6.4 Medical and Dental Benefits. Effective as of the Time of
Distribution, Axion shall (a) cause the Transferred Employees to cease coverage
under and participation in the Aetna Medical and Dental Plan and the underlying
insurance policy or policies, Axion Pharmaceuticals, Inc. (as amended to be the
Oncology Therapeutics Network Corporation) Flexible Employee Benefit Plan and
the Axion Health Care Inc. Flexible Employee Benefit Plan (the "Axion Health
Plan") and (b) cause the
23
Axion Health Plan to cover only the Continuing Axion Employees. Effective as of
the Time of Distribution, AHC shall establish a medical and dental plan and a
corresponding Code Section 125 plan (the "AHC Health Plan") substantially
equivalent to the Axion Health Plan to cover the Transferred Employees (and
their eligible dependents) on the same basis and subject to the same conditions
that would have applied to such Transferred Employees (and their dependents)
absent the Distribution. The AHC Health Plan shall waive any waiting period
requirements and any pre-existing condition and actively-at-work exclusions and
shall provide that any expenses incurred on or before the Time of Distribution
shall be taken into account for purposes of satisfying applicable deductible,
coinsurance and maximum out-of-pocket provisions. Subject to the indemnification
provisions of Section 6.7, Axion shall be responsible for providing COBRA
coverage to any former employee, retiree or COBRA beneficiary entitled to such
coverage under any Axion welfare benefit plan as of the Time of Distribution.
6.5 Other Welfare Benefits. Effective as of the Time of
Distribution, the Standard Insurance Life and Accidental Death & Dismemberment
Plan shall be transferred to and assumed by AHC and each Transferred Employee
(and his or her dependents) shall continue to participate in such plans on the
same terms that would have applied absent the Distribution. As of the Time of
Distribution, and subject to completion of the Merger, each Continuing Axion
Employee shall receive similar welfare benefits under the plans of BMS which
apply to similarly situated employees of BMS. No Transferred Employee shall be
subject to any waiting period with respect to such coverage under such welfare
plans which would not have applied absent his or her transfer of employment to
AHC.
6.6 Disability Coverage. As of the Time of Distribution, the
Standard Insurance Long Term Disability Plan and any and all liabilities
associated with short term disability coverage or wage continuation thereunder
shall be transferred to and assumed by AHC. No Transferred Employee shall be
subject to any waiting period or pre-existing condition exclusion with respect
to such disability coverage which would not have applied absent his or her
transfer of employment to AHC. In accordance with the foregoing, AHC shall be
responsible for providing short-term and long-term disability benefits to each
Transferred Employee who is or becomes disabled before, on or after the Time of
Distribution and each former employee of Axion who becomes
24
disabled before the Time of Distribution regardless of whether such former
employee would have been a Transferred Employee if he or she had not become
disabled. As of the date immediately following the Time of Distribution, and
subject to completion of the Merger, each Continuing Axion Employee shall be
eligible to participate in the short-term and long-term disability coverage
provided under the plans and policies of BMS subject to the same coverage levels
and other terms and conditions (including waiting periods and pre-existing
condition exclusions) as a newly hired employee of BMS.
6.7 Indemnification. From and after the Time of Distribution AHC
shall indemnify, defend and hold harmless the BMS Indemnified Parties (as such
term is defined in the Indemnification Agreement) from and against, and pay or
reimburse the BMS Indemnified Parties for, all losses, liabilities, damages,
deficiencies, obligations, fines, expenses, claims, demands, actions, suits,
proceedings, judgments or settlements, whether or not resulting from third party
claims, including interest and penalties recovered by a third party with respect
thereto and out-of-pocket expenses and reasonable attorneys and accountants'
fees and expenses incurred in the investigation or defense or any of the same or
in asserting, preserving or enforcing any of the rights of BMS Indemnified
Parties hereunder, suffered by any of the BMS Indemnified Parties who or which
may seek indemnification under this Section 6.7, as incurred, relating to or
arising from (a) any employment-related claim of any kind (including any
employment benefit claim or any severance claim under the Oncology Therapeutics
Network Corporation Officer Severance Plan or any other severance or termination
pay plan or arrangement) involving any Transferred Employee, Continuing Axion
Employee or any other employee, retiree, former employee, applicant for
employment of Axion, AHC, OPUS, OTN, OTNC or any of their respective affiliates
and any predecessor of any such entity and any of such individual's
beneficiaries or dependents covered under any plan maintained by Axion or its
affiliates arising out of or relating to any event or state of facts occurring
or existing on or before the Time of Distribution; (b) any employment-related
claim of any kind (including any employee benefit claim or any severance claim
under any severance or termination pay plan or arrangement) involving any
Transferred Employee or any other employee, retiree, former employee or
applicant for employment with AHC and any of such individual's beneficiaries or
dependents covered under any plan maintained by AHC or its affiliates and
25
arising out of or relating to any event or state of facts occurring or existing
on or after the Time of Distribution; (c) any claim for severance, salary
continuation or other termination benefits payable in respect of any termination
or deemed termination of the employment of any Transferred Employee or
Continuing Axion Employee arising from or relating to the transactions
contemplated by this Agreement or the Merger Agreement or any transfer of such
employee's employment in connection therewith, regardless of whether such claim
is deemed to arise before, on or after the Time of Distribution; (d) any claim
or expense incurred with respect to any Transferred Employee relating to any
Benefit Plan or any successor plan or any accrued liabilities for payroll taxes
which arise before, on or after the Time of Distribution; (e) any claim or
expense incurred with respect to any former employee whose employment terminated
prior to the Time of Distribution or any COBRA beneficiary who is not a
Continuing Axion Employee relating to any Benefit Plan or any successor plan or
any accrued liabilities for payroll taxes or employee contributions to any
Benefit Plan which arise prior to the Time of Distribution; and (f) any claim or
expense incurred with respect to any Transferred Employee, Continuing Axion
Employee or former employee relating to workers compensation liability where the
claim arose with respect to an event occurring prior to the Time of
Distribution.
ARTICLE VII
CONDITIONS
The obligations of Axion to consummate the Distribution shall be
subject to the fulfillment of each of the following conditions:
(a) All the transactions or obligations contemplated by Articles III
and IV to be consummated or performed at or prior to the Time of Distribution
shall have been successfully consummated or so performed.
(b) Each condition to the closing of the Merger set forth in Article
VII of the Merger Agreement (other than the completion of the Contributions and
the Distribution) shall have been satisfied (or waived by the party for whose
benefit such condition exists).
26
(c) The Board of Directors of Axion shall be reasonably satisfied
that, after giving effect to the Distribution, (i) AHC will not be insolvent and
will not have unreasonably small capital with which to engage in its businesses
and (ii) Axion's surplus would be sufficient to permit, without violation of
Section 170 of the Delaware General Corporation Law, the Distribution.
(d) All filings required to be made with, and all consents,
approvals and authorizations required to be obtained from, any Governmental
Entity in connection with the execution, delivery and performance of this
Agreement or the consummation of the Contributions, the Distribution or the
other transactions contemplated by this Agreement shall have been made or
obtained.
(e) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Distribution
shall be in effect (each party agreeing to use all reasonable best efforts to
have any such order reversed or injunction lifted).
ARTICLE VIII
TAX MATTERS
Notwithstanding anything to the contrary in this Agreement, all Tax
Liabilities, Tax Assets and all other matters related to Taxes shall be governed
by the terms of the Tax Matters Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Time of Distribution by mutual written
consent of Axion and AHC but only in the event the Merger Agreement is
terminated by any party thereto in accordance with the terms thereof.
27
9.2 Amendments and Waivers. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto and
consented to by BMS. By an instrument in writing, the parties hereto may waive
compliance by any other party with any term or provision of this Agreement that
such other party was or is obligated to comply with or perform; provided that no
such waiver by Axion shall be effective unless consented to by BMS.
ARTICLE X
GENERAL PROVISIONS
10.1 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties.
10.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to this conflicts of law principles.
10.3 Notices. Any notice, request, instruction or other document to
be given hereunder by any party to any other party shall be deemed to have been
duly given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice)
If to Axion, to:
Axion Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
28
with copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way
Palo Alto, CA 94304
Attention: Steven M. Spurlock
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: Robert E. Ewers, Jr.
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Susan Webster
If to AHC, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way
Palo Alto, CA 94304
Attention: Steven M. Spurlock
10.4 Captions. All Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
10.5 Successors and Assigns. This Agreement and all the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
29
10.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
10.7 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the Merger Agreement, the other Documents and the agreements referred to herein
and therein, and required to be delivered in connection with the transactions
contemplated by the Documents (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and (b) are not
intended to confer upon any person or entity other than BMS, BMS Sub and the
parties hereto any rights or remedies. BMS and BMS Sub shall be third party
beneficiaries of this Agreement.
10.8 Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal Court sitting
in the State of Delaware or in Delaware state court.
10.9 Schedules. All Schedules attached hereto or referred to herein
are hereby incorporated in and made a
30
part of this Agreement as if set forth in full herein. Capitalized terms used in
any Schedule but not otherwise defined therein shall have the respective
meanings assigned to such terms in this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
AXION INC.,
by
________________________________
Name:
Title:
AXION HEALTHCARE INC.,
by
________________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by
________________________________
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
by
________________________________
Name:
Title:
31
OPUS SUB, INC.,
by
________________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by
________________________________
Name:
Title:
APPENDIX C
================================================================================
POST-CLOSING COVENANTS AND
INDEMNIFICATION AGREEMENT
dated as of [ ], 1996
among
BRISTOL-MYERS SQUIBB COMPANY, on its own behalf
and as representative of Axion, OPUS,
OTNC and the Partnership,
OTN ACQUISITION SUB INC.,
AXION INC.,
OPUS HEALTH SYSTEMS INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
AXION HEALTHCARE INC., on its own behalf
and as representative of the AHC Subsidiaries
and for the former stockholders
of Axion Inc.
OPUS SUB, INC.,
THE OTHER 81% AHC SUBSIDIARIES
and
THE FORMER STOCKHOLDERS OF AXION INC.
================================================================================
2
TABLE OF CONTENTS
SECTION Page
----
ARTICLE I
The Definitions
1.01. Definitions.................................................3
1.02. Interpretation .............................................5
ARTICLE II
Indemnification by the AHC Indemnifying Parties
2.01. Indemnification Obligations ................................5
2.02. Limitations on Indemnification Obligations .................8
ARTICLE III
Indemnification by the BMS Indemnifying Parties
3.01. Indemnification Obligations of the BMS
Indemnifying Parties........................................ 9
3.02. Limitation on Indemnification Obligations ..................10
ARTICLE IV
Indemnification Procedures
4.01. Third Party Claims .........................................10
4.02. Other Indemnifiable Losses .................................12
4.03. Indemnifiable Losses Net of
Third Party Recoveries ...................................13
4.04. Indemnifiable Losses Payable on After-Tax Basis ............13
3
SECTION Page
----
ARTICLE V
Covenants
5.01. Confidentiality ............................................14
5.02. Merger, Consolidation and Related Matters ..................15
5.03. Indemnification Unavailable ................................16
5.04. Further Assurances..........................................16
ARTICLE VI
Miscellaneous and General
6.01. Amendment ..................................................17
6.02. Waiver, Remedies ...........................................17
6.03. Counterparts ...............................................17
6.04. Governing Law ..............................................17
6.05. Notices ....................................................18
6.06. Successors and Assigns .....................................19
6.07. Effect of Expiration .......................................19
6.08. Assignment..................................................19
6.09. Captions....................................................19
6.10. Severability................................................20
6.11. Entire Agreement; No Third Party Beneficiaries .............20
6.12. Enforcement; Consent to Jurisdiction .......................20
POST-CLOSING COVENANTS AND INDEMNIFICATION AGREEMENT
dated as of [ ], 1996 (the "Agreement"), among
BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation (on its
own behalf and as representative of Axion, OPUS, OTNC and the
Partnership) ("BMS"); OTN ACQUISITION SUB INC., a Delaware
corporation and a wholly owned subsidiary of BMS ("BMS Sub");
AXION INC., a Delaware corporation ("Axion"); OPUS HEALTH
SYSTEMS INC., a Delaware corporation and a wholly owned
subsidiary of Axion ("OPUS"); ONCOLOGY THERAPEUTICS NETWORK
CORPORATION, a Delaware corporation and a wholly owned
subsidiary of Axion ("OTNC"); ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P., a Delaware limited partnership ("OTN" or
the "Partnership"); AXION HEALTHCARE INC., a Delaware
corporation (on its own behalf and as representative of the
81% AHC Subsidiaries and the Former Axion Stockholders)
("AHC"); OPUS SUB, INC., a Delaware corporation and a wholly
owned subsidiary of OPUS ("OPUS Sub"; and, together with
certain other Subsidiaries of AHC which shall become a party
hereto pursuant to the provisions of Section 5.02(c), the "81%
AHC Subsidiaries"); and all the stockholders of Axion
immediately prior to the Effective Time (as such term is
defined in the Merger Agreement referred to below) (the
"Former Axion Stockholders").
WHEREAS, BMS, BMS Sub and Axion have entered into an Amended and
Restated Agreement and Plan of Merger, dated as of August 2, 1996 (the "Merger
Agreement"), providing for the merger of BMS Sub with and into Axion, with Axion
as the Surviving Corporation (the "Merger") following the
Distribution (as defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to such terms in the Merger
Agreement or the Distribution Agreement (as defined below), as the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement
and plan of reorganization and distribution embodied in the form of the
agreement attached
2
as Exhibit A to the Merger Agreement (the "Distribution Agreement"), pursuant to
which (a) immediately prior to the Time of Contribution, (i) OTN will distribute
to OTNC which will in turn distribute to Axion the Preference Amount, and (ii)
all Axion Options outstanding immediately prior to the Time of Contribution
shall have been exercised or canceled, (b) immediately prior to the Time of
Distribution, (i) OPUS will contribute the OPUS Sub Assets to OPUS Sub and OPUS
Sub will assume the OPUS Sub Liabilities, (ii) OPUS will distribute the
outstanding capital stock of OPUS Sub to Axion and (iii) Axion will contribute
all the Assets of Axion and its Subsidiaries (including the outstanding capital
stock of OPUS Sub) other than the OPUS Sub Assets (which will remain Assets of
OPUS Sub) and the Retained Assets to AHC and AHC will assume all the Liabilities
of Axion and its Subsidiaries other than the OPUS Sub Liabilities (which will
remain Liabilities of OPUS Sub) and the Retained Liabilities (the transactions
in clauses (i), (ii) and (iii), collectively, the "Contributions"), (c)
immediately following the Contributions and immediately prior to the Time of
Distribution, each issued and outstanding share of AHC Common Stock, par value
$.0001 per share ("AHC Common Stock"), will be converted into a number of shares
of AHC Series A Preferred Stock, par value $.0001 per share ("AHC Preferred
Stock") as shall be equal to the quotient of (i)(A) the number of shares of
Axion Common Stock outstanding immediately prior to the Time of Distribution
(including any shares of Axion Common Stock issued in connection with the
exercise of Axion Options in connection with the consummation of the Merger)
plus (B) the number of shares of Axion Common Stock to be issued in connection
with the conversion of Axion Preferred Stock in connection with the consummation
of the Merger divided by (ii) the number of shares of AHC Common Stock
outstanding immediately prior to the Time of Distribution, and (d) immediately
following the Contributions and the conversion referred to in clause (c) above
and immediately prior to the Effective Time, subject to the satisfaction or
waiver of the conditions set forth in Article VII of the Distribution Agreement,
the Board of Directors of Axion will cause Axion to distribute to the holders of
Axion Common Stock and the holders of Axion Preferred Stock all the then
outstanding shares of AHC Preferred Stock (the "Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the
3
obligations of the parties to the Merger Agreement to consummate the Merger;
WHEREAS, the parties to this Agreement have determined that it is
necessary and desirable to set forth certain agreements that will govern certain
matters that may arise following the Contributions, the Distribution and the
Merger; and
WHEREAS, the parties to this Agreement hereto, as a condition to
their obligations to consummate the Merger, have also entered into the Tax
Matters Agreement to govern certain tax-related matters in connection with the
Distribution and the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings assigned to such terms
in the Merger Agreement or the Distribution Agreement, as the case may be. As
used in this Agreement, the following terms shall have the following respective
meanings:
"AHC Indemnified Parties" shall mean AHC and its direct or indirect
Subsidiaries and their respective affiliates and each of their respective
officers, directors, employees, stockholders, agents and representatives.
"AHC Indemnifying Parties" shall have the meaning assigned to such
term in Section 2.01.
"BMS Indemnified Parties" shall mean BMS, its direct or indirect
Subsidiaries, including the Surviving Corporation and its Subsidiaries
(including the Partnership) and their respective affiliates and each of
their respective officers, directors, employees, stockholders, agents and
representatives.
4
"BMS Indemnifying Parties" shall have the meaning assigned to such
term in Section 3.01.
"81% AHC Subsidiary" shall mean any corporation, company or other
entity (i) more than 81% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or
unincorporated association), but more than 81% of whose ownership interest
representing the right to make decisions for such other entity is, in each
case, owned or controlled, directly or indirectly, by AHC.
"Exculpated Parties" shall mean OTNC, its officers, directors,
stockholders, employees, or affiliates, the Chairman of the Management
Committee (as such term is defined in the Partnership Agreement) or any
other officer of the Partnership or the members of the Management
Committee appointed by OTNC pursuant to Section 7.2 of the Partnership
Agreement.
"Filings" shall mean the Form S-4, the Proxy Statement, the Required
AHC Documents or any other document filed or required to be filed with the
Securities and Exchange Commission or any state securities commission or
otherwise provided, or required to be delivered, to the stockholders of
Axion or, following the Distribution, the stockholders of AHC, in
connection with the transactions contemplated by the Merger Agreement or
the other Documents, any preliminary or final form thereof or any
amendment or supplement thereto.
"Indemnifiable Losses" shall mean, subject to Section 2.02(d), all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements,
whether or not resulting from third party claims, including interest and
penalties recovered by a third party with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense or any of the same or in
asserting, preserving or enforcing any of the rights of AHC Indemnified
Parties or BMS Indemnified Parties hereunder, suffered by any of the BMS
Indemnified Parties or the AHC
5
Indemnified Parties who or which may seek indemnification under this
Agreement; provided, however, that notwithstanding anything to the
contrary set forth herein, Indemnifiable Losses shall not include any such
losses relating to or arising from any breach of any representation,
warranty or covenant contained in Section 4.01(j) of the Merger Agreement
or any other amount relating to Taxes (as defined in the Tax Matters
Agreement) or for which indemnity is payable under the Tax Matters
Agreement.
SECTION 1.02. Interpretation. When a reference is made in this
Agreement to a Section, Schedule or Exhibit, such reference shall be to a
Section, Schedule or Exhibit of this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "included", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". All accounting terms not defined in this Agreement shall
have the meanings determined by GAAP.
ARTICLE II
Indemnification by the AHC Indemnifying Parties
SECTION 2.01. Indemnification Obligations. AHC, each of the 81% AHC
Subsidiaries and each Former Axion Stockholder (collectively, the "AHC
Indemnifying Parties") shall, jointly and severally, indemnify, defend and hold
harmless the BMS Indemnified Parties from and against, and pay or reimburse the
BMS Indemnified Parties for, all Indemnifiable Losses, as incurred (payable
quarterly upon written request, with interest from the date which is 30 days
from the date of such request to the date of actual payment, at the prime or
base rate of The Chase Manhattan Bank announced from time to time):
(a) to the extent relating to or arising from (i) any breach of any
representation or warranty by Axion or any of its Subsidiaries in the
Merger Agreement or any other Document (or in any certificate or similar
document delivered pursuant thereto) or (ii) any breach of any covenant of
Axion or any of its Subsidiaries in the Merger Agreement or any other
Documents requiring performance on or prior to the
6
Closing Date or (iii) any breach of any covenant of AHC and its
Subsidiaries in the Merger Agreement or any other Documents requiring
performance after the Closing Date;
(b) (i) in the case of the Form S-4 and, if required in connection
with the Distribution, the Form S-1 or the Application, relating to or
arising from any claim that there existed any untrue statement of a
material fact or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
in the case of the Proxy Statement, any other Filings and, if required in
connection with the Distribution, the Information Statement, relating to
or arising from any claim that there existed any untrue statement of a
material fact or any omission of 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; or (iii) in the
case of any Required AHC Documents or other Filings that are provided or
required to be delivered to the Axion stockholders, relating to or arising
from any failure by Axion to so provide or deliver such Required AHC
Documents or other Filings; but only, in the case of (i) or (ii), with
respect to information furnished or to be furnished by Axion or its
representatives contained in or omitted from the Filings;
(c) relating to or arising from the Acquired Assets, the Assumed
Liabilities (including the failure by AHC or any of the AHC Companies to
otherwise perform or discharge such Assumed Liabilities), the Acquired
Businesses or the current, former or future operations or employees of AHC
and its Subsidiaries' businesses, whether such Indemnifiable Losses relate
to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the
Effective Time, other than, in each case, any Retained Liabilities;
(d) relating to or arising from the current or former operations or
employees of Axion and its current or former Subsidiaries' businesses
whether such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring or
existing before or at the Effective Time, whether asserted before, at or
after the Effective
7
Time, other than, in each case, any Retained Liabilities;
(e) relating to or arising from claims of any stockholders,
directors, officers, employees or agents of Axion and its Subsidiaries to
the extent related to or arising from the execution by Axion or any of its
Subsidiaries of this Agreement or the other Documents or the consummation
of the transactions contemplated hereby or thereby (including any claims
for indemnification by any officer or director of Axion or any of its
Subsidiaries pursuant to any applicable law, the charter and by-laws or
other governing instruments of Axion or any such Subsidiary or any
indemnification agreement between Axion or any such Subsidiary and any
such person) (except for any Indemnifiable Loss for which the AHC
Indemnifying Parties are indemnified pursuant to Section 3.01(c));
(f) relating to or arising from any Axion Expenses to the extent
that such Axion Expenses were not included on the Transaction Expense
Schedule and the aggregate amount of all Axion Expenses exceeds
$2,000,000;
(g) relating to or arising out of (i) the breach of any term,
covenant or condition contained in the Partnership Agreement, the
Trademark License Agreement dated as of July 8, 1993 between BMS and the
Partnership (the "Trademark License Agreement") or any other agreement to
which any of the Exculpated Parties and the Partnership are parties (other
than any breach by the Limited Partner (as such term is defined in the
Partnership Agreement), its officers, directors, stockholders, employees
or affiliates or any member of the Management Committee appointed by the
Limited Partner pursuant to Section 7.2 of the Partnership Agreement) or
(ii) the gross negligence or wilful misconduct by any Exculpated Party of
its obligations under the Partnership Agreement, the Trademark License
Agreement or any other such agreement, in each case relating to or arising
out of events, occurrences, actions, omissions, facts or circumstances
occurring or existing at or prior to the Effective Time, whether asserted
at, prior to or after the Effective Time;
(h) that are Liabilities of the Partnership under Section 11(b) of
the Sales Agency Agreement dated as of
8
July 8, 1993, as amended, between BMS and the Partnership, relating to or
arising out of events, occurrences, actions, omissions, facts or
circumstances occurring or existing at or prior to the Effective Time,
whether asserted at, prior to or after the Effective Time; or
(i) incurred in connection with the enforcement by the BMS
Indemnified Parties of their rights to be indemnified and held harmless
under this Agreement.
SECTION 2.02. Limitations on Indemnification Obligations. (a) The
indemnification obligations of the AHC Indemnifying Parties for (i) any
Indemnifiable Loss of the type set forth in Section 2.01(a)(i) or (ii) that is
directly related to OTN shall equal 50% of such Indemnifiable Loss, and (ii) any
other Indemnifiable Loss shall equal 100% of such Indemnifiable Loss;
(b) The AHC Indemnifying Parties shall not have any liability under
this Agreement with respect to any Indemnifiable Loss of the type set forth in
Section 2.01(a)(i) or (ii) that is directly related to OTN or the OPUS Station
Business unless the aggregate of all such Indemnifiable Losses for which the AHC
Indemnifying Parties would but for this sentence be liable exceeds on an
aggregate basis an amount equal to $500,000 and provided that the AHC
Indemnifying Parties' liability with respect to such Indemnifiable Losses shall
in no event exceed $12,000,000.
(c) The indemnification obligations of the AHC Indemnifying Parties
under this Agreement with respect to (i) any Indemnifiable Loss of the type set
forth in Section 2.01(a)(i) or (ii) that directly relates to OTN or the OPUS
Station Business (other than Indemnifiable Losses related to or arising from any
breach of the representations and warranties in Section 4.01(c), 4.01(n), or
4.01(p) of the Merger Agreement) shall terminate on March 31, 1998, (ii) any
Indemnifiable Losses related to or arising from any breach of the
representations and warranties in Section 4.01(c), 4.01(n) or 4.01(p) of the
Merger Agreement shall terminated on the third anniversary of the Effective Time
and (iii) all other Indemnifiable Losses shall not terminate.
(d) Notwithstanding anything to the contrary set forth herein
(except as provided in Section 2.02(e)), the
9
indemnification obligations of the Former Axion Stockholders under this
Agreement shall be limited to the amount of the Escrowed Shares (as such term is
defined in the Escrow Agreement).
(e) The limitations on the AHC Indemnifying Parties' liability under
this Agreement as set forth in Sections 2.02(a), (b), (c) and (d) above shall
not apply to any Indemnifiable Losses relating to or arising from fraud or any
misrepresentation or breach of which Axion, AHC, the 81% AHC Subsidiaries or
their respective officers and directors had knowledge or any intentional failure
to perform or comply with any covenant (collectively, "fraud"), and the AHC
Indemnifying Parties shall be jointly and severally liable for all Indemnifiable
Losses with respect thereto; provided, however, that a Former Axion Stockholder
shall be liable for Indemnifiable Losses related to or arising from fraud only
with respect to any fraud by such Former Axion Stockholder.
(f) The indemnification obligations of the AHC Indemnified Parties
under this Article II shall be subject to offset as provided in Section 10(b) of
the Tax Matters Agreement.
ARTICLE III
Indemnification by the BMS Indemnifying Parties
SECTION 3.01. Indemnification Obligations of the BMS Indemnifying
Parties. BMS, Axion, OTNC, the Partnership and OPUS (collectively, the "BMS
Indemnifying Parties") shall, jointly and severally, indemnify, defend and hold
harmless the AHC Indemnified Parties from and against, and pay or reimburse the
AHC Indemnified Parties for all Indemnifiable Losses, as incurred (payable
quarterly upon written request, with interest from the date which is 30 days
from the date of such request to the date of actual payment, at the prime or
base rate of The Chase Manhattan Bank announced from time to time):
(a) relating to or arising from the Retained Assets, the Retained
Liabilities (including the failure by Axion or any of its Subsidiaries to
pay, perform or otherwise discharge such Retained Liabilities in
accordance with their terms), whether such Indemnifiable Losses relate to
or arise from events, occurrences, actions, omissions, facts or
circumstances
10
occurring, existing or asserted before, at or after the Effective Time;
(b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger
Agreement or any other Document (or in any certificate or similar document
delivered pursuant thereto);
(c) (i) in the case of the Form S-4 and, if required in connection
with the Distribution, the Form S-1 or the Application, relating to or
arising from any claim that there existed any untrue statement of a
material fact or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
in the case of the Proxy Statement, any other Filings and, if required in
connection with the Distribution, the Information Statement, relating to
or arising from any claim that there existed any untrue statement of a
material fact or any omission of 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; but only in each
case with respect to information furnished or to be furnished by BMS or
its representatives contained in or omitted from the Filings; or
(d) incurred in connection with the enforcement by the AHC
Indemnified Parties of their rights to be indemnified, defended and held
harmless under this Agreement.
SECTION 3.02. Limitation on Indemnification Obligations. The
indemnification obligations of the BMS Indemnifying Parties under this Agreement
with respect to (a) any Indemnifiable Loss of the type set forth in Section
3.01(b) shall terminate on March 31, 1998 and (b) all other Indemnifiable Losses
shall not terminate.
11
ARTICLE IV
Indemnification Procedures
SECTION 4.01. Third Party Claims. (a) In order for any person (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim made by any
person against the indemnified party (a "Third Party Claim"), such indemnified
party must notify the indemnifying party in writing, and in reasonable detail,
of the Third Party Claim within 20 business days after receipt by such
indemnified party of written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure (except that the indemnifying
party shall not be liable for any expenses incurred during the period in which
the indemnified party failed to give such notice); and provided, further,
however, that with respect to any matter for which the AHC Indemnifying Parties
are the indemnifying party, the AHC Indemnifying Parties shall be deemed to have
received notice hereunder with respect to all matters concluded or initiated
prior to, or otherwise pending at, the Time of Contribution. Thereafter, the
indemnified party shall deliver to the indemnifying party, promptly after the
indemnified party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party relating to the Third
Party Claim.
(b) If a Third Party Claim is made against an indemnified party pursuant
to the terms of this Agreement, the indemnifying party will be entitled to
participate in the defense thereof and, if it so chooses, to assume the defense
thereof (at the expense of the indemnifying party) with counsel selected by the
indemnifying party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses
12
of counsel employed by the indemnified party for any period during which the
indemnifying party has not assumed the defense thereof (other than during any
period in which the indemnified party shall have failed to give notice of the
Third Party Claim as provided above). If the indemnifying party chooses to
defend or prosecute a Third Party Claim, all the parties hereto shall cooperate
in the defense or prosecution thereof. Such cooperation shall include the
retention and (upon the indemnifying party's request) the provision to the
indemnifying party of records and information which are reasonably relevant to
such Third Party Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder. If the indemnifying party chooses to defend or prosecute any Third
Party Claim, the indemnified party will agree to any settlement, compromise or
discharge of such Third Party Claim which the indemnifying party may recommend
and which by its terms obligates the indemnifying party to pay the full amount
of liability in connection with such Third Party Claim; provided, however, that
the indemnifying party shall not consent to entry of any judgment or enter into
any settlement (x) that provides for injunctive or other nonmonetary relief
affecting the indemnified party or (y) that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such indemnified person
of a release from all liability with respect to such claim. Whether or not the
indemnifying party shall have assumed the defense of a Third Party Claim, the
indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the indemnifying party's
prior written consent (which consent shall not be unreasonably withheld).
SECTION 4.02. Other Indemnifiable Losses. In order for an
indemnified party to be entitled to any indemnification provided for under this
Agreement in respect of a claim that does not involve a Third Party Claim being
asserted against or sought to be collected from such indemnified party, the
indemnified party shall deliver notice of such claim with reasonable promptness
to the indemnifying party. The failure by any indemnified party to so notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to such indemnified party under this Agreement, except to the
extent that the indemnifying party shall have been actually prejudiced by such
failure. If the indemnifying party does not notify the indemnified party within
60 calendar days
13
following its receipt of such notice that the indemnifying party disputes in
good faith its liability to the indemnified party under this Agreement, such
claim specified by the indemnified party in such notice shall be conclusively
deemed a liability of the indemnifying party under this Agreement and, subject
to the provisions of Section 2.02(b), the indemnifying party shall pay the
amount of such liability to the indemnified party on demand or, in the case of
any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction subject to the provisions of Sections 6.14 and
6.15.
SECTION 4.03. Indemnifiable Losses Net of Third Party Recoveries.
The amount of any Indemnifiable Losses for which indemnification is provided
under this Agreement shall be net of any amounts actually recovered prior to the
date of actual notice of such Indemnifiable Loss pursuant to Section 4.01 or
4.02 by the indemnified party under third-party insurance policies with respect
to such Indemnifiable Losses. Any amounts recovered by an indemnified party
under third-party insurance policies with respect to an Indemnifiable Loss
subsequent to the date of actual notice of such Indemnifiable Loss pursuant to
Section 4.01 or 4.02 shall be paid promptly to the relevant indemnifying party.
An insurer who would otherwise be obligated to pay any claim shall not be
relieved of the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto.
SECTION 4.04. Indemnifiable Losses Payable on After-Tax Basis. All
Indemnifiable Losses (and any amounts payable pursuant to the second sentence of
Section 4.03) shall be determined, and all indemnification payments shall be
made, on an after-tax basis to the indemnified party, provided that each
indemnified party shall be assumed to pay taxes at the highest applicable
effective federal, state and local rate and each indemnified party shall
initially determine whether to treat a particular item of expense as tax
deduction or a particular receipt as taxable income, and
14
shall submit any such determination for approval to the indemnifying party
reasonably promptly. If the indemnifying party, within 30 days after receipt of
such notification, notifies the indemnified party that it does not approve of
such determination, then AHC and BMS shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by litigation in an appropriate court of competent
jurisdiction.
ARTICLE V
Covenants
SECTION 5.01. Confidentiality. The Confidentiality Agreement will
terminate, according to its terms, as of the Effective Time. Immediately from
and after the Effective Time, except as otherwise provided in this Agreement,
(a) the BMS Indemnified Parties will, and will cause their Subsidiaries and
affiliates (and their respective officers, employees, accountants, counsel,
financial advisors and other representatives to whom they disclose such
information) to hold in strict confidence and not use or disclose for five years
from the Effective Time (i) all confidential Evaluation Material (as defined in
the Confidentiality Agreement) in the possession of the BMS Indemnified Parties
or to which the BMS Indemnified Parties are given access pursuant to the
Confidentiality Agreement or Section 6.03 of the Merger Agreement to the extent
that such Evaluation Material relates to the AHC Companies or to OnCare and its
Subsidiaries and (ii) all confidential and proprietary information relating to
the Acquired Assets and the Assumed Liabilities in the possession of the BMS
Indemnified Parties, and (b) the AHC Indemnified Parties will, and will cause
their Subsidiaries and affiliates (and their respective officers, employees,
accountants, counsel, financial advisors and other representatives to whom they
disclose such information) to hold in strict confidence and not use or disclose
for five years from the Effective Time all confidential and proprietary
information relating to the Retained Assets and the Retained Liabilities in the
possession of the AHC Indemnified Parties. Notwithstanding anything herein to
the contrary, the provisions of this Section 5.01 shall not apply to the
disclosure by any party hereto or their respective Subsidiaries or affiliates of
any information, documents or materials (i) which are, or become, publicly
available, other than by reason of a breach
15
of this Section 5.01 by the disclosing party or by any Subsidiary or any
affiliate of the disclosing party, (ii) received from a third party not bound by
any confidentiality requirement with the other parties hereto, (iii) which are,
or become, independently developed by such party without violating any of its
obligations under this Section 5.01, (iv) required by applicable law to be
disclosed by such party, or (v) necessary to establish such party's rights under
this Agreement, the Merger Agreement or any other Document, provided that, in
the case of clauses (iv) and (v), the person intending to make disclosure of
confidential ]information will promptly notify the party to whom it is obliged
to keep such information confidential and, to the extent practicable, provide
such party a reasonable opportunity to prevent such public disclosure.
SECTION 5.02. Merger, Consolidation and Related Matters. (a) AHC and
each of the 81% AHC Subsidiaries agrees that, unless BMS shall otherwise consent
in writing, neither AHC nor any of the 81% AHC Subsidiaries shall:
(i) (A) in the case of AHC, liquidate, dissolve or wind up its
affairs or (B) in the case of any 81% AHC Subsidiary, liquidate, dissolve
or wind up its affairs unless the assets of such 81% AHC Subsidiary (or,
if such 81% AHC Subsidiary shall not be wholly owned, a proportionate
amount of such assets equal to the direct and indirect ownership interest
of AHC in such 81% AHC Subsidiary) shall have been distributed to or
otherwise acquired by AHC and/or any other 81% AHC Subsidiary;
(ii) (A) merge with or into or consolidate with any other person, or
(B) sell, lease or otherwise transfer all or substantially all the assets
of AHC and the 81% AHC Subsidiaries, taken as a whole, (including by means
of the sale of the capital stock of any Subsidiary) to any other person
(in each case, whether in one or a series of transactions), unless, in
each case, such person explicitly agrees to assume the obligations of AHC
and the 81% AHC Subsidiaries under this Agreement, the Tax Matters
Agreement or the Escrow Agreement pursuant to an agreement reasonably
satisfactory in form and substance to BMS and its counsel;
(iii) engage in any recapitalization or restructuring pursuant to
which any cash, securities or other property shall be distributed in
respect of its
16
capital stock or effect any other distribution (by means of dividend,
redemption or otherwise) in respect of its capital stock (other than, in
the case of any 81% AHC Subsidiary, any such distribution to AHC);
(iv) enter into any transactions with affiliates of AHC or any 81%
AHC Subsidiary unless (1) any such transaction is between or among AHC and
the 81% AHC Subsidiaries or (2) the terms of such transactions are fair
and reasonable to AHC or the 81% AHC Subsidiaries, as the case may be, as
in a comparable transaction made on an arms' length basis between
unaffiliated parties; or
(v) agree to or otherwise suffer any of the foregoing in (i), (ii),
(iii) or (iv) above or otherwise take any action or fail to take any
action designed to restrict, reduce or otherwise limit the rights of the
BMS Indemnified Parties under this Agreement, the Tax Matters Agreement or
the Escrow Agreement or the ability of any BMS Indemnified Party to
collect any amount owed to it under this Agreement, the Tax Matters
Agreement or the Escrow Agreement.
(b) For purposes of this Section 5.02, AHC and its Subsidiaries
acknowledge and agree that OnCare and its Subsidiaries shall be considered
affiliates of AHC and the 81% AHC Subsidiaries.
(c) AHC shall cause each of its Subsidiaries that shall be or become
an 81% AHC Subsidiary on or after the date hereof to enter into an agreement,
reasonably satisfactory in form and substance to both BMS and its counsel and
AHC and its counsel, pursuant to which such Subsidiary shall agree to be bound
by the terms of each of this Agreement, the Tax Matters Agreement and the Escrow
Agreement as if such Subsidiary were named an 81% AHC Subsidiary herein and
therein.
(d) The provisions of this Section 5.02 shall terminate as of the
sixth anniversary of the Effective Time; provided, however, that if as of such
sixth anniversary an audit or contest of any Federal income tax return of the
Affiliated Group (as defined in the Tax Matters Agreement) for any taxable year
ending on or before the day on which the Effective Time occurs is in process,
the provisions of this Section 5.02 shall not terminate until such time as any
Tax Claims (as defined in the Tax Matters Agreement)
17
relating to such audit or contest have been settled and all liabilities related
thereto satisfied.
SECTION 5.03. Indemnification Unavailable. In the event that any
indemnification provided in Articles II or III is unavailable for any reason,
each party hereto agrees to contribute in respect of the applicable
indemnification obligation on an equitable basis.
SECTION 5.04. Further Assurances. Consistent with the terms and
conditions hereof, each party hereto shall execute and deliver such instruments
and take such other actions as the other parties hereto may reasonably require
in order to carry out the transactions contemplated by the Merger Agreement,
this Agreement or any other Document.
ARTICLE VI
Miscellaneous and General
SECTION 6.01 Amendment. This Agreement may be amended by the parties
at any time. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 6.02. Waiver, Remedies. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) waive compliance with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a 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. No delay on
the part of any of the parties hereto in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any waiver on the
part of any of the parties hereto of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor will
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. Unless otherwise provided, the rights and
remedies herein provided are cumulative and are not
18
exclusive of any rights or remedies which the parties may otherwise have at law
or in equity.
SECTION 6.03. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 6.04. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
SECTION 6.05. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to BMS, BMS Sub, Axion, OTNC, the
Partnership or OPUS, to:
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: Robert E. Ewers, Jr.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Susan Webster
19
(b) if to AHC, any 81% AHC Subsidiary or the
Former Axion Stockholders, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
with a copy to:
Gunderson Dettmer
Stough Villeneuve Franklin
& Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, CA 94304
Attention: Steven M. Spurlock
SECTION 6.06. Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
SECTION 6.07. Effect of Expiration. The expiration or termination of
this Agreement for any reason whatsoever shall not release any party hereto from
any liability which at the time of expiration or termination had already accrued
to the other party in accordance with the terms of this Agreement with respect
to any act or omission prior thereto, and the expiration or termination of this
Agreement for any reason shall not affect the continued operations or
enforcement of any provision of this Agreement which, by its express terms, is
to survive expiration or termination.
SECTION 6.08. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that BMS Sub may assign,
in its sole discretion, any of or all its rights, interests and obligations
under this Agreement to BMS or to any direct or indirect wholly owned Subsidiary
of BMS, but no such assignment shall relieve BMS Sub of any of its obligations
under this Agreement. Subject to the
20
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 6.09. Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, and do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
SECTION 6.10. Severability. If any provision of this Agreement or
the other Documents or the application thereof to any person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions thereof, or the application of such
provision to persons or circumstances other than those as to which it has been
held invalid or unenforceable, shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby, so long as the economic
or legal substance of the transactions contemplated hereby is not affected in
any manner adverse to any party. Upon any such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
SECTION 6.11. Entire Agreement; No Third Party Beneficiaries. This
Agreement, the other Documents, the Confidentiality Letter and the agreements
referred to herein and therein, and required to be delivered in connection with
the transactions contemplated by the Documents (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) are not intended to confer upon any person or entity other than the
parties any rights or remedies, except that the provisions of Article II and
Article III hereof shall inure to the benefit of the BMS Indemnified Parties and
the AHC Indemnified Parties.
SECTION 6.12. Enforcement; Consent to Jurisdiction. The parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and
21
provisions of this Agreement in any court of the United States located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal Court sitting in the State of
Delaware or in Delaware state court.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
AXION INC.,
by
________________________
Name:
Title:
BRISTOL-MYERS SQUIBB COMPANY,
by
________________________
Name:
Title:
OTN ACQUISITION SUB INC.,
by
________________________
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
22
by
________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by
________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by
________________________
Name:
Title:
AXION HEALTHCARE INC.,
by
________________________
Name:
Title:
OPUS SUB, INC.,
by
________________________
Name:
Title:
AXION HEALTHCARE INC., as
attorney-in-fact for each of
the Former Axion Stockholders,
by
________________________
Name:
Title:
APPENDIX D
================================================================================
TAX MATTERS AGREEMENT
Dated as of [ ], 1996
among
BRISTOL-MYERS SQUIBB COMPANY,
OTN ACQUISITION SUB INC.,
AXION INC.,
OPUS HEALTH SYSTEMS INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION,
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
AXION HEALTHCARE, INC.,
OPUS SUB, INC.,
Certain Subsidiaries of Axion Healthcare, Inc.,
and
Certain shareholders of Axion prior to the Effective Time
================================================================================
2
TABLE OF CONTENTS
SECTION Page
----
Tax Matters Agreement
1. Indemnification........................................................3
2. Control of Tax Matters.................................................6
3. Refunds................................................................9
4. Allocation Between Taxable Periods....................................10
5. Cooperation...........................................................11
6. Transfer Taxes........................................................12
7. Post-Effective Time Restructurings....................................12
8. Tax Sharing Agreements................................................13
9. Tax Liabilities.......................................................13
10. Offsets...............................................................13
11. Assignment............................................................14
12. Survival..............................................................14
13. Notices...............................................................14
14. Governing Law.........................................................14
15. Entire Agreement......................................................14
16. Counterparts..........................................................14
17. Severability..........................................................14
18. Headings..............................................................15
19. Definitions...........................................................15
20. Enforcement; Consent to Jurisdiction..................................15
21. Interpretation........................................................15
22. Miscellaneous.........................................................15
TAX MATTERS AGREEMENT (the "Agreement") dated as of [ ],
1996, among BRISTOL-MYERS SQUIBB COMPANY, a Delaware
corporation (on its own behalf and as representative of Axion,
OPUS, OTNC and the Partnership) ("BMS"); OTN ACQUISITION SUB
INC., a Delaware corporation and a wholly owned subsidiary of
BMS ("BMS Sub"); AXION INC., a Delaware corporation ("Axion");
OPUS HEALTH SYSTEMS INC., a Delaware corporation and a wholly
owned subsidiary of Axion ("OPUS"); ONCOLOGY THERAPEUTICS
NETWORK CORPORATION, a Delaware corporation and a wholly owned
subsidiary of Axion ("OTNC"); ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P., a Delaware limited partnership ("OTN" or
the "Partnership"); AXION HEALTHCARE INC., a Delaware
corporation (on its own behalf and as representative of the
81% AHC Subsidiaries and the Former Axion Stockholders)
("AHC"); OPUS SUB, INC., a Delaware corporation and a wholly
owned subsidiary of OPUS ("OPUS Sub"; and, together with
certain other Subsidiaries of AHC which shall become a party
hereto pursuant to the provisions of Section 22 hereof, the
"81% AHC Subsidiaries"); and all the stockholders of Axion
immediately prior to the Effective Time (as such term is
defined in the Merger Agreement referred to below) (the
"Former Axion Stockholders").
WHEREAS, Axion is currently the common parent of an affiliated group
of corporations (collectively, the "Affiliated Group"; provided, however, that
the "Affiliated Group" shall not include the Partnership or any other entity
that is, prior to the merger, owned directly or indirectly, in whole or in part,
by BMS (such an entity is hereinafter referred to as a "BMS Entity")) filing
consolidated Federal income Tax Returns and unitary or combined state income Tax
Returns ("Consolidated Returns"), pursuant to which Axion and one or more other
members of the Affiliated Group pay Taxes on a consolidated, combined or unitary
basis ("Consolidated Taxes");
WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings
4
assigned to such terms in the Merger Agreement or the Distribution Agreement (as
defined below), as the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement
and plan of reorganization and distribution embodied in the form of the
agreement attached as Exhibit A to the Merger Agreement (the "Distribution
Agreement"), pursuant to which (a) immediately prior to the Time of
Contribution, (i) OTN will distribute to OTNC which will in turn distribute to
Axion the Preference Amount, and (ii) all Axion Options outstanding immediately
prior to the Time of Contribution shall have been exercised or canceled, (b)
immediately prior to the Time of Distribution, (i) OPUS will contribute the OPUS
Sub Assets to OPUS Sub and OPUS Sub will assume the OPUS Sub Liabilities, (ii)
OPUS will distribute the outstanding capital stock of OPUS Sub to Axion and
(iii) Axion will contribute all the Assets of Axion and its Subsidiaries
(including the outstanding capital stock of OPUS Sub) other than the OPUS Sub
Assets (which will remain Assets of OPUS Sub) and the Retained Assets to AHC and
AHC will assume all the Liabilities of Axion and its Subsidiaries other than the
OPUS Sub Liabilities (which will remain Liabilities of OPUS Sub) and the
Retained Liabilities (the transactions in clauses (i), (ii) and (iii),
collectively, the "Contributions"), (c) immediately following the Contributions
and immediately prior to the Time of Distribution, each issued and outstanding
share of AHC Common Stock, par value $.0001 per share ("AHC Common Stock"), will
be converted into a number of shares of AHC Series A Preferred Stock, par value
$.0001 per share ("AHC Preferred Stock") as shall be equal to the quotient of
(i)(A) the number of shares of Axion Common Stock outstanding immediately prior
to the Time of Distribution (including any shares of Axion Common Stock issued
in connection with the exercise of Axion Options in connection with the
consummation of the Merger) plus (B) the number of shares of Axion Common Stock
to be issued in connection with the conversion of Axion Preferred Stock in
connection with the consummation of the Merger divided by (ii) the number of
shares of AHC Common Stock outstanding immediately prior to the Time of
Distribution, and (d) immediately following the Contributions and the conversion
referred to in clause (c) above and immediately prior to the Effective Time,
subject to the satisfaction or waiver of the conditions set forth in Article VII
of the Distribution Agreement, the Board of Directors of Axion will cause Axion
to distribute to the holders of Axion Common
5
Stock and the holders of Axion Preferred Stock all the then outstanding shares
of AHC Preferred Stock (the "Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the obligations of the parties to the Merger Agreement
to consummate the Merger;
WHEREAS, BMS, BMS Sub and Axion have entered into an Amended and
Restated Agreement and Plan of Merger dated as of August 2, 1996 (the "Merger
Agreement") pursuant to which, following the Distribution, BMS Sub shall merge
with and into Axion (the "Merger") with Axion as the surviving corporation (the
"Surviving Corporation") and in connection with which certain parties will
execute the Escrow Agreement and the Indemnification Agreement (the
Contributions, the Distribution, the Merger and the related agreements and
transactions, the "Transactions");
WHEREAS, for Federal income tax purposes, it is intended that (a)
the Distribution shall qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and (b) the Merger shall
qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the
Code; and
WHEREAS, BMS and Axion desire to allocate the liability for the
Taxes (as defined below) of members of the Affiliated Group for any taxable
period (including short taxable periods and any portion of any taxable period)
which period (or portion) ends on or before the day on which the Effective Time
occurs (a "Pre-Merger Tax Period"), which liability is secured by the escrow
created pursuant to the Escrow Agreement attached to the Merger Agreement, and
to provide for certain other Tax-related matters;
NOW, THEREFORE, in consideration of the covenants contained herein,
the parties agree as follows:
1. Indemnification. (a)(i) AHC, the 81% AHC Subsidiaries and the
Former Axion Stockholders (collectively, the "AHC Indemnifying Parties") shall
jointly and severally indemnify and hold harmless BMS, the Surviving
Corporation, OPUS, OTNC, the Partnership, their affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives (collectively, the
6
"BMS Indemnified Parties") from all liabilities for Federal, state, local,
foreign and other governmental taxes, assessments, duties, fees, levies or
similar charges of any kind including all interest, penalties and additions
imposed with respect to such amounts (collectively, "Taxes") imposed on Axion,
OPUS, OTNC or any member of the Affiliated Group (whether imposed directly or by
reason of United States Treasury Regulations Section 1.1502-76 or similar
provisions) (A) for any Pre-Merger Tax Period, including any Pre-JV Sales Taxes
(but excluding any Retained Tax Liabilities), which are in each case unpaid as
of the Effective Time (such indemnified Taxes, the "Pre-Merger Taxes), (B) with
respect to the Contributions, (C) as a result of the Distribution, (D) as a
result of the provision of the OPUS Station Data to AHC, OnCare or any of their
assignees, (E) with respect to the OPUS License Agreement, or (F) in respect of
the transfer of assets or rights from OnCare or any of its subsidiaries or
affiliates or any other affiliate of Axion and its subsidiaries to Axion prior
to the Distribution. The AHC Indemnifying Parties shall also jointly and
severally indemnify the BMS Indemnified Parties from all liabilities for fifty
percent (50%) of the excess of (I) any liability for any unpaid Taxes (other
than JV Sales Taxes) as of June 30, 1996 imposed on the Partnership for all
periods up to and including June 30, 1996 over (II) $225,000, and 100% of any
liability for JV Sales Taxes paid after June 30, 1996 in excess of $667,40;
provided, however, that no indemnification shall be payable with respect to any
JV Sales Taxes to the extent payment of such JV Sales Taxes increased the amount
of "Retained Cash" pursuant to clause (c) of the definition of "Retained Cash"
in the Distribution Agreement). "Retained Tax Liabilities" shall mean (W) any
income Tax liability (including any liability for any Tax measured by reference
to income) of OTNC (or the Affiliated Group) attributable to the allocation to
OTNC of Taxable income of the Partnership (whether or not such Taxes are paid
before or after the Effective Time) and any other Taxes to the extent directly
attributable to the operation of the Partnership, in each case for the period
beginning on July 1, 1996, and ending on the day on which the Effective Time
occurs and in each case determined in accordance with the principles of Section
3(a) and (for the avoidance of doubt), in the case of Taxes measured by
reference to income, by assuming that such income is subject to Tax at the
highest applicable Federal, state and local tax rate as provided by Section 1(c)
hereof, (X) any income Tax liability (including any liability for any Tax
measured by reference to income) to the extent
7
directly attributable to the reallocation of Partnership income by the IRS or
any other governmental agency from Bristol-Myers Oncology Therapeutics Network
Corporation to OTNC, (Y) all liabilities for any unpaid Taxes as of June 30,
1996 imposed on the Partnership for all periods up to and including June 30,
1996 that are not indemnified by the AHC Indemnifying Parties pursuant to the
preceding sentence, and (Z) any Tax liabilities relating to the operations,
assets or activities of a BMS Entity (other than the Partnership). "Pre-JV Sales
Taxes" shall mean any liability of Axion with respect to unpaid sales and use
Taxes on sales prior to the date of formation of the Partnership. "JV Sales
Taxes" shall mean any liability of the Partnership with respect to unpaid sales
and use Taxes on sales prior to August 1, 1994.
(ii) BMS, Axion, OTNC, OPUS and the Partnership (collectively, the
"BMS Indemnifying Parties") shall jointly and severally indemnify and hold
harmless AHC, the Subsidiaries, their affiliates and each of their respective
officers, directors, employees, stockholders, agents and representatives
(collectively, the "Axion Indemnified Parties") (A) from all liability for Taxes
imposed on Axion, OTNC, OPUS or the Partnership for any Post-Merger Tax Period
and (B) for any Retained Tax Liabilities.
(b) Notwithstanding anything to the contrary set forth herein, the
indemnification obligations of the Former Axion Stockholders under this
Agreement shall be limited to the amounts held in the BMS Stock Escrow Fund (as
such term is defined in the Escrow Agreement). The limitations on the Former
Axion Stockholders' liability under this Section 1(b) shall not apply to any
liability for Taxes relating to or arising from fraud or any misrepresentation
or breach of which Axion, AHC, the 81% AHC Subsidiaries or their respective
officers and directors had knowledge or any intentional failure to perform or
comply with any covenant (collectively, "fraud"), and AHC, the 81% AHC
Subsidiaries and the Former Axion Stockholders shall be jointly and severally
liable for all liabilities for Taxes with respect thereto; provided, however,
that a Former Axion Stockholder shall be liable for Taxes related to or arising
from fraud only with respect to any fraud by such Former Axion Shareholder.
(c) All indemnified liabilities for Taxes and other losses shall be
determined, and all indemnification payments shall be made, on an after-tax
basis to the
8
indemnified party, provided that each indemnified party shall be assumed to pay
taxes at the highest applicable effective federal, state and local rate and each
indemnified party shall initially determine the amount of any claim for
indemnification and whether to treat a particular item of expense as a tax
deduction or a particular receipt as taxable income, and shall submit any such
determination for approval to the indemnifying party reasonably promptly. If the
indemnifying party, within 30 days after receipt of such notification, notifies
the indemnified party that it does not approve of such determination, then AHC
and BMS shall proceed in good faith to negotiate a resolution of such dispute
and, if not resolved through negotiations, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction (subject to Section
20 of this Agreement).
(d) Any indemnification payments due to the AHC Indemnified Parties
with respect to clause (W) of the definition of of "Retained Tax Liabilities"
shall, to the extent that payments in respect of such Retained Tax Liabilities
were made prior to the Effective Time, be paid within twenty (20) days of date
on which the Effective Time occurs.
2. Control of Tax Matters. (a)(i) Except as provided in paragraph
(ii) below and subject to Section 3 below, Axion hereby designates, and agrees
to cause each of its Subsidiaries (including, without limitation, the
Partnership) to so designate, AHC as its agent to take any and all actions, at
AHC's sole expense, necessary or incidental to the preparation of Tax Returns,
the determination of Tax liability and the filing of any and all forms
(including, subject to Sections 2(d) and 3, any forms relating to any refund of
Taxes for which the AHC Indemnifying Parties are liable pursuant to Section
1(a)(i) (collectively, "AHC Taxes)) (A) relating to all Pre-Merger Tax Periods
(other than the portion of any Pre-Merger Tax Period that is a Straddle Period,
as defined below) and (B) until December 31, 1996, relating to all Pre-JV Sales
Taxes and all JV Sales Taxes (provided that AHC agrees to use reasonable
commercial efforts to eliminate, prior to December 31, 1996, all liabilities for
JV Sales Taxes and Pre-JV Sales Taxes); provided that Axion shall only be deemed
to have made such designation with respect to Tax Returns signed by Ernst &
Young LLP, or another nationally recognized accounting firm selected by AHC and
reasonably acceptable to BMS as return preparers and to other forms or
9
determinations of Tax liability the accuracy and completeness of which have been
certified by Ernst & Young LLP, or another nationally recognized accounting firm
selected by AHC and reasonably acceptable to BMS, to the same extent as if they
had been a return preparer.
(ii) Notwithstanding the foregoing, AHC hereby designates, and agrees
to cause each of its Subsidiaries to so designate, BMS as its agent to take any
and all actions, at BMS's sole expense, necessary or incidental to the
preparation of Tax Returns, the determination of Tax liability and the filing of
any and all forms (including any forms relating to any refund of Taxes for which
the BMS Indemnifying Parties are liable pursuant to Section 1(a)(ii)
(collectively, "BMS Taxes")) relating (A) to any Post-Merger Tax Period, (B) to
the portion of any Pre-Merger Tax Period that is a Straddle Period, provided,
however, that any determination and reporting of Taxes for any Straddle Period
shall be made jointly by AHC and BMS, (C) solely to Taxes payable by the
Partnership for any taxable period other than, with respect to periods prior to
December 31, 1996, all JV Sales Taxes, and (D) to any Pre-JV Sales Taxes that
remain unpaid after December 31, 1996.
(b) Prior to the Effective Time, Axion shall, and shall cause AHC
and each other member of the Affiliated Group to, (i) accurately prepare and
timely file with the relevant Taxing Authority all Tax Returns and reports
("Post-Signing Returns") required to be filed by Axion or any member of the
Affiliated Group at or before the Effective Time, (ii) timely pay all Taxes due
and payable by Axion or any member of the Affiliated Group at or before the
Effective Time, (iii) make adequate provision on their books and records, to the
extent required in accordance with GAAP, for all Taxes due and payable after the
Effective Time, and (iv) promptly notify BMS of any action, suit, proceeding,
claim or audit pending against or with respect to Axion, AHC or any other member
of the Affiliated Group in respect of any Taxes where there is a reasonable
possibility of a determination or decision which could have a material adverse
effect on Axion's or any of its affiliate's, Tax liabilities or Tax attributes.
(c) Except with the prior written consent of BMS, which shall not be
unreasonably withheld, and subject to Section 3, each of Axion and AHC shall
refrain, and shall cause each of its respective subsidiaries to refrain, from
(i) making any material Tax election other than consistent
10
with past practice that would bind BMS or any member of the BMS affiliated group
or otherwise materially affect the Tax liability of the Affiliated Group or (ii)
making, filing or amending any material Tax Return that includes any Pre-Merger
Tax Period that (A) is inconsistent with the existing and historic method used
by the Affiliated Group in calculating the taxable income of the Affiliated
Group, or (B) would otherwise materially affect the Tax liability of BMS, Axion
or any direct or indirect subsidiary of BMS or Axion for any Tax period (or
portion) that is not a Pre-Merger Tax Period (a "Post-Merger Tax Period").
(d) [Intentionally omitted]
(e)(i) If (A) a claim relating to Taxes (a "Tax Claim") shall be
made by any Taxing authority, which, if successful, might result in an indemnity
payment to any BMS Indemnified Party pursuant to Section 1(a)(i) of this
Agreement (other than a Tax Claim relating solely to Taxes payable by the
Partnership), (B) the AHC Indemnifying Parties admit in writing their obligation
to indemnify the BMS Indemnified Party for the Tax Claim, (C) (i) no proceeding
shall have been commenced and no petition shall have been filed seeking relief
in respect of AHC or any of its Subsidiaries, or of a substantial part of their
respective property or assets, under Title 11 of the United States Code as now
constituted or hereafter amended, or seeking the appointment of a receiver,
trustee or similar official for AHC or any of its Subsidiaries or for a
substantial part of their respective property or assets, or seeking the winding
up or liquidation of AHC or any of its Subsidiaries and (ii) none of AHC or any
of its Subsidiaries shall have made a general assignment for the benefit of
creditors or become unable, admitted in writing its inability or failed
generally to pay its debts as they become due, (D) the Tax Claim is the only
material Tax issue involving the BMS Indemnified Party involved in a proceeding,
and (E) Ernst & Young LLP, or another nationally recognized accounting firm
selected by AHC and reasonably acceptable to BMS, certifies in writing to BMS
that there is a reasonable basis for the defense against such Tax Claim, then
AHC shall control all proceedings taken in connection with the Tax Claim
(including selection of counsel) and, without limiting the foregoing, may in its
sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing authority with respect
thereto, and may, in its sole discretion, either pay such Tax Claim and sue for
a refund
11
where applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. In such a case AHC shall keep the BMS Indemnified Party
reasonably informed of developments in the proceeding. In all cases involving a
Tax Claim that might result in an indemnity payment to any BMS Indemnified
Party, BMS shall reasonably promptly notify AHC thereof and each BMS Indemnified
Party shall use its reasonable best efforts to cause that Tax Claim to be
determined in a proceeding separate from other Tax issues involving the BMS
Indemnified Party or any affiliate thereof. If the BMS Indemnified Party cannot
accomplish this separation of the Tax Claim so that such claim and other
material Tax Claims involving the BMS Indemnified Party or any affiliate thereof
have to be determined in a single proceeding, or if any of the other conditions
set forth in the first sentence of this Section 2(e)(i) are not satisfied, then,
to the maximum extent permitted, AHC shall be entitled to participate in the
proceeding through its own counsel and the BMS Indemnified Party shall consult
with AHC with regard to pursuing or foregoing administrative appeals,
proceedings, hearings and conferences with any Taxing authority and whether or
not to pay the Tax Claim and sue for a refund or to contest the Tax in some
other manner. However, except as provided in the following sentence, decisions
as to the method of contesting Taxes in such a proceeding shall be made by the
BMS Indemnified Party but AHC shall control all other aspects of the contest,
including the decisions as to whether to settle or continue to contest the Tax
Claim. Notwithstanding the foregoing, without the consent of AHC the BMS
Indemnified Party shall not pursue such Tax Claim in a forum that requires the
payment of the disputed Taxes as a pre-condition to contesting such Tax Claim if
there is a forum available that does not require such payment, unless BMS
advances the amount of such Taxes until the time at which such Taxes are
considered to be payable pursuant to Section 9 of this Agreement.
(ii) Subject to Section 2(e)(i) above, if a Tax Claim shall be made by
any Taxing authority, which, if successful, might result in an indemnity payment
to any Axion Indemnified Party pursuant to Section 1(a)(ii) of this Agreement,
then Axion or BMS shall control all proceedings taken in connection with the Tax
Claim (including selection of counsel) and, without limiting the foregoing, may
in its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing authority with respect
thereto, and may, in its sole
12
discretion, either pay such Tax Claim and sue for a refund where applicable law
permits such refund suits or contest the Tax Claim in any permissible manner. In
such a case Axion or BMS shall keep the Axion Indemnified Party reasonably
informed of developments in the proceeding.
3. Refunds. Notwithstanding anything to the contrary in this
Agreement, AHC will not amend, and will cause each AHC Indemnifying Party not to
amend, any Tax return for any Pre-Closing Tax Period that would result in a
refund of Taxes (except a refund claim made as a precondition to contesting an
asserted Tax Claim for a Pre-Merger Tax Period (as defined below)), unless (i)
such refund claims in the aggregate do not exceed $500,000 or (ii) AHC places
the full amount of each such refund into an escrow account established solely to
secure any Tax Claim that may result from such refund claim and that will not,
without the consent of BMS (which consent shall not be unreasonably withheld),
terminate prior to the expiration of the applicable statute of limitations or,
if earlier, the date of a "determination" (as defined in Section 1313 of the
Code) with respect to such refund claim.
AHC shall promptly pay to BMS the amount of any Tax refund relating
to BMS Taxes that is received by AHC or any of its Subsidiaries (a "BMS
Refund"). BMS shall promptly pay to AHC the amount of any Tax refund relating to
AHC Taxes that is received by BMS or any of its Subsidiaries (an "AHC Refund").
4. Allocation Between Taxable Periods. (a) In the case of any
taxable period that includes but does not end on the day on which the Effective
Time occurs (a "Straddle Period"),
(i) real, personal and intangible property Taxes, other than
transfer and similar Taxes ("Property Taxes"), allocated to the Pre-Merger
Tax Period shall be equal to the amount of such Property Taxes for the
entire Straddle Period multiplied by a fraction, the numerator of which is
the number of days during the Straddle Period that are in the Pre-Merger
Tax Period and the denominator of which is the number of days in the
Straddle Period; and
(ii) all Taxes (other than Property Taxes) for the Pre-Merger Tax
Period shall be computed based on an actual closing of the books as if
such taxable period
13
ended as of the close of business on the Effective Date and, in the case
of any Taxes attributable to the ownership of any equity interest in any
partnership or other "flow through" entity, based on an actual closing of
the books as if the taxable period of such partnership or other "flow
through" entity ended as of the close of business on the Effective Date;
provided, however, that all transfers and transactions (including Taxes
attributable thereto) which occur to effectuate the Distribution or the
Merger shall be allocated to the Pre-Merger Tax Period.
(b) Without limiting the foregoing provisions of this Section 4
setting forth the principles for allocating income, gain, loss, deduction,
credits, events or transfers between Pre-Merger and Post-Merger Tax Periods, and
any Straddle Period, BMS, Axion and each of their relevant Subsidiaries, and AHC
and each of its Subsidiaries, (i) shall file, or cause to be filed, all relevant
Tax Returns and execute, or cause to be executed, such other documents as may be
required by any Taxing authority, on the basis that the Distribution and the
Merger shall occur for Tax purposes as of the close of business on the day
before the day on which the Effective Time occurs and shall refrain from taking
any position inconsistent with such basis with any Taxing authority unless the
relevant Taxing authority will not accept a Tax return filed on such basis, (ii)
each agree to report the Distribution as a tax-free spin-off under Section 355
of the Code and the Merger as a tax-free reorganization under Section 368 of the
Code on all Tax Returns, and to take no position inconsistent therewith, except
if there is a "determination" (as defined Section 1313 of the Code) to the
effect that such position is incorrect or as otherwise required to contest a
claim by a Taxing authority that such position is incorrect or to file amended
state or local Tax Returns as required by law by reason of an adverse
preliminary or final determination (including an audit assessment by a Federal
Taxing authority), and (iii) agree to file all Tax Returns on the basis that any
taxable period that includes the day on which the Effective Time occurs ends on
such date unless the relevant Taxing authority will not accept a Tax Return
filed on such basis.
(c) The determination of all Taxes imposed on the Partnership for
all periods up to and including June 30, 1996, or for all periods beginning on
or after July 1, 1996,
14
shall be made on the principles set forth in Section 3(a) above.
5. Cooperation. BMS, Axion and AHC each agree to cooperate with one
another and to cause each of its Subsidiaries to so cooperate, in a timely
manner consistent with existing practice, in filing any return, form or consent
contemplated by this Agreement. Each party also agrees to take, and will cause
the appropriate Subsidiary to take, such action or actions as each other party
may reasonably request with respect to the Tax matters contemplated by this
Agreement, including but not limited to the timely filing of requests for the
extension of time within which to file Tax Returns, and the signing of and
timely filing of such waivers, consents, forms, court petitions, refund claims,
complaints, powers of attorney and other documents needed from time to time in
order to file Tax Returns and defend, prosecute or resolve deficiencies or
claims as provided herein. Each of AHC and BMS further agrees to furnish timely,
and to cause each of its subsidiaries to so furnish, the other with any and all
information reasonably requested by the other in connection with this Agreement
and the transactions contemplated by this Agreement, whether such information
relates to a period before or after the Effective Time; provided, however, that
any valuations of OnCare, OPUS and AHC made by Axion or its advisors shall be
placed in escrow and shall be made available as provided in Section 5.4 of the
Distribution Agreement. Without limiting the generality of the foregoing
sentence, AHC specifically agrees to provide to BMS, reasonably promptly, copies
of any correspondence or notices received from the Internal Revenue Service or
any other Taxing authority with respect to Taxes of the Affiliated Group for a
Pre-Merger Tax Period, and BMS agrees to provide the same to Axion within the
same time period.
Each party hereto shall retain all books and records relating to
Taxes until the later of (i) ten years after the Effective Time and (ii)
expiration of the applicable statute of limitations.
6. Transfer Taxes. Axion shall cause AHC to pay or cause to be paid
all transfer, documentary, sales, use, registration, value-added and other
similar Taxes (including all applicable real estate transfer Taxes and real
property transfer gains Taxes) and related amounts (including any penalties,
interest and additions to any such Tax) incurred in connection with, or as a
result of, the Transactions.
15
AHC shall pay all New York State stock transfer taxes due with respect to the
Transactions, and shall be entitled to any rebate thereof.
7. Post-Effective Time Restructurings. BMS shall refrain from, and
shall cause each BMS Indemnifying Party to refrain from, causing Axion, OTNC,
OPUS or the Partnership from taking any action between the Closing and the
beginning of the day after the day on which the Effective Time occurs, other
than in the ordinary course of business or as contemplated by the Merger
Agreement and the agreements, Documents and other items referred to in Section
9.06 of the Merger Agreement; provided, however, that BMS shall refrain from,
and shall cause each BMS Indemnifying Party to refrain from, undertaking the
restructuring of its ownership of Axion, OTNC, Bristol-Myers Oncology
Therapeutic Network, Inc. or the Partnership until the beginning of the day
after the day on which Effective Time occurs.
8. Tax Sharing Agreements. As of the Effective Time, AHC shall cause
all Tax sharing agreements (other than this Agreement) or arrangements to which
Axion or any Subsidiary thereof (immediately before the Merger) is a party to be
terminated, including without limitation any formal or informal agreement or
arrangement with OnCare, with no further obligations or liabilities of Axion or
any such Subsidiary thereof.
9. Tax Liabilities. For purposes of this Agreement, and for purposes
of the Escrow Agreement as it relates to Taxes, a liability for Taxes shall not
be deemed liquidated and therefore payable until the earlier of (i) the date
that a Tax Return has been filed as provided herein showing such Tax to be due
and payable (other than with respect to a Tax Claim for which BMS is required to
advance Taxes pursuant to the final sentence of Section 2(e)(i)) or (ii) there
shall be a "determination" (as defined in Section 1313 of the Code) that such
Tax is due and payable.
10. Offsets. (a) No payment shall be required to be made by any AHC
Indemnifying Party to any BMS Indemnifying Party, or by any BMS Indemnifying
Party to any AHC Indemnifying Party, as the case may be, pursuant to this
agreement to the extent that there is an amount then due and payable under this
Agreement to an AHC Indemnifying Party by a BMS Indemnifying Party, or to a BMS
Indemnifying Party by an AHC Indemnifying Party, as the case may be.
16
(b) The amount of any payment required to be made by any AHC
Indemnifying Party to any BMS Indemnified Party pursuant to this Agreement or
the Indemnification Agreement shall be reduced to the extent that Axion shall
actually have received, prior to the date such payment is required to be made,
an actual tax benefit in a Post-Merger Period by reason of a deduction resulting
from the disposition by a Former Axion Stockholder of shares of BMS Stock
acquired in the Merger in exchange for Axion Stock that was issued pursuant to
the exercise of an incentive stock option (within the meaning of Section 422 of
the Code). BMS shall cause Axion to claim any such deduction of which BMS or
Axion is aware, including, without limitation, pursuant to notice provided to
Axion by AHC.
11. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and assigns.
12. Survival. The provisions of this Agreement shall survive the
Effective Time and remain in full force until all periods of limitations,
including any extension or waiver periods, for all Taxes covered by this
Agreement have expired.
13. Notices. Any notices, payments or other communications required
by this Agreement shall be made as provided in Section 9.02 of the Merger
Agreement, except that such notices, payments or other communications shall be
addressed to each party's Director of Taxes.
14. Governing Law. The principles and provisions of Section 9.07 of
the Merger Agreement shall apply to this Agreement.
15. Entire Agreement. This Agreement, the Merger Agreement and the
agreements, Documents and other items referred to in Section 9.06 of the Merger
Agreement (a) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) are not intended to confer upon any
person other than the parties hereto any rights or remedies. The
17
parties agree that to the extent the provisions of any other agreements executed
in connection with the Distribution or the Merger are inconsistent with the
provisions of this Agreement with respect to Tax Matters, the provisions of this
Agreement shall prevail.
16. Counterparts. The principles and provisions of Section 9.05 of
the Merger Agreement shall apply to this Agreement.
17. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstances shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
18. Headings. Headings of sections in this Agreement are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
19. Definitions. Unless otherwise indicated, any capitalized term
not defined in this Agreement shall have the meaning given to such term by the
Merger Agreement.
20. Enforcement; Consent to Jurisdiction. The provisions of Section
6.12 of the Post-Closing Covenants and Indemnification Agreement shall apply to
this Agreement.
21. Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "included", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings determined by GAAP.
18
22. Miscellaneous. The provisions of Section 5.02(c) of the
Post-Closing covenants and Indemnification Agreement shall apply to this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
BRISTOL-MYERS SQUIBB COMPANY,
by _______________________________
Name:
Title:
AXION INC.,
by _______________________________
Name:
Title:
AXION HEALTHCARE, INC.,
by _______________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by _______________________________
Name:
Title:
19
AXION HEALTHCARE, INC., as
agent for and on behalf of the
81% AHC Subsidiaries and the
Former Axion Stockholders,
by _______________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by _______________________________
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
by _______________________________
Name:
Title:
OPUS SUB, INC.,
by _______________________________
Name:
Title:
APPENDIX E
================================================================================
ESCROW AGREEMENT
dated as of [ ], 1996
among
BRISTOL-MYERS SQUIBB COMPANY, on its own behalf
and as representative
of Axion, OPUS, OTNC and
the Partnership,
AXION HEALTHCARE INC., on its own behalf and as
representative of the 81% AHC Subsidiaries and the former
stockholders of Axion Inc.,
OPUS SUB, INC.,
THE OTHER 81% AHC SUBSIDIARIES,
THE FORMER STOCKHOLDERS OF AXION INC.
and
[ESCROW AGENT]
================================================================================
TABLE OF CONTENTS
SECTION Page
----
1. Deposit of Escrowed Property ............................... 3
2. Disposition of Escrowed Property............................ 6
3. Distributions for Indemnified Obligations................... 12
4. Pending Claims.............................................. 15
5. Investments; Disposition of Income.......................... 16
6. Concerning the Escrow Agent................................. 17
7. Appointment of Representative as
Attorney-in-Fact.......................................... 19
8. Certificates................................................ 20
9. Notices..................................................... 20
10. Termination and Limitations
on Indemnified Obligation................................. 21
11. Taxes....................................................... 22
12. Successors and Assigns...................................... 22
13. Assignment.................................................. 22
14. Captions.................................................... 22
15. Severability................................................ 22
16. Entire Agreement; No Third Party
Beneficiaries............................................. 23
17. Enforcement Consent to Jurisdiction......................... 23
18. Interpretation.............................................. 23
ESCROW AGREEMENT (the "Agreement") dated as of [ ],
1996, among BRISTOL-MYERS SQUIBB COMPANY, a Delaware
corporation (on its own behalf and as representative of Axion,
OPUS, OTNC and the Partnership) ("BMS"), AXION HEALTHCARE
INC., a Delaware corporation (on its own behalf and as
representative of the 81% AHC Subsidiaries and the Former
Axion Stockholders (as each such term is defined
herein)("AHC"), OPUS SUB, INC. ("OPUS Sub" and, together with
certain other Subsidiaries of AHC which shall become a party
hereto pursuant to the provisions of Section 5.02(c) of the
Indemnification Agreement referred to below, the "81% AHC
Subsidiaries"), all the stockholders of Axion Inc., a Delaware
corporation ("Axion"), immediately prior to the Effective Time
(as such term is defined in the Merger Agreement referred to
below) (the "Former Axion Stockholders") (the Former Axion
Stockholders together with AHC and the 81% AHC Subsidiaries,
collectively, the "AHC Indemnifying Parties"), and [ESCROW
AGENT], a [ ] banking corporation (the "Escrow Agent").
WHEREAS, BMS, OTN Acquisition Sub Inc., a Delaware corporation and a
wholly owned subsidiary of BMS ("BMS Sub"), and Axion have entered into an
Amended and Restated Agreement and Plan of Merger dated as of August 2, 1996
(the "Merger Agreement"), providing for the merger of BMS Sub with and into
Axion, with Axion as the Surviving Corporation (the "Merger"), following the
Distribution (as defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to such terms in the Merger
Agreement or the Distribution Agreement (as defined below), as the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement
and plan of reorganization and distribution embodied in the form of the
agreement attached as Exhibit A to the Merger Agreement (the "Distribution
Agreement"), pursuant to which (a) immediately prior to the
2
Time of Contribution (as defined in the Distribution Agreement), (i) OTN will
distribute to OTNC which will in turn distribute to Axion the Preference Amount
(as defined in the Distribution Agreement), and (ii) all Axion Options
outstanding immediately prior to the Time of Contribution shall have been
exercised or canceled, (b) immediately prior to the Time of Distribution (as
defined in the Distribution Agreement), (i) OPUS will contribute the OPUS Sub
Assets (as defined in the Distribution Agreement) to OPUS Sub and OPUS Sub will
assume the OPUS Sub Liabilities (as defined in the Distribution Agreement), (ii)
OPUS will distribute the outstanding capital stock of OPUS Sub to Axion and
(iii) Axion will contribute all the Assets (as defined in the Distribution
Agreement) of Axion and its Subsidiaries (including the outstanding capital
stock of OPUS Sub) other than the OPUS Sub Assets (which will remain Assets of
OPUS Sub) and the Retained Assets (as defined in the Distribution Agreement) to
AHC and AHC will assume all the Liabilities (as defined in the Distribution
Agreement) of Axion and its Subsidiaries other than the OPUS Sub Liabilities
(which will remain Liabilities of OPUS Sub) and the Retained Liabilities (as
defined in the Distribution Agreement) (the transactions in clauses (i), (ii)
and (iii), collectively, the "Contributions"), (c) immediately following the
Contributions and immediately prior to the Time of Distribution, each issued and
outstanding share of AHC Common Stock, par value $.0001 per share ("AHC Common
Stock"), will be converted into a number of shares of AHC Series A Preferred
Stock, par value $.0001 per share ("AHC Preferred Stock") as shall be equal to
the quotient of (i)(A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the exercise of Axion Options in
connection with the consummation of the Merger) plus (B) the number of shares of
Axion Common Stock to be issued in connection with the conversion of Axion
Preferred Stock in connection with the consummation of the Merger divided by
(ii) the number of shares of AHC Common Stock outstanding immediately prior to
the Time of Distribution, and (d) immediately following the Contributions and
the conversion referred to in clause (c) above and immediately prior to the
Effective Time, subject to the satisfaction or waiver of the conditions set
forth in Article VII of the Distribution Agreement, the Board of Directors of
Axion will cause Axion to distribute to the holders of Axion Common Stock and
the holders of Axion Preferred Stock all the then outstanding shares of AHC
Preferred Stock (the "Distribution");
3
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the obligations of the parties to the Merger Agreement
to consummate the Merger;
WHEREAS, the parties to this Agreement, as a condition to their
obligations to consummate the Merger, have also entered into the Indemnification
Agreement and the Tax Matters Agreement to govern certain matters in connection
with the Contributions, the Distribution and the Merger; and
WHEREAS, the escrow created pursuant hereto secures the continued
performance by the AHC Indemnifying Parties of each of the AHC Indemnifying
Party's respective obligations under Section 2.01 of the Indemnification
Agreement and Section 1 of the Tax Matters Agreement.
NOW, THEREFORE, in consideration of the execution of the Merger
Agreement and the representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as follows:
1. Deposit of Escrowed Property. (a) Promptly upon the execution of
this Agreement, the following events shall occur:
(i) The Exchange Agent, on behalf of the Former Axion Stockholders,
shall deposit into escrow, and the Escrow Agent shall acknowledge receipt
of, a number of shares of BMS Common Stock equal to $5,000,000 divided by
the Average Value of BMS Common Stock, rounded to the nearest whole share,
which amount shall be deemed to have been deposited by the Former Axion
Stockholders on a pro rata basis from the shares of BMS Common Stock to be
issued and delivered to each Former Axion Stockholder with respect to its
shares of Axion Common Stock pursuant to Section 2.02(b) of the Merger
Agreement, calculated based on the ratio of the number of shares of BMS
Common Stock to be so issued and delivered to such Former Axion
Stockholder with respect to its shares of Axion Common Stock to the
aggregate number of shares of BMS Common Stock to be so issued to all the
Former Axion Stockholders with respect to their shares of Axion Common
Stock. Such shares together with any dividends and distributions with
respect to such shares as set forth in Section 1(b) below and any income
received from the investment thereof, as on
4
deposit or invested from time to time in accordance with the terms of this
Agreement are hereinafter referred to as the "Escrowed Shares". Each
Escrowed Share shall be registered in the name of AHC, as representative
of the Former Axion Stockholders, endorsed in blank or accompanied by
stock powers executed in blank, in proper form for transfer; and
(ii) AHC shall deposit, or cause to be deposited, into escrow, and
the Escrow Agent shall acknowledge receipt of, $5,000,000 in cash. Such
cash, together with any income received thereon, as on deposit or invested
from time to time in accordance with the terms of this Agreement, shall
hereinafter be referred to as the "Escrowed Cash" (the Escrowed Shares and
the Escrowed Cash together being the "Escrowed Property").
(b) During the term of this Agreement, BMS shall, from time to time
and concurrently with the payment thereof, (i) deliver to the Escrow Agent for
deposit in accordance with the terms hereof, all non-taxable stock dividends and
other non-taxable distributions made with respect to the Escrowed Shares and
(ii) deliver to the Escrow Agent, who shall promptly distribute the same to the
Former Axion Stockholders, all cash distributions and other taxable
distributions (other than taxable distributions representing the proceeds of a
sale or acquisition of BMS or a substantial restructuring in connection with a
sale or acquisition of or by BMS) made with respect to the Escrowed Shares. All
such distributions to the Former Axion Stockholders pursuant to clause (ii)
above shall be allocated among them based on the ratio of the number of shares
of BMS Common Stock received by each Former Axion Stockholder at the Closing
with respect to such Former Axion Stockholder's shares of Axion Common Stock to
the aggregate number of shares of BMS Common Stock received by all Former Axion
Stockholders at the Closing with respect to all Former Axion Stockholders'
shares of Axion Common Stock. All dividends and all other distributions made on
or in respect of an Escrowed Share that are not required to be distributed to
the Former Axion Stockholders as provided pursuant to clause (ii) above, whether
resulting from a stock split, subdivision, combination or reclassification of
the outstanding capital stock of BMS or received in exchange for such Escrowed
Share or any part thereof, or in redemption thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which BMS may
be a party or otherwise, shall (together with the Escrowed
5
Share in respect of which such dividends or distributions were received) be and
become part of and be considered for purposes of Section 2(c) such Escrowed
Share. Any such dividend or distribution received that is so treated as part of
an Escrowed Share will be held by the Escrow Agent in the form in which such
dividend or distribution was received.
If any dividends or distributions made on or in respect of an
Escrowed Share that are not required to be distributed to the Former Axion
Stockholders as provided pursuant to clause (ii) above are received by any
Former Axion Stockholder prior to the release of such Escrowed Share to such
Former Axion Stockholder in accordance with the provisions of this Agreement,
such dividends or distributions shall not be commingled by such Former Axion
Stockholder with any of its other funds or property but shall be held separate
and apart therefrom, shall be held in trust for the benefit of the Escrow Agent
and shall be forthwith delivered to the Escrow Agent in the same form as so
received (with any necessary endorsement).
(c) BMS and each AHC Indemnifying Party acknowledge and agree that,
to the extent and so long as any of the Escrowed Property is held by the Escrow
Agent hereunder, BMS shall have, as of and from the date such Escrowed Property
is received by the Escrow Agent, a perfected first priority security interest in
such Escrowed Property to secure the payment of the amount, if any, payable by
an AHC Indemnifying Party pursuant to Section 2.01 of the Indemnification
Agreement and Section 1 of the Tax Matters Agreement. In connection therewith,
each AHC Indemnifying Party expressly agrees (i) that the Escrow Agent is acting
solely as BMS's agent to the extent necessary to perfect BMS's first priority
security interest in the Escrowed Property and (ii) to execute and deliver such
instruments as BMS may from time to time reasonably request for the purpose of
evidencing and perfecting such security interest. In the event that any cash
portion of the Escrowed Shares is invested pursuant to Section 5, the Escrow
Agent shall take all actions necessary, including, but not limited to,
appropriate identification on the Escrow Agent's books and records, to ensure
that all such investments are deemed held by the Escrow Agent as BMS's agent for
the purpose of perfecting BMS's first-priority security interest therein.
(d) Each of BMS and each of the AHC Indemnifying Parties agree that
the Escrowed Shares shall be voted by the
6
Escrow Agent with respect to all matters as to which the holders of BMS Common
Stock are entitled to vote in accordance with written instructions from AHC as
the representative of the Former Axion Stockholders. AHC hereby agrees that if
any Former Axion Stockholder provides AHC with written directions as to how to
vote the Escrowed Shares with respect to any matter, AHC shall instruct the
Escrow Agent to vote such number of Escrowed Shares as are beneficially held for
such Former Axion Stockholder (calculated based on the ratio of the number of
shares of BMS Common Stock received by such Former Axion Stockholder at the
Closing with respect to such Former Axion Stockholder's shares of Axion Common
Stock to the aggregate number of shares of BMS Common Stock received by all
Former Axion Stockholders at the Closing with respect to all Former Axion
Stockholders' shares of Axion Common Stock) as so directed by such Former Axion
Stockholder, and if no such directions are received with respect to particular
Escrowed Shares on any matter for which such Escrowed Shares may be voted, AHC
shall direct the Escrow Agent to abstain from voting such Escrowed Shares with
respect to such matter.
2. Disposition of Escrowed Property. (a) The Escrow Agent shall hold
the Escrowed Property in its possession until authorized in writing hereunder to
deliver such Escrowed Property as follows:
(i) At any time on or prior to the Escrowed Cash Termination Date
(as defined in Section 10), BMS may deliver a Certificate (as defined in
Section 8) to the Escrow Agent requesting delivery of Escrowed Property to
BMS, and the Escrow Agent shall deliver the Escrowed Property to BMS to
the extent and at the time provided in accordance with Section 3 hereof;
provided, however, that no distribution of Escrowed Property shall be made
in respect of any Indemnified Obligation (as defined in Section 3(a))
related to a liability for Taxes for which a BMS Indemnified Party (as
defined in Section 3(a)) is indemnified pursuant to Section 1 of the Tax
Matters Agreement unless and until such time as such liability for Taxes
shall be deemed liquidated and therefore payable in accordance with the
provisions of Section 9 of the Tax Matters Agreement, (ii) after the
Escrowed Shares Termination Date (as defined in Section 10 below), no
Escrowed Shares shall be released to BMS except with respect to an
Escrowed Shares Pending Claim (as defined in Section 2(a)(ii) below)) and
(iii) after the Second Anniversary Date (as defined
7
in Section 2(a)(iii) below), Second Anniversary Cash shall be released to
BMS only with respect to Second Anniversary Pending Claims (as defined in
Section 2(a)(iii) below). For purposes of the foregoing, the amount of
Second Anniversary Cash as of any date shall equal the excess, if any, of
the amount of Escrowed Cash on deposit with the Escrow Agent on such date
over the amount specified in clause (A) of the definition of "Retained
Escrow Amount (as defined in Section 2(a)(iii) below) calculated as of
such date.
(ii) Immediately following the Escrowed Shares Termination Date, if
either (A) both BMS and AHC deliver a Certificate to the Escrow Agent or
(B) the Escrow Agent (I) receives a Certificate from AHC, (II) delivers a
copy of such Certificate to BMS and (III) does not, within 15 business
days following delivery of such Certificate to BMS, receive written notice
from BMS objecting to such Certificate given by AHC, the Escrow Agent
shall deliver to AHC as the representative of the Former Axion
Stockholders such number of Escrowed Shares (rounded to the nearest whole
share) that equals, when multiplied by the Average Value of BMS Common
Stock, the excess, if any, of (x) the number of Escrowed Shares on deposit
with the Escrow Agent on the Escrowed Shares Termination Date multiplied
by the Average Value of BMS Common Stock over (y) the amount of any unpaid
Escrowed Shares Pending Claims (as defined below) on the Escrowed Shares
Termination Date. Thereafter, if as of the last day of any fiscal quarter
following the Escrowed Shares Termination Date, Escrowed Shares remain on
deposit with the Escrow Agent, and either (A) both BMS and AHC deliver a
Certificate to the Escrow Agent or (B) the Escrow Agent (I) receives a
Certificate from AHC, (II) delivers a copy of such Certificate to BMS and
(III) does not, within 15 business days following delivery of such
Certificate to BMS, receive written notice from BMS objecting to such
Certificate given by AHC, the Escrow Agent shall deliver to AHC as the
representative of the Former Axion Stockholders the number of Escrowed
Shares that equals, when multiplied by the Average Value of BMS Common
Stock, the excess, if any, of (x) the number of Escrowed Shares on deposit
with the Escrow Agent on the last day of such fiscal quarter multiplied by
the Average Value of BMS Common Stock over (y) the amount of any unpaid
Escrowed Shares Pending Claims on the last day of such fiscal quarter.
8
"Escrowed Shares Pending Claims" shall mean all the Pending Claims (as
defined in Section 4 below) existing on the Escrowed Shares Termination
Date. The amount of any Escrowed Shares Pending Claim on any date shall be
determined in accordance with the provisions of Section 4.
(iii) Immediately following the second anniversary of the date of
this Agreement (the "Second Anniversary Date"), if either (A) both BMS and
AHC jointly deliver a Certificate to the Escrow Agent or (B) the Escrow
Agent (I) receives a Certificate from AHC, (II) delivers a copy of such
Certificate to BMS and (III) does not, within 15 business days following
delivery of such Certificate to BMS, receive written notice from BMS
objecting to the Certificate given by AHC, the Escrow Agent shall deliver
to AHC an amount in cash equal to the excess, if any, of Escrowed Cash on
deposit with the Escrow Agent as of the Second Anniversary Date over the
Retained Escrow Amount on the Second Anniversary Date. Thereafter, if as
of the last day of any fiscal quarter following the Second Anniversary
Date, Escrowed Cash remains on deposit with the Escrow Agent and either
(A) both BMS and AHC deliver a Certificate to the Escrow Agent or (B) the
Escrow Agent (I) receives a Certificate from AHC, (II) delivers a copy of
such Certificate to BMS and (III) does not, within 15 business days
following delivery of such Certificate to BMS, receive written notice from
BMS objecting to such Certificate given by AHC, the Escrow Agent shall
deliver to AHC an amount in cash equal to the excess, if any, of Escrowed
Cash on deposit with the Escrow Agent as of the last day of such fiscal
quarter over the Retained Escrow Amount as of the last day of such fiscal
quarter. "Retained Escrow Amount" shall mean, as of any date, the sum of
(A) an amount, if any, equal to the excess of $1,000,000 over (i) the
aggregate amount, if any, of Escrowed Cash that shall have been released
during the period from the Second Anniversary Date to such date in respect
of any Pending Claim that was not an existing Pending Claim at any time on
or prior to the Second Anniversary Date and (ii) the aggregate amount, if
any, released to AHC pursuant to Section 2(a)(iv) below from and after the
Escrowed Cash Termination Date and (B) the amount of any unpaid Second
Anniversary Pending Claims (as defined below) on such date. "Second
Anniversary Pending Claims" shall mean all the Pending
9
Claims existing on the Second Anniversary Date (and, for the avoidance of
doubt, shall include all Escrowed Shares Pending Claims existing on such
date). The amount of any Second Anniversary Pending Claim on any date
shall be determined as provided in Section 4, provided that, for all
purposes of this Section 2.01(a)(iii), the amount of unpaid Second
Anniversary Pending Claims on the last day of any fiscal quarter ending
after the Second Anniversary Date shall be reduced by an amount equal to
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the
last day of such fiscal quarter (such number to be determined based on the
assumption that any Escrowed Shares that are to be delivered to AHC as the
representative of the Former AHC Stockholders in respect of the last day
of such fiscal quarter as provided in the second sentence of Section
2(a)(ii) above shall have been so delivered and shall not be on deposit
with the Escrow Agent on the last day of such fiscal quarter), if any,
multiplied by (y) the Average Value of BMS Common Stock.
(iv) Immediately following the Escrowed Cash Termination Date, if
either (A) both BMS and AHC deliver a Certificate to the Escrow Agent or
(B) the Escrow Agent (I) receives a Certificate from AHC, (II) delivers a
copy of such Certificate to BMS and (III) does not, within 15 business
days following delivery of such Certificate to BMS, receive written notice
from BMS objecting to such Certificate given by AHC, the Escrow Agent
shall deliver to AHC an amount equal to the excess, if any, of Escrowed
Cash on deposit with the Escrow Agent as of the Escrowed Cash Termination
Date (calculated as provided below) over an amount equal to any unpaid
Final Pending Claims (as defined below) on the Escrowed Cash Termination
Date. Thereafter, if as of the last day of any fiscal quarter following
the Escrowed Cash Termination Date Escrowed Cash remains on deposit with
the Escrow Agent and either (A) both BMS and AHC deliver a Certificate to
the Escrow Agent or (B) the Escrow Agent (I) receives a Certificate from
AHC, (II) delivers a copy of such Certificate to BMS and (III) does not,
within 15 business days following delivery of such Certificate to BMS,
receive written notice from BMS objecting to such Certificate given by
AHC, the Escrow Agent shall deliver to AHC an amount equal to the excess,
if any, of Escrowed Cash on deposit with the Escrow Agent as of
10
the last day of such fiscal quarter (calculated as provided below) over an
amount equal to any unpaid Final Pending Claims on the last day of such
fiscal quarter. For purposes of this Section 2.01(a)(iv), the amount of
any Escrowed Cash on deposit with the Escrow Agent shall be calculating by
treating the amount, if any, of Escrowed Cash that is to be delivered to
AHC pursuant to Section 2.01(a)(iii) on such date as having been so
delivered and as not being on deposit with the Escrow Agent on such date.
"Final Pending Claims" shall mean all Pending Claims existing on the
Escrowed Cash Termination Date (and, for the avoidance of doubt, shall
include all Escrowed Shares Pending Claims and Second Anniversary Pending
Claims existing on such date). The amount of any Final Pending Claim on
any date shall be determined as provided in Section 4, provided that, for
purposes of this Section 2.01(a)(iv) the amount of unpaid Final Pending
Claims on the last day of any fiscal quarter ending after the Escrowed
Cash Termination Date shall be reduced by an amount equal to (x) the
number of Escrowed Shares on deposit with the Escrow Agent on the last day
of such fiscal quarter (such number to be determined based on the
assumption that any Escrowed Shares that are to be delivered to AHC as the
representative of the Former AHC Stockholders in respect of the last day
of such fiscal quarter is provided in the second sentence of Section
2(a)(ii) above shall have been so delivered and shall not be on deposit
with the Escrow Agent on the last day of such fiscal quarter), if any,
multiplied by (y) the Average Value of BMS Common Stock.
(v) Either BMS or AHC may deliver to the Escrow Agent a Certificate
accompanied by a final and nonappealable award or order of a court of
competent jurisdiction (a "Court Order") with respect to the payment of
all or any portion of the Escrowed Property requesting delivery of
Escrowed Property to BMS, AHC or such other person(s) as may be specified
in such award or order. Such Certificate also shall be accompanied by an
opinion of outside counsel to the effect that the applicable court award
or order is final and nonappealable. In either such case, the Escrow Agent
shall deliver all or a portion of the Escrowed Property to BMS or AHC, as
the case may be, in the amount specified in the Court Order.
11
(vi) If AHC shall have delivered to the Escrow Agent and BMS at any
time within 30 days before or after the due date (including extensions)
for payment by AHC of its final Federal income tax liability for a taxable
year (or, if later, 30 days after the Escrow Agent supplies all
information relating to the income realized with respect to the Escrowed
Cash necessary to prepare the Certificate referred to in this Section
2.01(a)(vi) a Certificate setting forth the amount of Federal and State of
California income tax due from AHC with respect to any taxable income
realized with respect to the Escrowed Cash for such taxable year (based on
the assumption that AHC is, with respect to such income, subject to
Federal and State of California income tax at the highest regular marginal
tax rate applicable to corporations for such year), and the accuracy and
completeness of such Certificate shall be certified by Ernst & Young LLP,
or such other nationally recognized accounting firm chosen by AHC and
reasonably satisfactory to BMS, then the Escrow Agent shall pay to AHC in
cash the amount set forth in such Certificate no more than fifteen days
after receipt of such Certificate. The Escrow Agent shall use commercially
reasonable efforts to supply to AHC the tax information referred to above
prior to the start of the 60-day period referred to above.
(b) All distributions hereunder that are not the subject of a
dispute shall be made no later than 20 days from receipt of a Certificate and
shall be made from the Escrowed Shares and/or the Escrowed Cash, as the case may
be, in accordance with Section 2(a) above. Distributions made to BMS pursuant to
Section 2(a)(i) above shall first be made from any Escrowed Shares on deposit
and then, to the extent so required, from any Escrowed Cash. Distributions made
pursuant to Section 2(a)(vi) shall be deemed to have been made from the Escrowed
Cash.
(c) In the case of any distribution of Escrowed Shares pursuant to
this Agreement, each Escrowed Share so distributed shall be valued at a price
per share equal to the Average Value of BMS Common Stock and all such
distributions shall be rounded to the nearest whole share. All Escrowed Shares
distributed to AHC pursuant to this Agreement shall be distributed by AHC pro
rata to the Former Axion Stockholders based on the ratio of the number of shares
of BMS Common Stock received by such Former Axion Stockholder at the Closing
with respect to such Former Axion
12
Stockholder's shares of Axion Common Stock to the aggregate number of shares of
BMS Common Stock received by all Former Axion Stockholders at the Closing with
respect to all Former Axion Stockholders' shares of Axion Common Stock.
(d) Upon any distribution of Escrowed Property pursuant to this
Agreement, BMS's security interest in the Escrowed Property to the extent of
such distribution shall be, and shall be deemed to be, released and discharged
as of and from the moment of such release from escrow.
(e) In the case of each of Sections 2(a)(ii), 2(a)(iii) and
2(a)(iv), if BMS delivers to the Escrow Agent written notice objecting to any
Certificate from AHC requesting the release of the Escrowed Property, such
notice shall specify the disputed amount of such release request and the amount
not in dispute. Notwithstanding anything to the contrary set forth in this
Section 2, the Escrow Agent shall be authorized to deliver to AHC (as the
representative of the Former Axion Stockholders in the case of any delivery of
Escrowed Shares) the amount of such release request not in dispute, subject to
and in accordance with the applicable provision of Section 2(b) hereof.
3. Distributions for Indemnified Obligations. (a) At any time on or
prior to the Escrowed Cash Termination Date, BMS may deliver to the Escrow Agent
a Certificate (i) stating that (A) a BMS Indemnified Party has incurred an
Indemnifiable Loss against which such BMS Indemnified Party is entitled to be
indemnified pursuant to Section 2.01 of the Indemnification Agreement or (B) a
BMS Indemnified Party is liable for Taxes against which such BMS Indemnified
Party is entitled to be indemnified pursuant to Section 1 of the Tax Matters
Agreement (each, an "Indemnified Obligation"), (ii) stating the aggregate amount
of such Indemnified Obligation (or, in the case of an unliquidated Indemnified
Obligation, a good faith and reasonable estimate thereof) and (iii) specifying
in reasonable detail the nature of each item included in such Indemnified
Obligation (an "Indemnification Item"), the amount thereof and the date on which
such Indemnification Item was paid or incurred; provided, however, that BMS may
not deliver to the Escrow Agent a Certificate stating that a BMS Indemnified
Party is liable for Taxes against which such BMS Indemnified Party is entitled
to be indemnified pursuant to Section 1 of the Tax Matters Agreement unless and
until any of the following shall have occurred: (a) a Tax Return shall have been
filed as provided in the Tax Matters
13
Agreement showing such Taxes to be due and payable and the full amount of such
Taxes shall not have been paid at the time such Tax Return was filed; (b) a
Taxing Authority shall have asserted in writing or determined that there is a
deficiency with respect to such Taxes; (c) except with respect to any claim for
indemnification for Taxes relating in any respect to (i) the Contributions, the
Distribution, the Merger or any of the other Transactions, (ii) any sales or use
Taxes, other than (A) Pre-JV Sales Taxes, (B) JV Sales Taxes and (C) any
liability of any BMS Indemnified Party with respect to unpaid sales and use
taxes on rentals of OPUS Station machines, and (iii) the distribution of the
stock of OnCare, Inc. by Axion, BMS shall have received an opinion of a
nationally recognized accounting firm or law firm reasonably acceptable to AHC
that it is more likely than not that such Taxes will be properly payable; or (d)
there shall have been a "determination" (as defined in Section 1313 of the Code)
that such Taxes are due and payable. For purposes of this Agreement, "BMS
Indemnified Party" shall have the meaning assigned to such term in the
Indemnification Agreement or the Tax Matters Agreement, as applicable. Any
Certificate delivered pursuant to this Section with respect to any unliquidated
Indemnified Obligation may be supplemented by a later Certificate specifying in
greater detail the items set forth therein. Upon delivery of any such
Certificate, the Escrow Agent shall, within five days of receipt thereof,
deliver a written notice together with a copy of such Certificate to AHC.
(b) If AHC objects to the Indemnified Obligation specified in such
Certificate, AHC shall, within 10 business days after delivery of the written
notice containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent shall deliver a copy of such Reply
Certificate to BMS. BMS and AHC shall negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
(c) If no Reply Certificate is delivered with respect to any
Certificate or any Indemnification Item contained therein, then AHC shall be
deemed to have
14
acknowledged BMS's right to receive any amount or amounts specified in such
Certificate (or the undisputed portion thereof), and the Escrow Agent shall
transfer to BMS, Escrowed Property in an amount equal to the undisputed amount
claimed in such Certificate (plus interest at a rate per annum equal to the
prime rate announced from time to time by The Chase Manhattan Bank on such
amount from the later of (i) the date of such Certificate and (ii) the date such
indemnified amount was actually incurred by the applicable Indemnified Party),
all in accordance with the procedures set forth in Section 2(b).
(d) If the Escrow Agent receives a Reply Certificate in a timely
manner, the disputed amount requested for reimbursement pursuant to the
applicable Certificate shall be held by the Escrow Agent and shall not be
released to BMS except in accordance with either (i) written instructions signed
by each of an authorized officer of BMS and AHC or (ii) the final nonappealable
judgment of a court having jurisdiction over the matters relating to the claim
by the applicable Indemnified Party for indemnification from AHC accompanied by
an opinion of outside counsel to the effect that the applicable judgment is
final and nonappealable, at which date the portion of the amount due to such
Indemnified Party determined pursuant to (i) or (ii) in this paragraph 3(d)
shall promptly be paid to BMS in accordance with the procedures set forth in
Section 2(b).
(e) The parties hereto agree that the payment of Indemnified
Obligations contemplated by this Section is not, and shall not be deemed to be,
a waiver of any right, claim or amount to which BMS may be entitled under the
Indemnification Agreement, the Tax Matters Agreement or otherwise, including any
claim relating to an Indemnified Obligation, to the extent that the amount paid
to BMS pursuant hereto is insufficient to satisfy the entire amount of any such
Indemnified Obligation.
(f) Notwithstanding anything to the contrary set forth in Section 2
or Section 3 hereof, upon receipt of written notice from the Escrow Agent
containing a copy of a Certificate relating to an Indemnified Obligation the
final amount of which shall have been liquidated, AHC may elect to pay to BMS
such amount in cash in lieu of payment being made from the Escrowed Property if
AHC, within ten business days after delivery of the written notice containing a
copy of the Certificate, shall have delivered to BMS and the Escrow
15
Agent a written notice stating its election to make such cash payment and,
thereafter, shall have made such cash payment to BMS on the earliest date that a
payment of Escrowed Property would otherwise be made hereunder with respect to
such Indemnified Obligation; provided, however, that such Indemnified Obligation
shall constitute a Pending Claim for all purposes of this Agreement until the
time the full amount of such cash payment is actually received by BMS.
4. Pending Claims. (a) For purposes of this Agreement, "Pending
Claims" shall mean, at any time, (a) all indemnification claims with respect to
which a Certificate shall have been delivered at or prior to such time with
respect to which the final amount of such claims shall have been liquidated and
which shall not have been paid in full at such time whether because the payment
of such amount is in dispute or otherwise and (b) all indemnification claims
with respect to which a Certificate shall have been delivered and with respect
to which the final amount of such claim shall not have been liquidated.
(b) The amount of any Pending Claim as of any date shall be equal to
BMS's reasonable estimate of such amount. If any Pending Claim shall exist on
the last day of any fiscal quarter during the term of this Agreement, not later
than 10 business days after the last day of such fiscal quarter, BMS shall
deliver to the Escrow Agent a Certificate (a "Quarterly Certificate") setting
forth BMS's reasonable estimate of the amount of each then existing Pending
Claim as of the last day of such fiscal quarter, provided that, if BMS shall not
deliver a Quarterly Certificate in respect of any fiscal quarter or shall not
include in such Quarterly Certificate all Pending Claims existing on the last
day of such fiscal quarter, the amount of each Pending Claim (or the amount of
any Pending Claim not included in such Quarterly Certificate, as applicable)
shall be the amount of each such Pending Claim set forth in the most recent
Certificate (including any Quarterly Certificate) delivered by BMS to the Escrow
Agent in respect of the amount of such Pending Claim, provided further that
failure of BMS to deliver a Quarterly Certificate in respect of any fiscal
quarter shall not affect in any manner the obligations of the AHC Indemnifying
Parties hereunder or under the Indemnification Agreement or the Tax Matters
Agreement or the rights of BMS or any other BMS Indemnified Party hereunder or
thereunder.
16
(c) If AHC reasonably objects to the amount of any Pending Claim
specified in any Certificate delivered pursuant to this Section 4, AHC shall,
within 10 business days after delivery of such Certificate, deliver to the
Escrow Agent a Certificate (the "Amount Certificate"), (i) specifying each such
amount to which AHC reasonably objects and (ii) specifying in reasonable detail
the nature and basis for each such objection. Within five business days of
delivery to the Escrow Agent of the Amount Certificate, the Escrow Agent shall
deliver a copy of such Amount Certificate to BMS. BMS and AHC shall negotiate in
good faith for a period of 30 days after delivery by the Escrow Agent to BMS of
such Amount Certificate to reach a written resolution of any matters raised in
the Amount Certificate and, if such matters are not resolved within a 30-day
period, either party may bring an action to resolve such dispute as provided in
Section 17. Notwithstanding the foregoing, the amount of any Pending Claim with
respect to which an Amount Certificate shall have been delivered shall be for
all purposes of this Agreement the amount reasonably determined by BMS as
provided in Section 4(b) above unless and until such time as the Escrow Agent
either (a) receives written instructions signed by an authorized officer of each
of BMS and AHC adjusting the amount of such Pending Claim or (b) the final
nonappealable judgment of a court having jurisdiction over the matters relating
to the claim by the applicable BMS Indemnified Party for indemnification from
any AHC Indemnifying Party adjusting the amount of such Pending Claim
accompanied by an opinion of outside counsel to the effect that the applicable
judgment is final and nonappealable, at which date, in the event that the Escrow
Agent shall have received an Amount Certificate from AHC within the time frame
set forth above, the amount of the Pending Claim for all purposes of this
Agreement shall be adjusted to the amount determined pursuant to clauses (a) or
(b) of this sentence.
5. Investments; Disposition of Income. The Escrow Agent agrees that
it shall invest the Escrowed Cash and the cash portion of the Escrowed Shares,
in (i) direct obligations of, or obligations fully guaranteed by, the United
States of America or any agency thereof having a maturity of not more than 180
days, (ii) certificates of deposit of the Escrow Agent or any commercial bank in
the United States of America having total capital surplus and undivided profits
in excess of $500,000,000 and (iii) securities approved jointly in writing by
BMS and AHC, all as the parties hereto, from time to time, shall jointly
17
instruct the Escrow Agent to do in writing. Any income received by the Escrow
Agent from investments of the Escrowed Property pursuant to this Section 5 shall
be added to the Escrowed Property and distributed as provided in this Agreement.
Upon liquidation of an investment of the Escrowed Property, the Escrowed
Property shall be deposited into a non-interest bearing account pending receipt
of written investment instructions from BMS and AHC as provided in this Section
5 or Certificate or other disbursement instruction as provided in Section 2.
6. Concerning the Escrow Agent. (a) The Escrow Agent shall not be
required to invest any funds held hereunder except as directed pursuant to
Section 5. Uninvested funds held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement. The Escrow Agent's duties shall be
ministerial in nature.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or wilful misconduct, and, except with respect to claims based upon
such gross negligence or wilful misconduct that are successfully asserted
against the Escrow Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless the Escrow Agent (and any successor Escrow Agent)
from and against any and all losses, liabilities, claims, actions, taxes,
damages and expenses, including, without limitation, reasonable attorneys' fees
and disbursements, arising out of or in connection with this Agreement
including, without limitation, the legal costs and expenses of defending itself
against any claim or liability in connection with its performance hereunder. The
Escrow Agent further agrees that all Escrowed Property shall be available for
withdrawal on not less than two business days' prior written notice.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or
18
validity or the service thereof. The Escrow Agent may act in reliance upon any
instrument or signature believed by it to be genuine and may assume that any
person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Agreement and shall not be liable for any
action taken or omitted in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed
Property deposited hereunder but is serving as escrow agent only and having only
possession thereof. The parties agree that any income realized with respect to
the Escrowed Cash shall be treated for all purposes as income of AHC, and any
income realized with respect to the Escrowed Shares shall be treated for all
purposes as income of the Former Axion Stockholders. Any payments of income from
this Agreement shall be subject to withholding regulations then in force with
respect to United States taxes. The parties hereto will provide the Escrow Agent
with appropriate W-9 forms for tax identification, number certification, or
nonresident alien certifications. This paragraph and paragraph (c) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity,
value, genuineness or the collectibility of any security or other documents or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as
to the wisdom in selling or retaining or taking or refraining from any action
with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor Escrow Agent) may at any
time resign as such by delivering the Escrowed Property, subject to subparagraph
(1) below, to any successor Escrow Agent jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Agreement. The resignation of the Escrow Agent
will take effect on the earlier of (i) the
19
appointment of a successor (including a court of competent jurisdiction) or (ii)
the day which is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at that time the Escrow Agent has
not received a designation of a successor Escrow Agent, the Escrow Agent's sole
responsibility after that time shall be to safekeep the Escrowed Property until
receipt of a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final and nonappealable
order of a court of competent jurisdiction.
(j) In the event of any disagreement between the other parties
hereto resulting in adverse claims or demands being made in connection with the
Escrowed Property, or in the event that the Escrow Agent in good faith is in
doubt as to what action it should take hereunder, the Escrow Agent shall be
entitled to retain the Escrowed Property until the Escrow Agent shall have
received (i) a final nonappealable order of a court of competent jurisdiction
directing delivery of the Escrowed Property or (ii) a written agreement executed
by the other parties hereto directing delivery of the Escrowed Property, in
which event the Escrow Agent shall disburse the Escrowed Property in accordance
with such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion of outside counsel satisfactory to the Escrow
Agent to the effect that said court order is final and nonappealable. The Escrow
Agent shall act on such court order and legal opinions without further question.
(k) The Escrow Agent shall be paid $[ ] annually. All fees shall be
paid in United States currency and payable in the United States at the office of
the Escrow Agent. It is understood that the Escrow Agent's fees may be adjusted
from time to time to conform with its then current guidelines. Such fees shall
be paid in equal proportions by BMS, on the one hand, and AHC, on the other
hand.
(l) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instruction
given by the parties hereto.
(m) The Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings which may be instituted against it in respect of the subject
20
matter of this Agreement. If the Escrow Agent does elect to act it will do so
only to the extent that it is indemnified to its satisfaction against the cost
and expense of such defense or initiation.
7. Appointment of Representative as Attorney-in-Fact. The
appointment of AHC as the representative of each Former Axion Stockholder
pursuant to the Letter of Transmittal and each 81% AHC Subsidiary pursuant to
Section 6.01 of the Indemnification Agreement is hereby confirmed. The parties
hereto agree that the Escrow Agent may rely on such appointment.
8. Certificates. For the purposes of this Agreement, a "Certificate"
shall mean a written certificate specifying the claim asserted hereunder,
containing appropriate instructions for delivery of Escrowed Property,
containing the information relevant to the Section of the Agreement pursuant to
which such Certificate is delivered and certified as to its accuracy by the
person delivering such Certificate.
9. Notices. All notices, Certificates or other communications
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand or sent prepaid telex, cable or telecopy (with hard copy to
follow), or sent, postage prepaid, by registered, certified or express mail, or
reputable overnight courier service and shall be deemed given when so delivered
by hand, telexed, cabled or telecopied or if mailed, when received, as follows:
(a) if to BMS, to:
Bristol-Myers Squibb Company
345 Park Avenue
New York, New York 10154
Attention: Robert E. Ewers, Jr.
21
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Susan Webster
(b) if to any AHC Indemnifying Party, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
with copies to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, CA 94304
Attention: Steven M. Spurlock
(c) if to the Escrow Agent, to:
Attention:
10. Termination and Limitations on Indemnified Obligation. (a) For
purposes of this Agreement, (i) the "Escrowed Shares Termination Date" shall
mean the earlier to occur of (A) one year after the date of this Agreement and
(B) complete distribution of the Escrowed Shares in satisfaction of claims for
Indemnified Obligations, and (ii) the "Escrowed Cash Termination Date" shall
mean the earlier to occur of (A) six years after the date of this Agreement and
(B) complete distribution of the escrowed cash in satisfaction of claims for
Indemnified Obligations.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, none of the occurrence of the Escrowed Shares Termination Date or
Escrowed Cash Termination Date or the termination of this Agreement for
22
any other reason shall release any AHC Indemnifying Party from its obligations
under Section 2.01 of the Indemnification Agreement, Section 1 of the Tax
Matters Agreement, any Indemnified Obligation or any Pending Claim, and all such
obligations shall remain in full force and effect until such time as they have
been satisfied in accordance with the terms of the Indemnification Agreement or
the Tax Matters Agreement, as the case may be.
11. Taxes. All interest and other amounts received with respect to
the Escrowed Cash shall be income for tax purposes to AHC and shall be reported
by the Escrow Agent to the Internal Revenue Service as having been so allocated.
All amounts received with respect to the Escrowed Stock shall be income for tax
purposes to the Former Axion Stockholders and shall be reported by the Escrow
Agent to the Internal Revenue Service as having been so allocated. Each of AHC
and each Former Axion Stockholder shall complete and return to the Escrow Agent
any and all tax forms or reports required to be maintained or obtained by the
Escrow Agent. The Escrow Agent shall provide to each of AHC and each Former
Axion Stockholder all necessary forms reporting any amounts received with
respect to the Escrowed Cash or the Escrowed Stock, as the case may be.
12. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
13. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
14. Captions. The Section and paragraph captions herein are for
convenience of reference only, and do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
15. Severability. If any provision of this Agreement or the other
Documents or the application thereof to any person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable,
23
the remaining provisions thereof, or the application of such provision to
persons or circumstances other than those as to which it has been held invalid
or unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
16. Entire Agreement; No Third Party Beneficiaries. This Agreement,
the other Documents and the agreements referred to herein and therein, and
required to be delivered in connection with the transactions contemplated by the
Documents (a) constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) are not intended to
confer upon any person or entity other than the parties any rights or remedies.
17. Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal Court sitting
in the State of Delaware or in Delaware state court.
24
18. Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "included",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". All accounting terms not defined in
this Agreement shall have the meanings determined by GAAP.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
BRISTOL-MYERS SQUIBB COMPANY,
by
___________________________
Name:
Title:
AXION HEALTHCARE INC.,
by
___________________________
Name:
Title:
25
[OPUS SUB, INC.],
by
___________________________
Name:
Title:
_________________________________
Axion Healthcare Inc., as
Attorney-in-Fact for and on
behalf of each of the following
former Stockholders of AXION
INC. set forth on Exhibit A
hereto
[ESCROW AGENT], as Escrow Agent,
by
___________________________
Name:
Title:
Appendix F
Delaware General Corporation Law Section 262 APPRAISAL RIGHTS. (a) Any
stockholder of a corporation of this State who holds shares of stock on the date
of the making of a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to ss. 228 of this title
shall be entitled to an appraisal by the Court of Chancery of the fair value of
his shares of stock under the circumstances described in subsections (b) and (c)
of this section. As used in this section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
2
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the
3
corporation, not less than 20 days prior to the meeting, shall notify each of
its stockholders who was such on the record date for such meeting with respect
to shares for which appraisal rights are available pursuant to subsections (b)
or (c) hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or 258
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding
4
the foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit
5
their certificates of stock to the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
6
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which his prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
INFORMATION STATEMENT RELATING TO
AXION HEALTHCARE INC.
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of
Axion Inc., a Delaware corporation ("Axion"), in connection with the
contemplated pro rata distribution (the "Distribution") to Axion stockholders of
shares of Series A Preferred Stock, par value $.0001 per share ("AHC Preferred
Stock"), of Axion HealthCare Inc., a Delaware corporation and wholly owned
subsidiary of Axion ("AHC"). The holders of shares of common stock of Axion, par
value $.001 per share ("Axion Common Stock"), will receive one share of AHC
Preferred Stock with respect to each share of Axion Common Stock held by such
holder on the record date for the Distribution (the "Distribution Record Date")
and the holders of shares of Axion Preferred Stock (as defined herein) will
receive one share of AHC Preferred Stock with respect to each share of Axion
Preferred Stock held by such holder on the Distribution Record Date. The
Distribution will result in 100% of the then outstanding shares of AHC Preferred
Stock being distributed to Axion stockholders on a share-for-share basis.
The Distribution is being effected by Axion in connection with
the acquisition by Bristol-Myers Squibb Company, a Delaware corporation ("BMS"),
of Axion and its oncology drug distribution-related business interests, which
consist of: (i) Oncology Therapeutics Network Corporation, a Delaware
corporation and wholly owned subsidiary of Axion ("OTNC"), including OTNC's
interest in the Oncology Therapeutics Network Joint Venture, L.P., a Delaware
limited partnership (the "Partnership" or "OTN"), and (ii) OPUS Health Systems
Inc., a Delaware corporation and wholly owned subsidiary of Axion ("OPUS"),
which at the Effective Time (as defined herein) will contain only the OPUS
Station automated drug dispensing and inventory tracking systems business (the
"OPUS Station Business"), including in each case the assets and certain
liabilities related thereto (the "Retained Business"). The acquisition by BMS
will be effected by a merger (the "Merger") of OTN Acquisition Sub Inc., a
Delaware corporation and wholly owned subsidiary of BMS ("BMS Sub"), with and
into Axion following the Distribution, with Axion surviving the Merger
(sometimes hereinafter referred to as the "Surviving Corporation").
See "The Merger".
At the time of the Distribution, AHC will own all of Axion's
business, assets and liabilities, other than the Retained Business, which
includes the stock of OPUS Sub and certain other tangible and intangible assets
and liabilities of Axion and its subsidiaries including 2,700,000 shares of
Series A Redeemable Preferred Stock of OnCare Inc. (the "OnCare Preferred
Stock"), a Delaware corporation ("OnCare"), and an amount in cash equal to the
Preference Amount (as defined herein), plus all other cash of Axion and its
subsidiaries, excluding the Retained Cash (as defined herein), and the Employee
Loans (as defined herein) (such stock, cash and other assets and liabilities,
the "Acquired Business"). Immediately prior to the Time of Distribution (as
defined herein), the Acquired Business will be transferred to AHC by Axion in
accordance with the Agreement and Plan of Distribution and Reorganization to be
entered into prior to the Distribution among Axion, AHC, OTNC, OPUS, OPUS Sub
Inc., a Delaware corporation and wholly owned subsidiary of OPUS ("OPUS Sub")
and OTN, the form of which is an Exhibit to the Merger Agreement (as defined
below) and which is attached as Appendix B to the Proxy Statement/Prospectus
dated September 19, 1996 (the "Proxy Statement/Prospectus") (as such form may be
amended, supplemented or otherwise modified from time to time, the "Distribution
Agreement"). This Information Statement (the "Information Statement") is
attached as Appendix G to the Proxy Statement/Prospectus. See "The Company" and
"The Distribution".
No consideration will be paid by Axion stockholders for the
shares of AHC Preferred Stock to be received by them in the Distribution. There
is currently no public trading market for the shares of AHC Preferred Stock. See
"Special Factors--Absence of Trading Market; Restrictions on Resale".
The Distribution has not yet been declared by the Axion Board of
Directors (the "Axion Board"), and, accordingly, the Distribution Record Date
has not yet been determined. The Distribution is conditioned on, among other
things, the satisfaction (or waiver by the party for whose benefit any such
condition exists) of all
conditions (other than consummation of the Distribution) to the parties'
obligations to consummate the Merger provided for in the Amended And Restated
Agreement and Plan of Merger, dated as of August 2, 1996 (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement"),
among Axion, BMS and BMS Sub, which is attached as Appendix A to the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G. See "The Distribution--Terms of the Distribution Agreement--Conditions to the
Distribution". Also see "The Merger--Terms of the Merger Agreement".
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
The date of this Information Statement is September 19, 1996.
2
TABLE OF CONTENTS
Page
INTRODUCTION............................................................................1
SUMMARY.................................................................................1
SPECIAL FACTORS........................................................................11
Business to be Conducted by AHC; Limited Operating History; History of Losses.......11
Risks Associated with New Business Strategy.........................................11
Indemnification Obligations of the Former Axion Stockholders, AHC and the 81% AHC
Subsidiaries....................................................................12
Certain Federal Income Tax Consequences of the Distribution.........................14
Limited Financial Resources.........................................................14
OnCare Preferred Stock..............................................................15
Dependence Upon Key Personnel; Potential Conflicts of Interest with OnCare..........15
Relationship with BMS; Restrictions on AHC..........................................15
Reliance on Transitional Services Agreement.........................................16
Risk of Registration Under Investment Company Act of 1940...........................16
Repayment of Loans Made to Current Holders of Axion Options.........................16
Competition.........................................................................17
Dependence on Third-Party Service Providers.........................................17
Dividends and Dividend Policy.......................................................17
Absence of Trading Market; Restrictions on Resale...................................17
Future Acquisitions; Dilution.......................................................18
Risks Associated with Uncertain Health Care Environment.............................18
Government Regulation...............................................................18
Substantial Stockholders; Certain Provisions of the Restated AHC Certificate........18
THE COMPANY............................................................................19
General.............................................................................19
Industry............................................................................19
The AHC Business....................................................................19
OPUS Matrix Business................................................................20
AHC's Strategy......................................................................20
Future Conduct of the Business......................................................21
Competition.........................................................................21
Relationship with OnCare............................................................21
Employees...........................................................................21
Properties..........................................................................21
Trademarks..........................................................................21
i
THE MERGER.............................................................................22
Terms of the Merger Agreement.......................................................22
Fractional Shares............................................................24
Effective Time; Closing......................................................24
Distribution of Merger Consideration; Exchange of Share Certificates.........24
Stock Exchange Listing.......................................................25
Conditions...................................................................25
Termination..................................................................25
Expenses.....................................................................26
Accounting Treatment.........................................................26
THE DISTRIBUTION.......................................................................26
Background of and Reasons for the Distribution......................................26
Terms of the Distribution Agreement.................................................27
Formation of OPUS Sub........................................................27
Distribution of the Preference Amount........................................27
Employee Loans; Exercise or Cancelation of Axion Options.....................28
The Contributions............................................................28
The Distribution.............................................................30
Settlement of Intercompany Accounts..........................................30
Insurance and AHC's Right to Insurance Proceeds..............................30
Employee Matters.............................................................31
Conditions to the Distribution...............................................31
Termination, Amendments and Waivers..........................................31
INDEMNIFICATION ARRANGEMENTS...........................................................31
Terms of the Indemnification Agreement..............................................32
Indemnification by the AHC Indemnifying Parties..............................32
Limitations on Indemnification Obligations of the Indemnifying Parties.......33
Indemnification by the BMS Indemnifying Parties..............................34
Limitation on Indemnification Obligations of the BMS Indemnifying Parties....34
Indemnifiable Losses Net of Third-Party Recoveries; Indemnifiable Losses
Calculated on an After-Tax Basis.........................................35
Covenants....................................................................35
Appointment of AHC as Representative.........................................36
Terms of the Tax Matters Agreement..................................................36
Appointment of AHC as Representative.........................................37
Terms of the Escrow Agreement.......................................................38
Deposit of Escrowed Property.................................................38
Disposition of Escrowed Property.............................................39
Distributions for Indemnified Obligations....................................41
Pending Claims...............................................................43
Escrow Agent.................................................................43
Appointment of AHC as Representative.........................................44
ii
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................44
RELATIONSHIP WITH BMS..................................................................46
Indemnification Agreement; Escrow Agreement; Tax Matters Agreement..................46
Noncompetition Agreements...........................................................47
AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement;
OnCare Medstation Agreement.....................................................47
License Agreement...................................................................47
Transitional Services Agreement.....................................................48
TRADING OF AHC PREFERRED STOCK.........................................................48
CAPITALIZATION.........................................................................49
AHC FINANCIAL STATEMENTS................................................................51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................................63
Overview............................................................................63
Results of Operations...............................................................63
Liquidity...........................................................................63
MANAGEMENT.............................................................................64
Officers and Directors..............................................................64
Director Compensation...............................................................65
Executive Compensation..............................................................65
Option Grants in Last Fiscal Year...................................................65
Option Exercises and June 30, 1996 Option Values....................................66
1995 Executive Stock Option Plan....................................................67
1989 Stock Option and Restricted Stock Plan.........................................68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF AHC.................................................................................70
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION..........................73
401(k) Plan.........................................................................73
Annual Incentive Awards.............................................................73
Other Features of Stock Plans and Predecessor Plans.................................73
AHC Indemnification Agreements......................................................74
DESCRIPTION OF AHC CAPITAL STOCK.......................................................74
Authorized Capital Stock............................................................74
AHC Common Stock....................................................................75
AHC Preferred Stock.................................................................75
No Preemptive Rights................................................................76
Description Of Certain Certificate of Incorporation and Bylaw Provisions............76
Number of Directors; Removal; Vacancies......................................76
iii
Stockholder Action by Unanimous Consent; Special Meetings....................76
Amendment of Certain Charter and Bylaw Provisions............................76
Preferred Stock..............................................................76
Indemnification..............................................................77
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF AHC PREFERRED STOCK,
HOLDERS OF AXION COMMON STOCK AND HOLDERS OF AXION PREFERRED
STOCK..................................................................................77
Voting..............................................................................78
Liquidation Preference..............................................................78
Dividends...........................................................................79
Conversion Rights...................................................................79
Certain Business Combinations.......................................................80
Size and Classification of the Board of Directors...................................80
Removal of Directors................................................................80
Vacancies on the Board of Directors.................................................81
Amendments to the Certificate of Incorporation......................................81
Amendments to Restated AHC Bylaws...................................................82
Special Meetings of Stockholders; Action by Written Consent.........................82
Indemnification of Officers and Directors...........................................82
No Cumulative Voting................................................................83
EXPERTS................................................................................83
INDEX OF DEFINED TERMS.................................................................84
Appendix I Amended and Restated AHC Certificate
Appendix II Amended and Restated AHC Bylaws
iv
SUMMARY
The following summarizes certain information contained elsewhere
in this Information Statement. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information included elsewhere
in this Information Statement, which should be read in its entirety. This
Information Statement is attached as Appendix G to the Proxy
Statement/Prospectus of Axion and BMS relating to the merger of BMS Sub with and
into Axion, with Axion as the surviving entity. The information contained in
this Information Statement regarding such merger is qualified in its entirety by
the more detailed information included in the Proxy Statement/Prospectus to
which this Information Statement is attached as Appendix G, which should be read
in its entirety. See "Summary--The Transactions" below.
Unless otherwise noted, the financial statements and other
financial information and data herein are presented on a consolidated basis,
giving effect to certain of the transactions contemplated as part of the Merger
and the Distribution. See Note 3 to the Consolidated Financial Statements
included elsewhere herein. Unless otherwise defined herein, capitalized terms
used in this Summary shall have the respective meanings ascribed to them
elsewhere in this Information Statement.
AN INDEX OF DEFINED TERMS USED HEREIN IS INCLUDED AT PAGE 82 OF
THIS INFORMATION STATEMENT.
THE COMPANY
AHC, formed by Axion in 1994, engages in clinical/disease
management of cancer, consisting of a collection of related cancer-focused
healthcare activities designed to promote provision of the highest quality
cost-effective cancer care by office-based oncologists. This consists of
coordinating clinical studies of both emerging and existing cancer drugs and
treatments developed by pharmaceutical and biotechnology companies. AHC has
derived limited revenues to date from such services. See "Special
Factors--Business to be Conducted by AHC; Limited Operating History; History of
Losses".
Following the Contributions (as defined herein) and the Merger,
AHC's business will consist of the following:
AHC Business. AHC expects that its principal business will
consist of providing cancer-specific managed care services to cancer care payers
and providers (the "AHC Business"). The AHC Business has generated limited
revenues and has incurred losses since AHC's formation in 1994. AHC was formed
to carry on the clinical studies programs which Axion began in 1987 and to
continue the development of oncology disease management programs arising from
such clinical studies programs.
OPUS Matrix Business. The OPUS Matrix Business consists of (i)
computer software which provides office based oncology practices with access to
drug and treatment information and (ii) the management information systems
currently used to support Axion's businesses. The OPUS Matrix Business has
incurred losses since its inception in 1994.
The mailing address of the AHC's principal executive offices is
1111 Bayhill Drive, Suite 125, San Bruno, California 94066. See "The Company".
THE TRANSACTIONS
AHC is currently a wholly owned subsidiary of Axion. Axion has
entered into the Merger Agreement whereby, upon the terms and subject to the
conditions set forth therein, BMS Sub will be merged with and into Axion with
Axion surviving as a wholly owned subsidiary of BMS. In connection with and in
order to facilitate the Merger, Axion has agreed to effect, pro rata to its
stockholders immediately prior to the effectiveness
1
of the Merger, the Distribution of all of the outstanding shares of AHC
Preferred Stock, which should be tax-free to Axion stockholders for federal
income tax purposes except to the extent of cash payments received for
fractional shares. See "Certain Federal Income Tax Consequences".
THE DISTRIBUTION
SUMMARY
At the Time of Distribution, the Retained Business will
constitute all the businesses, assets and liabilities of Axion; all Axion's
other businesses, assets and liabilities, which will include the AHC Business,
the OPUS Matrix Business, the OnCare Preferred Stock, all cash and cash
equivalents of Axion and its subsidiaries (other than Retained Cash) and the
Employee Loans will be held by AHC. The Distribution Agreement provides for a
series of asset and stock transfers and liability assumptions between and among
Axion, AHC and certain of Axion's subsidiaries prior to the Distribution. Such
asset and stock transfers and liability assumptions are designed to separate the
Acquired Business, which is not being acquired by BMS in the Merger, from the
Retained Business prior to the Time of Distribution. Accordingly, the Retained
Business will constitute all the business, assets and liabilities of Axion at
the Effective Time. The purpose of this complex structure is to permit the
disposition of the Retained Business in a transaction that should be tax-free to
Axion's stockholders in which Axion stockholders will receive BMS Common Stock
and will also retain their proportionate equity interests in the Acquired
Business in the form of AHC Preferred Stock to be received in the Distribution.
SECURITIES TO BE DISTRIBUTED
All outstanding shares of AHC Preferred Stock, which equals the
quotient of the number of shares of Axion Common Stock outstanding immediately
prior to the Time of Distribution (as defined below) (including any shares of
Axion Common Stock issued in connection with the conversion of Axion Preferred
Stock to Axion Common Stock and the exercise of Axion Options (as defined
herein), in each case in connection with the consummation of the Merger). Based
on the Diluted Share Assumption (as defined herein) (and assuming exercise of
all Axion Options other than the Goldberg $10.00 Options (as defined herein)),
it is estimated that 9,970,509 shares of AHC Preferred Stock will be distributed
pursuant to the Distribution. See "The Distribution--Terms of the Distribution
Agreement--The Distribution" and "Comparison of Certain Rights of Holders of
Stock".
TIME OF DISTRIBUTION
The Distribution is expected to be effective (the "Time of
Distribution") immediately prior to the Merger's effectiveness (the "Effective
Time"). Stock certificates for shares of AHC Preferred Stock will be mailed as
soon as practicable after the Time of Distribution. See "The Distribution--Terms
of the Distribution Agreement--The Distribution".
DISTRIBUTION RECORD DATE
It is expected that the Distribution Record Date will be
established as the day on which the Time of Distribution occurs. See "The
Distribution--Terms of the Distribution Agreement".
TRADING MARKET
There is no existing trading market for AHC Preferred Stock. AHC
has not sought and does not intend to apply for listing of AHC Preferred Stock
on a securities exchange or seek approval for quotation through an automated
quotation system. THERE CAN BE NO ASSURANCE THAT ANY TRADING MARKET WILL DEVELOP
FOR AHC PREFERRED STOCK. In addition, the certificate of incorporation of AHC
(the "AHC Certificate of Incorporation") will be amended and restated to provide
for various restrictions on transfer of AHC Preferred Stock (as so amended and
restated, the "Restated AHC Certificate") which is attached to this Information
Statement as Appendix I. The Restated AHC Certificate and Restated AHC Bylaws
provide for the same restrictions on transfer to be placed on
2
AHC Common Stock once such stock is issued. The certificates evidencing the AHC
Preferred Stock will bear a legend referring to these restrictions on transfer.
See "Special Factors--Absence of Trading Market; Restrictions on Resale" and
"Trading of AHC Preferred Stock".
CONDITIONS TO DISTRIBUTION
Consummation of the Distribution is subject to the conditions set
forth in the Distribution Agreement, which include that all conditions to the
closing of the Merger set forth in the Merger Agreement to be satisfied. See
"The Distribution Agreement--Terms of the Distribution Agreement--Conditions to
the Distribution" and "The Merger".
TRANSFER AGENT
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
will act as transfer agent for the Distribution.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Ernst & Young LLP ("Ernst & Young"), certified public accountants
to Axion, have rendered an opinion to the effect that, based upon certain
representations of BMS, BMS Sub, Axion, AHC and certain stockholders of Axion,
among other things, the Distribution should qualify as a tax-free spinoff
pursuant to Section 355 of the Internal Revenue Code of 1986, as amended (the
"Code"), and, as a result, holders of Axion Common Stock should recognize no
gain or loss upon the receipt of AHC Preferred Stock pursuant to the
Distribution. Consummation of the Distribution and the Merger is conditioned on
a reaffirmation of that opinion at the Time of Distribution by Ernst & Young.
Such opinion is based on Ernst & Young's interpretation as to how various
requirements of Section 355 of the Code should apply to the particular facts
presented by the Distribution. With respect to some of these interpretations, no
direct legal precedents exist. Accordingly, THERE CAN BE NO ASSURANCE THAT THE
IRS WILL AGREE WITH THE CONCLUSIONS SET FORTH IN THE ERNST & YOUNG OPINION. No
rulings relating to the Distribution have been sought or will be received from
the Internal Revenue Service (the "IRS"), and the Ernst & Young opinion is not
binding on the IRS. Moreover, no published rulings or cases squarely address the
qualification under Section 355 of the Code of a transaction identical to the
Distribution. If the IRS were to assert successfully that the Distribution did
not qualify as a tax-free spinoff under Section 355 of the Code, the
Distribution would be a taxable transaction to Axion and the stockholders of
Axion immediately prior to the Effective Time (the "Former Axion Stockholders")
for federal income tax purposes. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING SUCH TAX CONSEQUENCES. Even if the Distribution does qualify
as a tax-free spinoff under Section 355 of the Code, the distribution of the AHC
Preferred Stock by Axion to Non-United States Holders (as defined herein) will
constitute a taxable event to Axion. See "Certain Federal Income Tax
Consequences".
To the extent of the tax liabilities to Axion that will arise
from the distribution of AHC Preferred Stock to Non-United States Holders, BMS
will seek indemnification from AHC, the 81% AHC Subsidiaries and the Former
Axion Stockholders pursuant to the Tax Matters Agreement and the Escrow
Agreement. In addition, if, notwithstanding receipt of such opinion and
reaffirmation from Ernst & Young, it is determined that the Distribution does
not qualify as a tax-free spinoff under Section 355 of the Code, then BMS may
seek indemnification from AHC, the 81% AHC Subsidiaries and the Former Axion
Stockholders pursuant to the terms of the Tax Matters Agreement (as defined
herein) and the Escrow Agreement (as defined herein). Such events could result
in failure by the Former Axion Stockholders to obtain the release of any of the
Escrowed Shares (as defined herein), could result in AHC's failure to obtain the
release of any of the Escrowed Cash (as defined herein) and could require AHC to
provide additional funds to indemnify BMS. Failure by AHC to obtain the release
of the Escrowed Cash, or the requirement of additional payments by AHC, could
have a material adverse effect on AHC or the value of the AHC Preferred Stock.
See "Indemnification Arrangements--Terms of the Escrow Agreement", "--Terms of
the Tax Matters Agreement" and "Special Factors--Indemnification Obligations of
the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries", "--Business to
be conducted by AHC; Limited Operating History, History of Losses" and
"--Certain Federal Income Tax Consequences of the Distribution".
3
DIVIDENDS AFTER THE DISTRIBUTION
AHC does not anticipate declaring and paying cash dividends on
the AHC Preferred Stock at any time in the foreseeable future. The decision
whether to apply legally available funds to the payment of dividends on the AHC
Preferred Stock will be made by the Board of Directors of AHC (the "AHC Board")
from time to time in the exercise of its business judgment, taking into account,
among other things, AHC's results of operations and financial condition and any
then existing or proposed commitments for the use by AHC of available funds. See
"Special Factors--Dividends and Dividend Policy" and "Description of Capital
Stock--AHC Preferred Stock".
RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS
The Indemnification Agreement (as defined herein) provides for
restrictions on AHC's ability to declare dividends for a period of in excess of
6 years from the Effective Time (subject to extension in certain circumstances).
The Indemnification Agreement also prohibits AHC from making redemptions of its
capital stock for a period of 6 years from the Effective Time (subject to
extension in certain circumstances). See "The Distribution--Terms of the
Distribution Agreement--The Indemnification Agreement".
CERTAIN PROVISIONS OF THE RESTATED AHC CERTIFICATE AND RESTATED AHC BYLAWS
Certain provisions of the Restated AHC Certificate and the
Restated Bylaws of AHC as they are anticipated to be amended and restated prior
to the Distribution attached to this Information Statement as Appendix II (as so
amended and restated, the "Restated AHC Bylaws"), may be deemed to have the
effect of making difficult an acquisition of control of AHC in a transaction not
approved by the AHC Board. See "Special Factors--Substantial Stockholders;
Certain Provisions of the Certificate of Incorporation" and "Description of AHC
Capital Stock--Description of Certain Certificate of Incorporation and Bylaw
Provisions".
MERGER AGREEMENT
If the Merger Agreement is approved and adopted by the Axion
stockholders and the other conditions to the Merger are satisfied (or waived by
the party for whose benefit such condition exists), at the time of effectiveness
of the Merger (the "Effective Time"), BMS Sub will be merged with and into Axion
(which will then hold only the Retained Business) with Axion as the Surviving
Corporation, and the separate existence of BMS Sub will cease.
Pursuant to the Merger Agreement, at the Effective Time each
share of Axion Common Stock outstanding immediately prior to the Effective Time
(other than any shares of Axion Common Stock owned by Axion or any subsidiary of
Axion or BMS or any subsidiary of BMS and any shares of Axion Common Stock (the
"Dissenting Shares") with respect to which appraisal rights have been perfected
in accordance with Section 262 of Delaware General Corporation Law (the "DGCL"))
will be converted into the right to receive the Conversion Number (as defined
herein) of fully paid and nonassessable shares of common stock, par value $.10
per share, of BMS together with the associated rights (the "BMS Rights")
pursuant to the Rights Agreement dated as of December 4, 1987 (as amended, the
"Rights Agreement") between BMS and The Chase Manhattan Bank, as Rights Agent
(collectively, "BMS Common Stock") equal to the quotient of (a)(i) $86 million
divided by (ii) the Average Value of BMS Common Stock (as defined herein)
divided by (b) the number of shares of Axion Common Stock outstanding
immediately prior to the Effective Time (calculated on a fully diluted basis
assuming that each share of Axion Preferred Stock outstanding immediately prior
to the Effective Time has been converted in accordance with its terms into one
share of Axion Common Stock and that all options, warrants or other rights to
acquire Axion Common Stock ("Axion Options") outstanding immediately prior to
the Effective Time have been exercised or canceled and that the related subject
shares (other than any subject shares related to any portion of any Axion Option
that shall have been canceled and not exercised) of Axion Common Stock are
outstanding (collectively, the "Diluted Share Assumption")). The term "Average
Value of BMS Common Stock" means an amount equal to the average of the per share
closing prices of BMS Common Stock as reported on the New York Stock Exchange
Composite Transaction Tape (the "NYSE Tape") for the 10 consecutive full New
York Stopck Exchange ("NYSE") trading days ending on the fifth full NYSE trading
day immediately preceding the Effective Time; provided that (A)
4
if the Board of Directors of BMS (the "BMS Board") declares a cash dividend on
the outstanding shares of BMS Common Stock having a record date after the
Effective Time but an ex-dividend date (based on "regular way" trading on the
NYSE of shares of BMS Common Stock, the "Ex-Date") that occurs during the
averaging period, then for purposes of computing the Average Value of BMS Common
Stock, the closing price on the Ex-Date and any trading day in the averaging
period after the Ex-Date will be adjusted by adding thereto the amount of such
dividend and (B) if the BMS Board declares a cash dividend on the outstanding
shares of BMS Common Stock having a record date before the Effective Time and an
Ex-Date that occurs during the averaging period, then for purposes of computing
the Average Value of BMS Common Stock, the closing price on any trading day
before the Ex-Date will be adjusted by subtracting therefrom the amount of such
dividend. Notwithstanding anything to the contrary contained in the Merger
Agreement, in the event that as of the closing date of the Merger (the "Closing
Date") the Average Value of BMS Common Stock is less than $82.73 (an amount
equal to 95 percent of the daily average per share closing price of BMS Common
Stock as reported on the NYSE Tape for the 10 full NYSE trading days immediately
prior to the date of the Merger Agreement) (the "Minimum Price"), then for the
purposes of calculating the Merger Consideration the Average Value of BMS Common
Stock will be deemed to be an amount equal to the Minimum Price, and in the
event that as of the Closing Date the Average Value of BMS Common Stock is
greater than $91.43 (an amount equal to 105 percent of the daily average per
share closing price of BMS Common Stock as reported on the NYSE Tape for the 10
full NYSE trading days immediately prior to the date of the Merger Agreement)
(the "Maximum Price"), then for the purposes of calculating the Merger
Consideration, the Average Value of BMS Common Stock will be deemed to be an
amount equal to the Maximum Price, in each case subject to certain adjustments
for dividends. If prior to the Effective Time the BMS Board declares a stock
split, stock combination, stock dividend or other non-cash distribution on the
outstanding shares of BMS Common Stock, the Minimum Price and Maximum Price
(and, if the Ex-Date for such event occurs during the averaging period, the
Average Value of BMS Common Stock) will be appropriately adjusted to reflect
such split, combination, dividend or other distribution.
Based on the Diluted Share Assumption (and assuming exercise of
all Axion Options other than the Goldberg $10.00 Options (as defined herein),
resulting in an aggregate of 9,970,509 shares of Axion Common Stock
outstanding), and assuming an Average Value of BMS Common Stock equal to $92.83
(the average per share closing price of BMS Common Stock for the 10 full NYSE
trading days ending September 18, 1996, the most recent full NYSE trading day
available prior to printing this Proxy Statement/Prospectus), in which event the
Conversion Number would be calculated based on an Average Value of BMS Common
Stock equal to the Maximum Price of $91.43, (a) the Conversion Number would be
0.094 and (b) assuming a market value of the BMS Common Stock on the date
received by holders of Axion Common Stock in the Merger of $92.83, the aggregate
market value of BMS Common Stock to be received by holders of Axion Common Stock
in the Merger would be approximately $87 million, or approximately $8.73 per
share of Axion Common Stock. THERE CAN BE NO ASSURANCE THAT THESE ASSUMPTIONS
WILL BE TRUE AS OF THE EFFECTIVE TIME.
The Average Value of BMS Common Stock is determined as of five
full NYSE trading days immediately preceding the Effective Time (which date may
be after the date of the Special Meeting of Stockholders of Axion to be held on
October 18, 1996, and any adjournments or postponements thereof (the "Special
Meeting"), at which time the Average Value of BMS Common Stock may be less than
the assumed $92.83 Average Value of BMS Common Stock referred to above and
indeed may be less than the Minimum Price. If the Average Value of BMS Common
Stock at such time is between the Minimum Price ($82.73) and the Maximum Price
($91.43), the aggregate market value of BMS Common Stock to be received by
holders of Axion Common Stock in the Merger will be $86 million, or
approximately $8.63 per share of Axion Common Stock (based on the Diluted Share
Assumption and assuming exercise of all Axion Options other than the Goldberg
$10.00 Options). If the Average Value of BMS Common Stock at such time is less
than the Minimum Price, the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger will be less, and may be
substantially less, than $86 million, or approximately $8.63 per share of Axion
Common Stock (based on the Diluted Share Assumption and assuming exercise of all
Axion Options other than the Goldberg $10.00 Options). The foregoing statements
in this paragraph assume that the market value of BMS Common Stock on the
Closing Date is equal to the Average Value of the BMS Common Stock used to
calculate the Conversion Number. However, the actual market value of BMS Common
Stock on the Closing Date may be substantially less than the Average Value of
BMS Common Stock used to calculate the Conversion Number. The actual aggregate
market value on the Closing
5
Date of BMS Common Stock received by holders of Axion Common Stock in the Merger
will be equal to the number of shares of BMS Common Stock issued in the Merger
multiplied by the market value of the BMS Common Stock on the Closing Date.
UNDER THE TERMS OF THE MERGER AGREEMENT, AXION DOES NOT HAVE THE
RIGHT TO DECLINE TO CONSUMMATE THE MERGER SOLELY BECAUSE EITHER THE AVERAGE
VALUE OF BMS COMMON STOCK USED TO CALCULATE THE CONVERSION NUMBER IS LESS THAN
THE MINIMUM PRICE OR BECAUSE THE ACTUAL MARKET VALUE OF BMS COMMON STOCK ON THE
CLOSING DATE IS LESS THAN THE AVERAGE VALUE OF BMS COMMON STOCK USED TO
CALCULATE THE CONVERSION NUMBER. THEREFORE, IF THE MERGER PROPOSAL IS ADOPTED
AND APPROVED AND ALL OTHER CONDITIONS TO THE MERGER ARE SATISFIED (OR WAIVED BY
THE PARTY FOR WHOSE BENEFIT ANY SUCH CONDITION EXISTS) AT OR PRIOR TO THE
EFFECTIVE TIME, AXION STOCKHOLDERS WILL ASSUME THE RISK OF A DECLINE IN THE
MARKET VALUE OF BMS COMMON STOCK BELOW THE MINIMUM PRICE AND THE RISK THAT THE
ACTUAL MARKET VALUE OF BMS COMMON STOCK ON THE CLOSING DATE IS LESS THAN THE
AVERAGE VALUE OF BMS COMMON STOCK USED TO CALCULATE THE CONVERSION NUMBER AND,
ACCORDINGLY, THE RISK THAT THE AGGREGATE MARKET VALUE OF BMS COMMON STOCK TO BE
RECEIVED BY THE HOLDERS OF AXION COMMON STOCK IN THE MERGER WILL BE
SUBSTANTIALLY LESS THAN $86 MILLION OR APPROXIMATELY $8.63 PER SHARE (BASED ON
THE DILUTED SHARE ASSUMPTION AND ASSUMING EXERCISE OF ALL AXION OPTIONS OTHER
THAN THE GOLDBERG $10.00 OPTIONS).
In addition, the number of assumed outstanding shares of Axion
Common Stock for the purpose of calculating the Conversion Number is determined
as of immediately prior to the Effective Time (which date may be after the date
of the Special Meeting), at which time the actual number of outstanding shares
of Axion Common Stock may be greater than the assumed 9,970,509 shares referred
to above. Each share of Axion Common Stock will be converted in the Merger into
the right to receive the Conversion Number of shares of BMS Common Stock. Any
increase in the actual number of outstanding shares of Axion Common Stock as of
immediately prior to the Effective Time would result in a corresponding decrease
in the Conversion Number and, accordingly, in the number of shares of BMS Common
Stock to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
The foregoing is a brief summary of certain terms of the Merger
affecting AHC. A complete description of the Merger and the Merger Agreement,
which is attached as Appendix A to the Proxy Statement/Prospectus to which this
Information Statement is attached as Appendix G, may be found in the Proxy
Statement/Prospectus. The Distribution Agreement between AHC, Axion, OTNC, OPUS,
OPUS Sub and OTN is more fully described herein under "The Distribution".
THE DISTRIBUTION AGREEMENT
The Distribution Agreement provides for a series of asset and
stock transfers and liability assumptions, including the Contributions, between
and among Axion, AHC and certain of Axion's subsidiaries prior to the
Distribution. Such asset and stock transfers and liability assumptions,
including the Contributions, are designed to separate the Acquired Business,
which is not being acquired by BMS in the Merger, from the Retained Business
prior to the Time of Distribution. Accordingly, the Retained Business will
constitute all the business, assets and liabilities of Axion at the Effective
Time. The purpose of this complex structure is to permit the disposition of the
Retained Business in a transaction that should be tax-free to Axion and its
stockholders in which Axion stockholders will receive BMS Common Stock and will
also retain their proportionate equity interests in the Acquired Business in the
form of AHC Preferred Stock to be received in the Distribution. In the event
Axion stockholders do not approve the Merger, or if the Merger Agreement is
otherwise terminated, Axion nonetheless intends to consummate the Contributions.
See "Special Factors--Certain Federal Income Tax Consequences of the
Distribution" and "Certain Federal Income Tax Consequences" and "The
Distribution".
The Distribution will be effected by the distribution to each
holder of record of Axion Common Stock, as of the close of the stock transfer
books on the Distribution Record Date, of certificates representing one share of
AHC Preferred Stock for each share of outstanding Axion Common Stock held of
record by such holder and by the distribution to each holder of Axion Preferred
Stock, as of the Distribution Record Date, of certificates
6
representing one share of AHC Preferred Stock for each share of Axion Preferred
Stock held of record by such holder. See "The Distribution--Terms of the
Distribution Agreement".
Although the Distribution will not be effected unless the Merger
is approved and about to occur, the Distribution is separate from the Merger,
and the AHC Preferred Stock to be received by holders of Axion Common Stock and
holders of Axion Preferred Stock in the Distribution does not constitute a part
of the consideration to be received by Axion stockholders in the Merger. Axion
stockholders are not being asked to approve the Distribution, which is not
subject to stockholder approval. Axion stockholders should review this
Information Statement for additional information with respect to the
Distribution, the Acquired Business and the AHC Preferred Stock. Consummation of
the Distribution is a condition to the Merger.
BMS, Axion, BMS Sub, AHC and certain other parties will enter
into certain agreements, as applicable, designed to effectuate the separation of
the Acquired Business from the Retained Business and to facilitate the operation
of AHC as a separate entity. Each of the Former Axion Stockholders will also
become a party to certain of those agreements. See "The Distribution".
THE INDEMNIFICATION AGREEMENT
AHC, the 81% AHC Subsidiaries (as defined herein) (including OPUS
Sub), the Former Axion Stockholders, BMS, the Surviving Corporation, OPUS, OTNC
and the Partnership will enter into a Post-Closing Covenants and Indemnification
Agreement, the form of which is attached as Appendix C to the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G and is incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Indemnification Agreement"), pursuant
to which AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each Former
Axion Stockholder (collectively, the "AHC Indemnifying Parties") will indemnify
BMS, the Surviving Corporation, OTNC, OPUS, the Partnership and their respective
subsidiaries and affiliates against certain Indemnifiable Losses (as defined
herein) relating to or arising from any breach of any representation, warranty
or covenant of Axion or any of its subsidiaries in any Document; any material
misstatements or omissions contained in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G, this Information Statement
or any Required AHC Document (as defined herein) with respect to information
related to Axion and its subsidiaries (including OTN); the Acquired Assets, the
Assumed Liabilities and the Acquired Business and the business of AHC and OPUS
Sub (other than Retained Liabilities (as defined herein)); the business of Axion
and its subsidiaries (including OTN) prior to the Merger (other than Retained
Liabilities); claims of stockholders and certain other persons to the extent
relating to or arising from the execution by Axion or any of its subsidiaries
(including OTN) of any of the Documents or the consummation of the transactions
contemplated thereby (including claims for indemnification by any officer or
director of Axion or any of its subsidiaries (including OTN)); the Excess Axion
Expenses (as defined herein); any breach of terms, covenants or conditions,
gross negligence or wilful misconduct and certain liabilities related to the
existing contractual arrangements between BMS, on the one hand, and OTNC and the
Partnership, on the other hand; but excluding Indemnifiable Losses relating to
tax liabilities, which are the subject of the Tax Matters Agreement (as defined
below). The indemnification obligations of the Former Axion Stockholders will be
secured by the Escrowed Shares, and the indemnification obligations of AHC and
its subsidiaries will be secured by the Escrowed Cash, on the terms and
conditions set forth in the Escrow Agreement described below. The
indemnification obligations of each of the Former Axion Stockholders under the
Indemnification Agreement will be limited in amount to the Escrowed Shares,
except in certain circumstances involving fraud, intentional misrepresentation
or intentional breach of a covenant by any such Former Axion Stockholder. The
indemnification obligations of AHC and the 81% AHC Subsidiaries will not be
limited in amount to the Escrowed Cash.
In addition, AHC and each of the 81% AHC Subsidiaries each have
agreed for a period of six years following the Closing Date (subject to
extension in certain circumstances) to certain restrictive covenants, including
prohibitions on liquidation, payment of dividends or other distributions
(including by redemption or repurchase) with respect to any of its capital stock
and transactions with affiliates (including OnCare) on a nonarms' length basis
and restrictions related to mergers or sales of all or substantially all their
assets. These prohibitions and restrictions are intended to prevent AHC and the
81% AHC Subsidiaries from engaging in
7
transactions that might have the effect of limiting the availability of the
assets of AHC and the 81% AHC Subsidiaries to satisfy their indemnification
obligations under the Indemnification Agreement and the Tax Matters Agreement to
the BMS Indemnified Parties (as defined herein). BMS and its subsidiaries will
also indemnify AHC and its subsidiaries with respect to certain matters.
Indemnification liabilities for losses arising from or related to
any breach of any representation, warranty or covenant by Axion or any of its
subsidiaries in any Document or any losses directly related to OTN or the OPUS
Station Business are subject to a $500,000 threshold and a $12 million cap.
Indemnification liabilities for losses relating to or arising out of breaches of
any representation, warranty or covenant that is directly related to OTN are
limited to 50% of the amount of such losses. All other indemnification
obligations are not subject to a threshold and are unlimited in amount.
Indemnification obligations for losses related to or arising from any breach of
representation or warranty of Axion or any of its subsidiaries (including OTN)
in any of the Documents terminate on March 31, 1998 (or in certain limited
circumstances, on the third anniversary of the Closing Date). All other
indemnification obligations survive in perpetuity. None of the foregoing
limitations will apply in certain circumstances involving fraud or any
misrepresentation or breach of which Axion, AHC or any 81% AHC Subsidiary or
their respective officers or directors had knowledge or any intentional breach
of any covenant by such person. See "Indemnification Arrangements--Terms of the
Indemnification Agreement", "--Terms of the Tax Matters Agreement" and "--Terms
of the Escrow Agreement", "Relationship with BMS--Indemnification Agreement;
Escrow Agreement; Tax Matters Agreement" and "Special Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries".
THE TAX MATTERS AGREEMENT
BMS, the Surviving Corporation, the 81% AHC Subsidiaries
(including OPUS Sub) and AHC, on its own behalf and as representative of (a) the
81% AHC Subsidiaries and (b) each of the Former Axion Stockholders, will enter
into a Tax Matters Agreement, the form of which is attached as Appendix D to the
Proxy Statement/Prospectus to which this Information Statement is attached as
Appendix G and is incorporated herein by reference (as it may be amended,
supplemented or otherwise modified from time to time, the "Tax Matters
Agreement") which sets forth each party's rights and obligations with respect to
certain tax payments, tax refunds and control of contests relating to tax
matters and also provides for (i) AHC, the 81% AHC Subsidiaries and each of the
Former Axion Stockholders to indemnify BMS, the Surviving Corporation, OTNC,
OPUS, the Partnership and their respective subsidiaries and affiliates from
certain tax liabilities (including tax liabilities that would arise or that will
arise to the extent the Contributions, the Distribution and related transactions
generate taxable income) and (ii) BMS, the Surviving Corporation, OPUS, OTNC,
and the Partnership to indemnify AHC, OPUS Sub and each of their respective
subsidiaries and affiliates from certain other tax liabilities. The
indemnification obligations of the Former Axion Stockholders will be secured by
the Escrowed Shares, and the indemnification obligations of AHC and its
subsidiaries will be secured by the Escrowed Cash, on the terms and conditions
set forth in the Escrow Agreement described below. The indemnification
obligations of each of the Former Axion Stockholders will be limited to the
Escrowed Shares, except in certain circumstances involving fraud, intentional
misrepresentation or intentional breach of a covenant by any such Former Axion
Stockholder. The indemnification obligations of AHC and the 81% AHC Subsidiaries
will not be limited in amount to the Escrowed Cash. In addition, AHC and each of
the 81% AHC Subsidiaries have agreed for a period of six years following the
Closing Date (subject to extension in certain circumstances) to certain
restrictive covenants, including prohibitions on liquidation, payment of
dividends or other distributions (including by redemption or repurchase) with
respect to any of its capital stock and transactions with affiliates (including
OnCare) on a non-arms' length basis and restrictions related to mergers or sales
of all or substantially all their assets. These prohibitions and restrictions
are intended to prevent AHC and the 81% AHC Subsidiaries from engaging in
transactions that might have the effect of limiting the availability of assets
of AHC and the 81% AHC Subsidiaries to satisfy its indemnification obligations
under the Indemnification Agreement and the Tax Matters Agreement to the BMS
Indemnified Parties. See "Indemnification Arrangements--Terms of the Tax Matters
Agreement", "Relationship with BMS--Indemnification Agreement; Escrow Agreement;
Tax Matters Agreement" and "Certain Federal Income Tax Consequences" and
"Special Factors--Indemnification Obligations of the Former Axion Stockholders,
AHC and the 81% AHC Subsidiaries".
8
THE ESCROW AGREEMENT
BMS, AHC, the 81% AHC Subsidiaries and the Former Axion
Stockholders and an escrow agent to be selected by BMS and Axion (the "Escrow
Agent") will enter into an Escrow Agreement, the form of which is attached
hereto as Appendix E to the Proxy Statement/Prospectus to which this Information
Statement is attached as Appendix G and is incorporated herein by reference (as
it may be amended, supplemented or otherwise modified from time to time, the
"Escrow Agreement") pursuant to which at the Closing the Former Axion
Stockholders will deposit the Escrowed Shares and AHC will deposit the Escrowed
Cash into escrow to secure the indemnity obligations of AHC, the 81% AHC
Subsidiaries and the Former Axion Stockholders under the Indemnification
Agreement and the Tax Matters Agreement. THERE CAN BE NO ASSURANCE AS TO WHETHER
ALL OR ANY PORTION OF THE ESCROWED SHARES WILL EVENTUALLY BE RELEASED TO THE
FORMER AXION STOCKHOLDERS. The indemnification obligations of each of the Former
Axion Stockholders will be limited to the Escrowed Shares, except in certain
circumstances involving fraud, intentional misrepresentation or intentional
breach of a covenant by any such Former Axion Stockholder, and will terminate
one year after the Closing Date, subject to a holdback of Escrowed Shares for
any then Pending Claims (as defined herein). To the extent not previously paid
to BMS in respect of an indemnification loss, up to $4 million of the Escrowed
Cash may be released to AHC on the second anniversary of the Closing Date and
the balance of such Escrowed Cash may be released to AHC on the sixth
anniversary of the Closing Date, in each case subject to a holdback for any then
Pending Claims. AHC and the 81% AHC Subsidiaries' indemnification obligations
are not limited to the Escrowed Cash. THERE CAN BE NO ASSURANCE AS TO WHETHER
ALL OR ANY PORTION OF SUCH ESCROWED CASH WILL EVENTUALLY BE RELEASED TO AHC OR
THAT THE INDEMNIFICATION OBLIGATIONS OF AHC AND THE 81% AHC SUBSIDIARIES WILL
NOT EXCEED THE AMOUNT OF THE ESCROWED CASH. Failure to obtain the release of
such Escrowed Cash or the incurrence of indemnification obligations in excess of
the Escrowed Cash (which AHC and the 81% AHC Subsidiaries may not have the
resources to pay) could have a material adverse effect on AHC's business,
financial condition or results of operations and, accordingly, the value of the
AHC Preferred Stock. THERE ALSO CAN BE NO ASSURANCE THAT AHC AND THE 81% AHC
SUBSIDIARIES WILL HAVE SUFFICIENT RESOURCES OR LIQUIDITY TO MEET THEIR
INDEMNIFICATION OBLIGATIONS AND, ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
VALUE OF THE AHC PREFERRED STOCK WILL NOT BE MATERIALLY ADVERSELY AFFECTED. See
"Indemnification Arrangements--Terms of the Escrow Agreement", "--Terms of the
Indemnification Agreement", "--Terms of the Tax Matters Agreement",
"Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement", "Special Factors--Indemnification Obligations of the Former Axion
Stockholders, AHC and the 81% AHC Subsidiaries", "--Certain Federal Income Tax
Consequences of the Distribution" and "--Business to be Conducted by AHC;
Limited Operating History; History of Losses" and "Certain Federal Income Tax
Consequences".
RELATIONSHIP WITH BMS AFTER THE DISTRIBUTION
Following the Merger, AHC and its subsidiaries will continue to
have certain relationships with BMS. AHC, the 81% Subsidiaries (including OPUS
Sub), the Former Axion Stockholders, BMS, the Surviving Corporation, OPUS, OTNC
and the Partnership will be parties to the Indemnification Agreement, the Tax
Matters Agreement and the Escrow Agreement. See "Indemnification
Arrangements--Terms of the Indemnification Agreement," "--Terms of the Tax
Matters Agreement," and "--Terms of the Escrow Agreement".
BMS has entered into separate Noncompetition Agreements with AHC
and OnCare and each of Michael D. Goldberg, the President, Chief Executive
Officer and a director of Axion, OnCare and AHC, and Garrett J. Roper, the
Senior Vice President and Chief Financial Officer of Axion, OnCare and AHC and
the Secretary and a director of AHC (the "Noncompetition Agreements"), which
will become effective at Closing and will, for two years following the Closing
Date, prohibit such entities or persons and their affiliates, as the case may
be, from, as applicable, ownership, management, operation or control of,
employment by, holding certain equity interests in or serving as a director,
advisor or consultant to, or having certain other relationships with, any entity
that engages in the distribution of oncology drugs, supplies or biologics to
certain customers of OTN or the automated drug dispensing and inventory tracking
systems business in the United States. See "Relationship with
BMS--Noncompetition Agreements".
9
AHC has entered into the AHC Supply Agreement (the "AHC Supply
Agreement") with OTN and OnCare has entered into the OnCare Supply Agreement
(the "OnCare Supply Agreement") with OTN which will become effective at the
Closing and which provide that AHC and OnCare will use OTN as their exclusive
provider of oncology pharmaceutical products and supplies and that OTN will
provide such products and supplies at the lowest price it offers to a specified
category of purchaser (subject to certain conditions), provided that in the
event AHC or OnCare, as the case may be, receives an offer pricing products or
supplies at a price of at least 10% less than the lowest price offered by OTN
and OTN chooses not to match such lower offer, AHC or OnCare, as the case may
be, may purchase such products or supplies pursuant to such lower offer for a
term to end upon the later of 30 days after the receipt of such lower offer and
the term of such lower offer. OTN's existing supply agreement with OnCare will
be terminated on the Closing Date. AHC has entered into the AHC Medstation
Agreement (the "AHC Medstation Agreement") and OnCare has entered into the
OnCare Medstation Agreement (the "OnCare Medstation Agreement") which will
become effective at the Closing and which provide that AHC and OnCare will use
OPUS, as their exclusive provider of oncology drug dispensing machines and that
OPUS will provide such machines at the lowest price it offers to a specified
category of purchaser (subject to certain conditions). See "Relationship with
BMS--AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement;
OnCare Medstation Agreement".
AHC and the Surviving Corporation will enter into a Trademark
License Agreement (the "License Agreement") pursuant to which AHC will grant an
exclusive, royalty-free license to the Surviving Corporation to use the "OPUS"
name in connection with the OPUS Station Business in the U.S. for a period of
one year. AHC and the Surviving Corporation will also enter into a Transitional
Services Agreement (the "Transitional Services Agreement") pursuant to which AHC
and the Surviving Corporation will provide certain services to each other
following the Merger. See "Relationship with BMS--License Agreement" and
"--Transitional Services Agreement".
SPECIAL FACTORS
Stockholders should carefully consider the matters discussed
under the section entitled "Special Factors" in this Information Statement.
SPECIAL FACTORS
BUSINESS TO BE CONDUCTED BY AHC; LIMITED OPERATING HISTORY; HISTORY OF LOSSES
Immediately prior to the Time of Distribution, the Acquired
Business will be transferred to, and will comprise all of the business, assets
and liabilities, of AHC. The business, assets and liabilities of AHC will not
include the Retained Business, which accounted for approximately $133.0 million,
or 99.9%, of Axion's consolidated net revenues for the six months ended June 30,
1996, and $156.7 million, or 98.5% of Axion's total assets as of June 30, 1996.
As a result, AHC will be substantially smaller than Axion and will derive its
revenues from a less diverse group of businesses and assets. There can be no
assurance that AHC will be successful in implementing its business strategies or
that, if implemented, such strategies will result in the growth of AHC's
businesses.
Axion formed AHC in 1994 and effective January 1, 1995
contributed Axion's clinical studies business, which began in 1987, to AHC. AHC
expects its principal business will be to engage in clinical/disease management
of cancer, consisting of a collection of related cancer-focused healthcare
activities designed to promote provision of the highest quality cost-effective
cancer care by office-based oncologists. AHC's prospects must be evaluated in
light of the risks, expenses and difficulties frequently encountered by recently
formed businesses.
The business, financial condition and results of operations of
AHC after the closing of the Merger (the "Closing") and, accordingly, the value
of the AHC Preferred Stock to be received by stockholders of Axion in the
Distribution could be materially adversely affected by a number of factors
involving several types of risks, including risks associated with AHC's business
and liquidity; with AHC's contingent indemnification obligations to
10
BMS and its subsidiaries and the associated restrictive covenants limiting AHC's
ability to engage in certain transactions; with the federal income tax
consequences of the Distribution and the Merger; and with certain
characteristics of the AHC Preferred Stock and the potential trading market
therefor.
The business of AHC has not generated significant revenues or
realized a profit to date and has operated and is expected to continue to
operate at a loss for the foreseeable future. AHC has historically been
dependent on Axion for funding, and AHC's future development is dependent on its
ability to obtain sufficient funding. There can be no assurance that adequate
funds for such development will be available on acceptable terms, or at all.
There can be no assurance that AHC will be able to achieve profitability on a
quarterly or annual basis in the future. In such event, or in the event that
adverse conditions prevail or are perceived to prevail generally or with respect
to AHC's business, the value of AHC Preferred Stock would likely be materially
adversely affected. See "--Limited Financial Resources", "--Risks Associated
with New Business Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation".
RISKS ASSOCIATED WITH NEW BUSINESS STRATEGY
The cancer-specific managed care business in which AHC intends to
compete is characterized by rapid technological change, frequent introduction of
new products and services, changes in customer demands and evolving industry
standards. The introduction of products and services embodying new technologies
and the emergence of new industry standards can render existing market
strategies obsolete and unmarketable. AHC's future success will depend on its
ability to address the increasingly sophisticated needs of its customers as it
develops new business strategies to address the cancer-specific managed care
market. There can be no assurance that AHC will be successful in developing and
marketing its products and services, that AHC will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of such products and services, or that AHC's new products and services
and product and service enhancements will adequately meet the requirements of
the marketplace and achieve market acceptance. If AHC is unable to develop and
introduce new products and services or enhancements of existing products and
services in a timely manner in response to changing market conditions or
customer requirements, AHC's business, operating results and financial condition
will be materially adversely affected. See "The Company".
INDEMNIFICATION OBLIGATIONS OF THE FORMER AXION STOCKHOLDERS, AHC AND THE 81%
AHC SUBSIDIARIES
AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each
Former Axion Stockholder will become a party to the Indemnification Agreement,
the Tax Matters Agreement and the Escrow Agreement. Pursuant to these
agreements, AHC, the 81% AHC Subsidiaries and the Former Axion Stockholders will
agree to indemnify the BMS Indemnified Parties (including BMS, the Surviving
Corporation, OPUS, OTNC and the Partnership) against certain liabilities,
including liabilities relating to or arising from any breach of any
representation, warranty or covenant of Axion or any of its subsidiaries
(including OTN) in any Document; any material misstatements or omissions
contained in the Proxy Statement/Prospectus to which this Information Statement
is attached as Appendix G or this Information Statement or any Required AHC
Document with respect to information related to Axion and its subsidiaries
(including OTN); the Acquired Assets, the Assumed Liabilities and the Acquired
Business and the business of AHC and OPUS Sub (other than Retained Liabilities);
the business of Axion and its subsidiaries (including OTN) prior to the Merger
(other than Retained Liabilities); claims of stockholders and certain other
persons to the extent relating to or arising from the execution by Axion or any
of its subsidiaries (including OTN) of any of the Documents or the consummation
of the transactions contemplated thereby (including claims for indemnification
by any officer or director of Axion or any of its subsidiaries); the Excess
Axion Expenses; any breach of terms, covenants or conditions, gross negligence
or wilful misconduct and certain liabilities related to the existing contractual
arrangements between BMS, on the one hand, and OTNC and the Partnership, on the
other hand; certain pre-closing tax liabilities of Axion and its subsidiaries
(including OTN); and any tax liabilities that would arise if, contrary to
expectations, the Contributions fail to be tax-free or the Distribution fails to
qualify as a tax-free spinoff.
To secure these indemnification obligations, immediately
following the Effective Time, the Escrowed Shares, valued at $5 million, will be
placed in escrow and AHC will place the Escrowed Cash of
11
$5 million in escrow. In addition, AHC and the 81% AHC Subsidiaries each have
agreed for a period of six years following the Closing Date (subject to
extension in certain circumstances) to certain restrictive covenants, including
prohibitions on liquidation, payment of dividends or other distributions
(including by redemption or repurchase) with respect to any of its capital stock
and transactions with affiliates (including OnCare) on a non-arms' length basis
and to certain restrictions related to mergers or sales of all or substantially
all their assets. These prohibitions and restrictions are intended to prevent
AHC and the 81% AHC Subsidiaries from engaging in transactions that might have
the effect of limiting the availability of the assets of AHC and the 81% AHC
Subsidiaries to satisfy their indemnification obligations under the
Indemnification Agreement and the Tax Matters Agreement to the BMS Indemnified
Parties.
Certain of the AHC Indemnifying Parties' indemnification
obligations are subject to agreed limitations. Indemnification liabilities for
losses arising from or related to any breach of any representation, warranty or
covenant by Axion or any of its subsidiaries (including OTN) in any Document or
any losses directly related to OTN or the OPUS Station Business are subject to a
$500,000 threshold and a $12 million cap. Indemnification liabilities for losses
relating to or arising out of breaches of any representation, warranty or
covenant that is directly related to OTN are limited to 50% of the amount of
such losses. All other indemnification obligations are unlimited in amount.
Indemnification obligations for losses related to or arising from any breach of
representation or warranty of Axion or any of its subsidiaries (including OTN)
in any of the Documents terminate on March 31, 1998 (or in certain limited
circumstances, on the third anniversary of the Closing Date). All other
indemnification obligations survive in perpetuity. None of the foregoing
limitations will apply in certain circumstances involving fraud or any
misrepresentation or breach of which Axion, AHC or any 81% AHC Subsidiary or
their respective officers or directors had knowledge or any intentional breach
of any covenant by any such person.
The indemnification obligations of each Former Axion Stockholder
will be limited in amount to such Former Axion Stockholder's pro rata share of
the Escrowed Shares, except in certain circumstances involving fraud,
intentional misrepresentation or intentional breach of a covenant by any such
Former Axion Stockholder, and will terminate one year after the Closing Date,
subject to a holdback of Escrowed Shares for any Pending Claims. During such
period BMS will recover indemnification from the Escrowed Shares even if
Escrowed Cash is also available in respect of an indemnifiable loss, subject to
certain exceptions. THERE CAN BE NO ASSURANCE AS TO WHETHER ALL OR ANY PORTION
OF SUCH ESCROWED SHARES WILL EVENTUALLY BE RELEASED TO FORMER AXION
STOCKHOLDERS.
To the extent not previously paid to BMS in respect of an
indemnifiable loss, up to $4 million of the Escrowed Cash may be released to AHC
on the second anniversary of the Closing Date and the balance of such Escrowed
Cash may be released to AHC on the sixth anniversary of the Closing Date, in
each case subject to a holdback for any then Pending Claims. AHC and the 81% AHC
Subsidiaries' indemnification obligations are not limited to the Escrowed Cash.
THERE CAN BE NO ASSURANCE AS TO WHETHER ALL OR ANY PORTION OF SUCH ESCROWED CASH
WILL EVENTUALLY BE RELEASED TO AHC OR THAT THE INDEMNIFICATION OBLIGATIONS OF
AHC AND THE 81% AHC SUBSIDIARIES WILL NOT EXCEED THE AMOUNT OF THE ESCROWED
CASH. Failure to obtain the release of such Escrowed Cash or the incurrence of
indemnification obligations in excess of the Escrowed Cash (which AHC and the
81% AHC Subsidiaries may not have the resources to pay) could have a material
adverse effect on AHC's business, financial condition or results of operations
and, accordingly, the value of the AHC Preferred Stock. THERE ALSO CAN BE NO
ASSURANCE THAT AHC AND THE 81% AHC SUBSIDIARIES WILL HAVE SUFFICIENT RESOURCES
OR LIQUIDITY TO MEET THEIR INDEMNIFICATION OBLIGATIONS AND, ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE VALUE OF THE AHC PREFERRED STOCK WILL NOT BE
MATERIALLY ADVERSELY AFFECTED.
In addition, the restrictive covenants referred to above and the
existence of potentially unlimited indemnification obligations may restrict the
ability of AHC to obtain financing or engage in certain transactions, including
acquisitions and strategic alliances. Failure to obtain financing or engage in
such transactions could have a material adverse effect on AHC's business,
financial condition or results of operation and, accordingly, the value
12
of the AHC Preferred Stock, independent of whether any indemnification payments
are actually made by or on behalf of AHC or the amount thereof.
See "--Certain Federal Income Tax Consequences of the
Distribution", "Indemnification Arrangements--Terms of the Indemnification
Agreement", "--Terms of the Tax Matters Agreement" and "--Terms of the
Escrow Agreement", "Relationship with BMS--Indemnification Agreement;
Escrow Agreement; Tax Matters Agreement" and "Certain Federal Income Tax
Consequences".
In connection with the tax opinions rendered pursuant to the
Merger and the Distribution, certain of the Former Axion Stockholders have
signed or will sign letters representing that they have no plan or intention to
sell or otherwise dispose of any of their holdings of (i) Axion capital stock
prior to the Merger, (ii) the AHC Preferred Stock received in the Distribution
or (iii) the BMS Common Stock received in the Merger (the "Continuity of
Interest Letters"). In the event that a Former Axion Stockholder knowingly made
a misrepresentation in the Continuity of Interest Letter that resulted in the
Merger failing to qualify as a tax-free reorganization under Code Section 368 or
the Distribution failing to qualify as a tax-free spinoff under Section 355 of
the Code, such stockholder would be individually liable for all tax liability
resulting therefrom. See "Certain Federal Income Tax Consequences".
See "--Certain Federal Income Tax Consequences", "Indemnification
Arrangements--Terms of the Indemnification Agreement", "--Terms of the Tax
Matters Agreement" and "--Terms of the Escrow Agreement", "Relationship with
BMS--Indemnification Agreement; Escrow Agreement; Tax Matters Agreement" and
"Certain Federal Income Tax Consequences".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Ernst & Young has rendered an opinion to the effect that based
upon the representations of BMS, BMS Sub, Axion, AHC and certain stockholders of
Axion, among other things, the Distribution should qualify as a tax-free spinoff
pursuant to Section 355 of the Code. Such opinion is not binding on the IRS, and
there is no assurance that the IRS (or any state or local taxing authority) will
agree with such opinion. Consummation of the Distribution is conditioned on a
reaffirmation of that opinion at the Time of Distribution by Ernst & Young. Such
opinion is based on Ernst & Young's interpretation as to how various
requirements of Section 355 of the Code should apply to the particular facts
presented by the Distribution. With respect to some of these interpretations, no
direct legal authority exists. Accordingly, there can be no assurance that the
IRS will agree with the conclusions set forth in the Ernst & Young opinion. No
ruling has been sought or will be received from the IRS and such opinions are
not binding on the IRS. Moreover, no published rulings or cases squarely address
the qualifications under Section 355 of the Code of a transaction identical to
the Distribution. There is therefore no assurance that the IRS will not assert
successfully that the Distribution would be a taxable transaction for federal
income tax purposes and for other tax purposes as well. If the IRS were to
assert successfully that the Distribution did not qualify for tax-free
treatment, then both the distribution by Axion of the AHC Preferred Stock and
the receipt by the Former Axion Stockholders of such AHC Preferred Stock in the
Distribution would be a taxable transaction to Axion and the Axion Stockholders
for federal income tax purposes. Even if the Distribution does qualify as a
tax-free spinoff under Section 355 of the Code, the distribution of the AHC
Preferred Stock by Axion to Non-United States Holders (as defined herein) will
constitute a taxable event to Axion. As a result, certain tax liabilities to
Axion will arise from the distribution of AHC Preferred Stock to Non-United
States Holders (as defined herein), and to the extent of such tax liabilities
BMS and the Surviving Corporation will seek indemnification under the Tax
Matters Agreement from AHC, the Former Axion Stockholders and the other AHC
Indemnifying Parties. Stockholders are urged to consult their own tax advisors
regarding such tax consequences. See "Certain Federal Income Tax Consequences".
To the extent the Distribution, the Contribution and or the
related transactions are determined to be taxable to Axion, BMS and the
Surviving Corporation have the right under the Tax Matters Agreement to seek
indemnification from AHC, the Former Axion Stockholders and the other AHC
Indemnifying Parties. Such Indemnification may exceed the amount of Escrowed
Cash and Escrowed Shares then remaining (if any), in which case AHC will be
required to pay such indemnification directly. Payment of such indemnification
may materially
13
adversely affect AHC and, if AHC or the AHC Indemnifying Parties are unable to
pay such amounts, payment of such tax claims may materially adversely affect
Axion. See "Indemnification Arrangements--Terms of the Escrow Agreement",
"--Terms of the Tax Matters Agreement" and "Certain Federal Income Tax
Consequences".
In connection with the tax opinions rendered pursuant to the
Merger and the Distribution, certain of the Former Axion Stockholders have
signed or will sign the Continuity of Interest Letters. In the event that a
Former Axion Stockholder knowingly made a misrepresentation in a Continuity of
Interest Letter that resulted in the Merger failing to qualify as a tax-free
reorganization under Section 368 of the Code or the Distribution failing to
qualify as a tax-free spinoff under Section 355 of the Code, such stockholder
would be individually liable for all tax liability resulting therefrom. See
"Certain Federal Income Tax Consequences" for a summary of such tax liability.
LIMITED FINANCIAL RESOURCES
The business of AHC has not generated significant revenues or
realized a profit to date and has operated and is expected to continue to
operate at a loss for the foreseeable future. AHC has historically been
dependent on Axion for funding, and AHC's future development is dependent on its
ability to obtain sufficient funding. AHC has expended and will continue to
expend substantial funds in the development of its cancer-specific managed care
service business. AHC may seek additional funding for these purposes through a
combination of new collaborative arrangements, strategic alliances, additional
equity or debt financings or from other sources. There can be no assurance that
such additional funds will be available on acceptable terms, if at all. Even if
available, the cost of funds may result in substantial dilution to current
stockholders. If adequate funds are not available from operations or additional
sources of financings, AHC's business, operating results and financial condition
could be materially and adversely affected. See "--Dividends and Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
ONCARE PREFERRED STOCK
After the Distribution, AHC will hold 2,700,000 shares of OnCare
Preferred Stock, which is nonvoting, nonconvertible and mandatorily redeemable,
at a redemption price of $5.00 per share, at the earliest of December 31, 2000,
an underwritten public offering of OnCare common stock, a merger or
consolidation of OnCare with or into another corporation, or the sale of all or
substantially all of OnCare's assets to another person or entity. As of the date
hereof, OnCare does not have sufficient resources to fund the redemption of the
2,700,000 shares of OnCare Preferred Stock held by AHC, and the mandatory
redemption date of the OnCare Preferred Stock was recently extended from
December 31, 1996 to December 31, 2000. Prior to the Time of Contribution, AHC
will agree that it will not sell, offer to sell, pledge, hypothecate or
otherwise transfer or dispose of any OnCare Preferred Stock. In addition, AHC
will agree to waive its rights to receive any dividends on the OnCare Preferred
Stock. There can be no assurance that OnCare will be able to redeem all or a
portion of the 2,700,000 shares held by AHC on December 31, 2000 or at any other
time in the future. If OnCare is unable to redeem the shares held by AHC, AHC's
business, financial condition and results of operations could be adversely
affected.
DEPENDENCE UPON KEY PERSONNEL; POTENTIAL CONFLICTS OF INTEREST WITH ONCARE
AHC's future success depends in significant part upon the
continued service of its key senior management personnel, none of whom is bound
by an employment agreement. AHC's future success also depends on its continuing
ability to attract and retain highly qualified personnel. Competition for such
personnel is intense, and there can be no assurance that AHC can retain its key
employees or that it can attract, assimilate or retain other highly qualified
personnel in the future. Failure to attract and retain such personnel could have
a material adverse effect upon AHC's business, financial condition and results
of operations. Additions of new personnel and departures of existing personnel,
particularly in key positions, can result in staffing adjustments and departures
of existing personnel, which could have a material adverse effect upon AHC's
business, financial condition and results of operations.
Certain AHC officers also hold management positions in OnCare.
There can be no assurance that the responsibilities of such persons in their
capacity as officers of OnCare will not result in a conflict of interest with
14
their duties as AHC officers. Additional factors may also cause a potential
conflict of interest between AHC and OnCare, including the fact that AHC
currently conducts business with OnCare, AHC is a substantial stockholder in
OnCare and AHC and OnCare have a substantially overlapping stockholder base. The
recent extension of the mandatory redemption date of the OnCare Preferred Stock
was agreed to by Axion without additional consideration from OnCare. See
"Management--Officers and Directors". See "The Company--Employees" and "--Future
Conduct of the Business".
RELATIONSHIP WITH BMS; RESTRICTIONS ON AHC
AHC has agreed, pursuant to its Noncompetition Agreement with
BMS, for a period of two years after the Effective Time, not to engage in, or
compete with BMS with respect to, the distribution of oncology drugs, supplies
or biologics to the Customer Group or automated drug dispensing business
anywhere in the United States. AHC has entered into the AHC Supply Agreement and
OnCare has entered into the OnCare Supply Agreement each of which will be
effective at the Closing Date and which provide that AHC and OnCare will use the
Partnership as their exclusive provider of oncology pharmaceutical products. AHC
has entered into the AHC Medstation Agreement and OnCare has entered into the
OnCare Medstation Agreement each of which will be effective at the Closing Date
and which will provide that AHC and OnCare will use OPUS as their exclusive
provider of oncology drug dispensing machines and that OPUS will provide such
machines at the lowest price it offers to a specified category of purchasers
(subject to certain conditions). In addition, following the Merger, AHC and the
Surviving Corporation will enter into the Transitional Services Agreement
pursuant to which AHC and the Surviving Corporation will provide certain
services to each other. There can be no assurance that the restrictions imposed
on AHC by the agreements described above will not have a material adverse effect
on AHC's business, financial condition and results of operation. See
"Relationship with BMS--License Agreement", "--Transitional Services Agreement",
"--The Noncompetition Agreements" and "--AHC Supply Agreement; OnCare Supply
Agreement; AHC Medstation Agreement; OnCare Medstation Agreement".
RELIANCE ON TRANSITIONAL SERVICES AGREEMENT
The Transitional Services Agreement provides that AHC will agree
to provide to the Surviving Corporation certain services, including financial
and information systems services, and that the Surviving Corporation will agree
to provide to AHC certain services, including certain information systems
services and clinical trial logistics support. The services provided under the
Transitional Services Agreement will be performed for a period of three months
from the Effective Time with renewals of one month upon the mutual consent of
the parties with such renewals not to exceed an aggregate of three months in
addition to the original term. There can be no assurance that the termination of
the services provided by the Surviving Corporation pursuant to the Transitional
Services Agreement will not have a material adverse effect on AHC's business,
financial condition and results of operation. See "Relationship with BMS--The
Transitional Services Agreement".
RISK OF REGISTRATION UNDER INVESTMENT COMPANY ACT OF 1940
Because AHC currently owns the OnCare Preferred Stock, which
constitutes a significant portion of AHC's total assets, there is a risk that it
could be characterized as an investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). AHC believes that it is not,
and after giving effect to the Merger, the Distribution and related transactions
will not be, an investment company and intends to continue its business and
conduct its operations so as not to become subject to the Investment Company
Act. If the Commission or its staff were to take the position, or if it was
otherwise asserted, that AHC was an investment company, AHC could be required,
among other things, (i) to liquidate its holdings of OnCare Preferred Stock to
avoid being required to register as an investment company or (ii) to register as
an investment company. If AHC were required to register under the Investment
Company Act, it would be subject to substantive regulation with respect to
capital structure, operations, transactions with affiliates and other matters.
If AHC were found to be an investment company but was not registered under the
Investment Company Act, AHC would be prohibited from, among other things,
engaging in interstate commerce or conducting public offerings or, could be
subject to monetary penalties and injunctive relief in an action brought by the
Commission, and might be unable to enforce contracts with
15
third parties. As a result, any determination that AHC is an investment company
would have a material adverse effect on AHC.
REPAYMENT OF LOANS MADE TO CURRENT HOLDERS OF AXION OPTIONS
Pursuant to the Merger Agreement all Axion Options will be
exercised or canceled. Axion will make loans totaling approximately $6.5 million
(the "Employee Loans") to approximately 91 holders of Axion Options who must use
the proceeds to exercise such Axion Options. Such loans may or may not be
secured. The obligations of the holders of Axion Options who receive such loans
will become obligations to AHC instead of Axion. There can be no assurance that
holders of Axion Options who receive such loans will repay any or all of their
obligations to AHC following the Merger. In fact, some holders of Axion Options
receiving such loans will not be employees of AHC following the Effective Time,
which may reduce the ability of AHC to obtain repayment. Failure to receive
repayment of such loans could have a material adverse effect on AHC's business,
financial condition and results of operation.
COMPETITION
The environment in which AHC will operate is intensely
competitive. AHC will have a number of current and potential competitors,
including pharmaceutical and biotechnology companies, insurance companies and
information service companies, a significant number of which have or will have
substantially greater financial and human resources capabilities than AHC. AHC
expects additional competition from other established and emerging companies,
particularly if the national trend towards managed care continues and the
community of office-based oncologists continues to develop and expand. Increased
competition could result in price reductions, reduced margins and loss of market
share, any of which could materially and adversely affect AHC's business,
financial condition and results of operations. There can be no assurance that
AHC will be able to compete successfully against current or future competitors
or that competitive pressures faced by AHC will not materially and adversely
affect AHC's business, financial condition and results of operations.
DEPENDENCE ON THIRD-PARTY SERVICE PROVIDERS
AHC is dependent upon third parties for clinically-derived
treatment data and information on developing drugs and drug therapies. Many of
the drug manufacturers, insurance companies, research centers and oncology
practices that supply information to AHC are current or potential competitors of
AHC. There can be no assurance that these third-party service providers will not
cease to provide information to AHC, increase the prices they charge AHC, or
enter into direct competition with AHC. AHC has no continuing contractual
arrangement with many of the third parties that supply it with information. To
date AHC has been able to obtain adequate information. There can be no assurance
that AHC will be able to obtain adequate information in the future. In the event
that AHC's third-party service providers were unwilling to continue providing
such services to AHC, AHC's business, financial condition and results of
operations would be materially and adversely affected.
DIVIDENDS AND DIVIDEND POLICY
AHC does not anticipate declaring and paying cash dividends on
the AHC Preferred Stock at any time in the foreseeable future. The decision
whether to apply legally available funds to the payment of dividends on the AHC
Preferred Stock will be made by the AHC Board from time to time in the exercise
of its business judgment, taking into account, among other things, AHC's results
of operations and financial condition and any then existing or proposed
commitments for the use of AHC's available funds. The Indemnification Agreement
provides, however, that for a period of six years following the Effective Date
(subject to extension in certain circumstances), AHC may not declare any
dividends on AHC's capital stock. See "--Limited Financial Resources" and
"Indemnification Arrangements--Terms of the Indemnification Agreement".
In addition, AHC may in the future issue debt securities,
preferred stock or enter into loan or other agreements that restrict the payment
of dividends on and repurchases of AHC's capital stock. See "--Business to be
Conducted by AHC; Limited Operating History; History of Losses" and "--Limited
Financial Resources".
16
ABSENCE OF TRADING MARKET; RESTRICTIONS ON RESALE
There is no existing trading market for AHC Preferred Stock. AHC
has not sought and does not intend to apply for listing of AHC Preferred Stock
on a securities exchange or seek approval for quotation through an automated
quotation system. There can be no assurance that any trading market will develop
for AHC Preferred Stock, and the Restated AHC Certificate and Restated AHC
Bylaws provide for the same restrictions on transfer to be placed on AHC Common
Stock once such stock is issued. In addition, the Restated AHC Certificate will
provide for various restrictions on transfer of AHC Preferred Stock. The
certificates evidencing the AHC Preferred Stock will bear a legend referring to
these restrictions on transfer. See "Trading of AHC Preferred Stock".
FUTURE ACQUISITIONS; DILUTION
AHC may in the future pursue acquisitions of complementary
businesses. Future acquisitions by AHC may result in dilutive issuances of
equity securities and the incurrence of additional debt and amortization
expenses related to goodwill and intangible assets, any of which could
materially adversely affect AHC's business, financial condition and results of
operations. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations of the acquired company, the
diversion of management's attention from other business concerns, risks of
entering markets in which AHC has limited or no prior direct experience and the
potential loss of key employees of the acquired company. The Indemnification
Agreement limits the ability of AHC and the 81% AHC Subsidiaries for a period of
six years following the Closing Date (subject to extension in certain
circumstances) to engage in certain transactions, including, but not limited to,
the following: liquidations, dissolutions, winding up of affairs, mergers,
consolidations, sales, leases, transfers, recapitalizations and restructurings.
There are currently no negotiations, commitments or agreements with respect to
any acquisition. See "Indemnification Arrangements-Terms of the Indemnification
Agreement-Covenants."
RISKS ASSOCIATED WITH UNCERTAIN HEALTH CARE ENVIRONMENT
The health care industry in the United States continues to
undergo fundamental change. There currently are a number of proposals for reform
of the health care system, including changes to Medicare and Medicaid
reimbursement. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, AHC cannot predict which, if
any, of such proposals will be adopted, when they may be adopted or what impact
they may have on AHC. The actual announcement of reform proposals and the
investment community's reaction to such proposals, announcements by competitors
and payers of their strategies to respond to reform initiatives and general
industry conditions are likely to produce volatility in the cancer care
management services market and could have a material adverse effect on the value
of AHC Preferred Stock.
GOVERNMENT REGULATION
AHC's activities are regulated under federal and state laws.
These laws and regulations are broad in scope and are subject to frequent
modification and reinterpretation. Any application of such laws and regulations
by a governmental authority to AHC's practices so as to require alteration of
those practices could have an adverse effect on AHC's business, operating
results and financial condition. There can be no assurance that AHC's activities
will be determined to be in compliance with applicable laws and regulations.
Noncompliance with such laws and regulations could materially adversely affect
AHC's business, financial condition and results of operations.
SUBSTANTIAL STOCKHOLDERS; CERTAIN PROVISIONS OF THE RESTATED AHC CERTIFICATE
Immediately following the Distribution, directors and executive
officers of AHC will beneficially own shares of AHC Preferred Stock (including
any shares of Axion Common Stock issued in connection with the conversion of
Axion Preferred Stock to Axion Common Stock and the exercise of Axion Options,
in each case in connection with the consummation of the Merger) representing
over 57.2% of the voting power of AHC's then outstanding voting securities. See
"Security Ownership of Certain Beneficial Owners".
17
Certain provisions of the Restated AHC Certificate and the
Restated AHC Bylaws may be deemed to have the effect of making difficult an
acquisition of control of AHC in a transaction not approved by the AHC Board.
These provisions include the ability of the AHC Board to issue shares of
preferred stock in one or more series without further authorization of the AHC
stockholders and certain other provisions described under "Description of AHC
Capital Stock". Many of these provisions are also present in Axion's certificate
of incorporation and bylaws as currently in effect, and generally are designed
to permit AHC to develop its businesses and foster its long-term growth without
the disruption caused by the threat of a takeover not deemed by the AHC Board to
be in the best interests of AHC and its stockholders. These provisions may also
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of AHC even though such a transaction
might be economically beneficial to AHC and its stockholders. See "Description
of AHC Capital Stock--Description of Certain Certificate of Incorporation and
Bylaw Provisions".
THE COMPANY
GENERAL
AHC was organized in the State of Delaware in 1994 as OnCare
Health Inc. In December, 1995, AHC changed its name to Axion HealthCare Inc. AHC
is currently a direct wholly owned subsidiary of Axion and immediately prior to
the Time of Distribution, OPUS Sub will be a wholly owned subsidiary of AHC.
AHC conducts the AHC Business, which AHC anticipates will consist
of providing cancer-specific managed care services to cancer care payers and
providers. AHC will provide services and information tools specifically designed
to assist in better managing cancer care from both a clinical quality and cost
standpoint. AHC has derived limited revenues to date from such services. The
OPUS Matrix Business consists of (i) computer software which provides
office-based oncology practices with access to drug and treatment information
and (ii) the management information systems currently used to support Axion's
businesses. The OPUS Matrix Business has incurred losses since its inception in
1994.
The mailing address of AHC's principal executive offices is 1111
Bayhill Drive, Suite 125, San Bruno, California 94066.
Set forth below is a description of the Acquired Business that
will be held by AHC immediately prior to the Time of Distribution.
INDUSTRY
AHC believes it is well positioned to capitalize on a wide
spectrum of opportunities in the management of cancer care. Cancer care costs
are growing at an annual rate of over 10%. In 1990, $35 billion was spent
directly on cancer care. These costs exceeded $50 billion in 1995. The
traditional approach to managing disease has been to focus mainly on episodes of
care. Payers have attempted to minimize expenses through individual cost
components such as hospitalization, professional services, home care,
pharmaceuticals and laboratories. This approach has been generally unsuccessful
due to cost shifting by providers. AHC has created and is continuing to develop
a set of multidimensional tools for the management of cancer care. This approach
relies on scientifically and clinically derived consensus treatment guidelines
as well as automated decision support systems and software in development that
permit the capture and analysis of outcomes data, both within a particular
oncology practice and aggregated from multiple oncology practices.
THE AHC BUSINESS
AHC expects that its principal business will consist of providing
cancer-specific managed care services to cancer care payers and providers (the
"AHC Business"). The AHC Business has generated limited revenues and has
incurred losses since AHC's formation in 1994. AHC was formed to carry on the
clinical studies programs which Axion began in 1987 and to continue the
development of oncology disease management programs
18
arising from such clinical studies programs. This clinical studies activity,
which AHC continues to the present, consists of coordinating clinical studies of
both emerging and existing cancer drugs and treatments developed by
pharmaceutical and biotechnology companies. Depending on the particular item,
AHC can help develop the parameters of a study, negotiate contracts, act as
project manager, provide logistical support (such as ordering, receiving,
tracking and disbursing drug shipments, and tracking patient sign-ups and
responses), receive and disburse payments, collect and analyze the data, and
prepare a report of the results. AHC derives substantially all of its revenues
from sales to drug companies.
The information and relationships developed in the clinical
studies activity have resulted in the provision of other services, largely to
office-based oncologists, including reimbursement assistance, assistance in the
preparation of Food and Drug Administration applications, and development of
practice management and decision support software tools through OPUS Matrix.
Moreover, AHC's knowledge and experience have enabled it to develop cancer drug
protocols and treatment guidelines that are designed to serve as integral parts
of its disease management program. In connection with its clinical studies
activity, AHC anticipates that it will contract with payers and providers to
manage the delivery of cancer care, except in markets where OnCare has
operations. Where OnCare has operations, AHC anticipates that it will contract
exclusively on behalf of OnCare using OnCare's network of physicians through
which cancer care is provided using the protocols and guidelines described
above, and the computer resources described below, all with a view to providing
the highest quality, cost-effective cancer treatment. An arrangement exists, and
will continue to exist following the Distribution, between AHC and OnCare
whereby AHC provides certain corporate, administrative and management services,
including use of the software used in the OPUS Matrix Business (the "OPUS Matrix
Software"), to OnCare, OnCare pays AHC for all services rendered by AHC pursuant
to a fee schedule, and OnCare provides AHC access, on a nonexclusive basis, to
data obtained through its use of the OPUS Matrix Software.
OPUS MATRIX BUSINESS
The OPUS Matrix Business consists of (i) computer software which
provides office based oncology practices with access to drug and treatment
information and (ii) the management information systems currently used to
support Axion's businesses. The OPUS Matrix Business has incurred losses since
its inception in 1994. The OPUS Matrix Business software and systems were
specifically designed as a computer tool to operationalize treatment guidelines,
capture specific outcomes information, and automate the generation of treatment
plans and clinical documentation at the point-of-care. The OPUS Matrix Business
software and systems include drug information (licensed from First DataBank)
which allows users to look up specific information about the drugs that are
ordered, as well as providing the information base for the system's automatic
checking of drug interactions and allergies.
AHC'S STRATEGY
AHC's strategy consists of the rational organization of the means
to deliver care, including medical oncologists, radiation oncologists, surgical
oncologists, hospitals, home care, laboratory services and hospice care. By
accepting financial risk for the total population of cancer patients, AHC
believes that it is possible to remove the economic incentive for individual
providers to increase reimbursement by inappropriately overemphasizing any one
aspect of care. Through this integrated approach, AHC believes that it may be
able to effect significant savings to payers and at the same time assure
providers of adequate payment for delivered services. AHC's strategy encompasses
a region-by-region, or market-by-market, approach in partnerships with payers
and providers. In those markets where OnCare has operations, AHC anticipates
that it will contract exclusively on behalf of OnCare.
AHC believes that payers, HMOs, self-insured employers and IPA
can derive the following benefits from contracting with AHC for the total care
of cancer patients:
the delivery of consistent quality care to their patients
through the application of a wide spectrum of disease
management tools;
19
a standard, quality-driven, cost-effective approach to
cancer care which systematically eliminates unnecessary
costs; and
predictable costs
AHC's strategy is to share risk with payers and providers, purchase ancillary
services on a contract basis and in general to realign economic incentives to
promote rational utilization of medical and financial resources.
FUTURE CONDUCT OF THE BUSINESS
In addition to the assets and interests described above,
following the Distribution AHC intends to continue to consider acquisitions,
strategic alliances and joint ventures in an effort to increase stockholder
value. The management of AHC following the Distribution is expected to be
substantially the same as the management of AHC prior to the Distribution.
COMPETITION
AHC will have a number of current and potential competitors,
including pharmaceutical and biotechnology companies, insurance companies and
information service companies, a significant number of which have or will have
substantially greater financial and human resource capabilities than AHC. See
"Special Factors--Competition".
RELATIONSHIP WITH ONCARE
AHC's relationship with OnCare may result in certain potential
conflicts between the business of the two companies. See "Special
Factors--Dependence Upon Key Personnel; Potential Conflicts of Interest with
OnCare".
EMPLOYEES
It is anticipated that immediately following the Distribution,
AHC will employ approximately 25 persons. Certain AHC officers also hold
management positions in OnCare. See "Special Factors--Dependence on Key
Personnel; Potential Conflicts of Interests with OnCare".
PROPERTIES
The Partnership currently leases approximately 18,600 square feet
of office space in a building in South San Francisco, California. This facility
is leased through October 2001, and will continue to be leased by the
Partnership after the Merger.
AHC currently occupies office space at 1111 Bayhill Drive, Suite
125, San Bruno, California. This office space is leased from OnCare, which has
an informal sublease arrangement with AHC. Such office space will continue to be
leased by AHC from OnCare after the Merger.
TRADEMARKS
Oncology Therapeutics Network(R), Axion(R) and the Axion logo are
registered trademarks of Axion and, other than Oncology Therapeutics Network,
will be owned by AHC at the Time of Distribution. Axion HealthCare, Oncare
Practice Utilization System(TM), OPUS(TM), OPUS Health Systems(TM) and OPUS
Matrix(TM) are trademarks of Axion and will be owned by AHC at the Time of
Distribution. Further, the Axion HealthCare, OnCare Practice Utilization System
and OPUS trademarks are pending applications at the United States Patent and
Trademark Office. All other trademarks or trade names referred to herein or in
the Proxy Statement/Prospectus to which this Information Statement is attached
as Appendix G are the property of their respective owners.
20
THE MERGER
This section of the Information Statement describes certain
aspects of the proposed Merger. To the extent that it relates to the Merger
Agreement, the following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to the Proxy Statement/Prospectus to which this
Information Statement is attached as Appendix G and is incorporated herein by
reference. As used in this Information Statement, the "Retained Company" or the
"Retained Companies", as the case may be, means Axion, together with its
subsidiaries, OTNC, OPUS and the Partnership, which collectively will own and
conduct the Retained Business at the Effective Time. ALL AXION STOCKHOLDERS ARE
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
If the Merger Agreement is approved and adopted by the Axion
stockholders and the other conditions to the Merger are satisfied or waived, at
the Effective Time BMS Sub will be merged with and into Axion (which will then
hold only the Retained Business) with Axion as the Surviving Corporation, and
the separate existence of BMS Sub will cease.
TERMS OF THE MERGER AGREEMENT
Pursuant to the Merger Agreement, at the Effective Time each
issued and outstanding share of Axion Common Stock (other than any shares of
Axion Common Stock owned by Axion or any subsidiary of Axion or BMS or any
wholly owned subsidiary of BMS and any Dissenting Shares) will be converted into
the right to receive the Conversion Number of fully paid and nonassessable
shares of BMS Common Stock (the "Merger Consideration"). The "Conversion Number"
will be equal to the quotient of (a)(i) $86 million divided by (ii) the Average
Value of BMS Common Stock divided by (b) the number of shares of Axion Common
Stock outstanding immediately prior to the Effective Time (calculated on a fully
diluted basis assuming that each share of Axion Preferred Stock outstanding
immediately prior to the Effective Time has been converted in accordance with
its terms into one share of Axion Common Stock and all Axion Options outstanding
immediately prior to the Effective Time have been exercised or canceled and that
the related subject shares (other than any subject shares related to any portion
of any Axion Option that shall have been canceled and not exercised) of Axion
Common Stock are outstanding (collectively, the "Diluted Share Assumption")).
The term "Average Value of BMS Common Stock" means an amount equal to the
average of the per share closing prices of BMS Common Stock as reported on the
NYSE Tape for the 10 consecutive full NYSE trading days ending on the fifth full
NYSE trading day immediately preceding the Effective Time; provided that (A) if
the BMS Board declares a cash dividend on the outstanding shares of BMS Common
Stock having a record date after the Effective Time but an ex-dividend Ex-Date
that occurs during the averaging period, then for purposes of computing the
Average Value of BMS Common Stock, the closing price on the Ex-Date and any
trading day in the averaging period after the Ex-Date will be adjusted by adding
thereto the amount of such dividend and (B) if the BMS Board declares a cash
dividend on the outstanding shares of BMS Common Stock having a record date
before the Effective Time and an Ex-Date that occurs during the averaging
period, then for purposes of computing the Average Value of BMS Common Stock,
the closing price on any trading day before the Ex-Date will be adjusted by
subtracting therefrom the amount of such dividend. Notwithstanding anything to
the contrary contained in the Merger Agreement, in the event that as of the
Closing Date the Average Value of BMS Common Stock is less than the Minimum
Price ($82.73), then for the purposes of calculating the Merger Consideration,
the Average Value of BMS Common Stock will be deemed to be the Minimum Price,
and in the event that as of the Closing Date the Average Value of BMS Common
Stock is greater than the Maximum Price ($91.43), then for the purposes of
calculating the Merger Consideration, the Average Value of BMS Common Stock will
be deemed to be the Maximum Price. If, prior to the Effective Time, the BMS
Board declares a stock split, stock combination, stock dividend or other
non-cash distribution on the outstanding shares of BMS Common Stock, then the
Minimum Price and Maximum Price (and if the Ex-Date for such event occurs during
the averaging period, the Average Value of BMS Common Stock) will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution.
Based on the Diluted Share Assumption (and assuming exercise of
all Axion Options other than the Goldberg $10.00 Options (as defined herein),
resulting in an aggregate of 9,970,509 shares of Axion Common
21
Stock outstanding), and assuming an Average Value of BMS Common Stock equal to
$92.83 (the average per share closing price of BMS Common Stock for the 10 full
NYSE trading days ending September 18, 1996, the most recent full NYSE trading
day available prior to printing this Proxy Statement/Prospectus), in which event
the Conversion Number would be calculated based on an Average Value of BMS
Common Stock equal to the Maximum Price of $91.43, (a) the Conversion Number
would be 0.094 and (b) assuming a market value of the BMS Common Stock on the
date received by holders of Axion Common Stock in the Merger of $92.83, the
aggregate market value of BMS Common Stock to be received by holders of Axion
Common Stock in the Merger would be approximately $87 million, or approximately
$8.73 per share of Axion Common Stock. THERE CAN BE NO ASSURANCE THAT THESE
ASSUMPTIONS WILL BE TRUE AS OF THE EFFECTIVE TIME.
The Average Value of BMS Common Stock is determined as of five
full NYSE trading days immediately preceding the Effective Time (which date may
be after the date of the Special Meeting), at which time the Average Value of
BMS Common Stock may be less than the assumed $92.83 Average Value of BMS Common
Stock referred to above and indeed may be less than the Minimum Price. If the
Average Value of BMS Common Stock at such time is between the Minimum Price
($82.73) and the Maximum Price ($91.43), the aggregate market value of BMS
Common Stock to be received by holders of Axion Common Stock in the Merger will
be $86 million, or approximately $8.63 per share of Axion Common Stock (based on
the Diluted Share Assumption and assuming exercise of all Axion Options other
than the Goldberg $10.00 Options). If the Average Value of BMS Common Stock at
such time is less than the Minimum Price, the aggregate market value of BMS
Common Stock to be received by holders of Axion Common Stock in the Merger will
be less, and may be substantially less, than $86 million, or approximately $8.63
per share of Axion Common Stock (based on the Diluted Share Assumption and
assuming exercise of all Axion Options other than the Goldberg $10.00 Options).
The foregoing statements in this paragraph assume that the market value of BMS
Common Stock on the Closing Date is equal to the Average Value of the BMS Common
Stock used to calculate the Conversion Number. However, the actual market value
of BMS Common Stock on the Closing Date may be substantially less than the
Average Value of BMS Common Stock used to calculate the Conversion Number. The
actual aggregate market value on the Closing Date of BMS Common Stock received
by holders of Axion Common Stock in the Merger will be equal to the number of
shares of BMS Common Stock issued in the Merger multiplied by the market value
of the BMS Common Stock on the Closing Date.
UNDER THE TERMS OF THE MERGER AGREEMENT, AXION DOES NOT HAVE THE
RIGHT TO DECLINE TO CONSUMMATE THE MERGER SOLELY BECAUSE EITHER THE AVERAGE
VALUE OF BMS COMMON STOCK USED TO CALCULATE THE CONVERSION NUMBER IS LESS THAN
THE MINIMUM PRICE OR BECAUSE THE ACTUAL MARKET VALUE OF BMS COMMON STOCK ON THE
CLOSING DATE IS LESS THAN THE AVERAGE VALUE OF BMS COMMON STOCK USED TO
CALCULATE THE CONVERSION NUMBER. THEREFORE, IF THE MERGER PROPOSAL IS ADOPTED
AND APPROVED AND ALL OTHER CONDITIONS TO THE MERGER ARE SATISFIED (OR WAIVED BY
THE PARTY FOR WHOSE BENEFIT ANY SUCH CONDITION EXISTS) AT OR PRIOR TO THE
EFFECTIVE TIME, AXION STOCKHOLDERS WILL ASSUME THE RISK OF A DECLINE IN THE
MARKET VALUE OF BMS COMMON STOCK BELOW THE MINIMUM PRICE AND THE RISK THAT THE
ACTUAL MARKET VALUE OF BMS COMMON STOCK ON THE CLOSING DATE IS LESS THAN THE
AVERAGE VALUE OF BMS COMMON STOCK USED TO CALCULATE THE CONVERSION NUMBER AND,
ACCORDINGLY, THE RISK THAT THE AGGREGATE MARKET VALUE OF BMS COMMON STOCK TO BE
RECEIVED BY THE HOLDERS OF AXION COMMON STOCK IN THE MERGER WILL BE
SUBSTANTIALLY LESS THAN $86 MILLION OR APPROXIMATELY $8.63 PER SHARE (BASED ON
THE DILUTED SHARE ASSUMPTION AND ASSUMING EXERCISE OF ALL AXION OPTIONS OTHER
THAN THE GOLDBERG $10.00 OPTIONS).
In addition, the number of assumed outstanding shares of Axion
Common Stock for the purpose of calculating the Conversion Number is determined
as of immediately prior to the Effective Time (which date may be after the date
of the Special Meeting), at which time the actual number of outstanding shares
of Axion Common Stock may be greater than the assumed 9,970,509 shares referred
to above. Each share of Axion Common Stock will be converted in the Merger into
the right to receive the Conversion Number of shares of BMS Common Stock. Any
increase in the actual number of outstanding shares of Axion Common Stock as of
immediately prior to the Effective Time would result in a corresponding decrease
in the Conversion Number and, accordingly, in the number of shares of BMS Common
Stock to be received in respect of each share of Axion Common Stock. The maximum
number of shares of Axion Common Stock that may be outstanding as of immediately
prior to the Effective Time is 10,070,509 shares.
22
As of the record date for determining Axion stockholders entitled
to receive notice of and vote at the Special Meeting (the "Record Date"),
1,606,651 shares of Axion Common Stock were outstanding and 8,471,011 shares of
Axion Common Stock were issuable upon conversion of the Axion Preferred Stock
and the exercise of Axion Options. The approval of the Preferred Stock Proposal
by holders of Axion Preferred Stock, the conversion of each issued and
outstanding share of Axion Preferred Stock into one fully paid and nonassessable
share of Axion Common Stock and the exercise or cancelation of all Axion
Options, in each case prior to the Effective Time, are each conditions to the
Merger. Michael D. Goldberg, the President, Chief Executive Officer and a
director of Axion, AHC and OnCare, has advised Axion that he does not intend to
exercise his options to purchase 100,000 shares of Axion Common Stock at a price
of $10.00 per share (the "Goldberg $10.00 Options"). Accordingly, the Goldberg
$10.00 Options will be canceled prior to the Effective Time, and assuming the
conversion of each issued and outstanding share of Axion Preferred Stock and the
exercise of all Axion Options other than the Goldberg $10.00 Options, it is
anticipated that there will be approximately 9,970,509 shares of Axion Common
Stock issued and outstanding on the Closing Date.
On the Closing Date, a portion of the BMS Common Stock to be
received by Former Axion Stockholders in the Merger, with a value of $5,000,000
(the "Escrowed Shares"), will be placed in escrow on behalf of such Former Axion
Stockholders, and AHC will be required to place Escrowed Cash in the amount of
$5 million in escrow to secure certain obligations of such Former Axion
Stockholders and AHC and certain of its subsidiaries to indemnify the BMS
Indemnified Parties under the Indemnification Agreement, the Tax Matters
Agreement and the Escrow Agreement (each as defined herein). The indemnification
obligations of each of the Former Axion Stockholders under the Indemnification
Agreement will be limited in amount to the Escrowed Shares, except in certain
circumstances involving fraud, intentional misrepresentation or intentional
breach of a covenant by any such Former Axion Stockholder. The indemnification
obligations of AHC and the 81% AHC Subsidiaries will not be limited in amount to
the Escrowed Cash. There can be no assurance as to whether all or any portion of
such Escrowed Shares will eventually be released to such Stockholders or as to
whether all or any portion of such Escrowed Cash will eventually be released to
AHC or that the indemnification obligations of AHC and its subsidiaries will not
exceed the Escrowed Cash. There can be no assurance that the failure to obtain
the release of all or a portion of such Escrowed Cash or the incurrence of
indemnification obligations in excess of the Escrowed Cash will not have a
material adverse effect on AHC. See "Special Factors--Indemnification
Obligations of the Former Axion Stockholders, AHC and the 81% AHC Subsidiaries"
and "Indemnification Arrangements--Terms of the Indemnification Agreement",
"--Terms of the Tax Matters Agreement" and "--Terms of the Escrow Agreement".
FRACTIONAL SHARES.
No fractional shares of BMS Common Stock will be issued in the
Merger. The Merger Agreement provides that each Axion stockholder who otherwise
would have been entitled to receive a fraction of a share of BMS Common Stock
will receive, in lieu thereof, cash (without interest) in an amount, less the
amount of any withholding taxes which may be required thereon, equal to such
fractional part of a share of BMS Common Stock multiplied by the per share
closing price of BMS Common Stock as reported on the NYSE Tape on the full NYSE
trading day immediately preceding the Closing Date.
EFFECTIVE TIME; CLOSING.
The Merger will become effective and the Effective Time will
occur immediately upon the filing of a certificate of merger (the "Certificate
of Merger") with the Delaware Secretary of State or at such time thereafter as
is provided in the Certificate of Merger. The Merger Agreement provides that the
closing (the "Closing") of the Merger will take place on a date to be specified
by the parties which date will be no later than the first business day after
satisfaction (or waiver by the party for whose benefit any such condition
exists) of the conditions to the Merger Agreement, unless another date is agreed
to in writing by BMS, BMS Sub and Axion.
23
DISTRIBUTION OF MERGER CONSIDERATION; EXCHANGE OF SHARE CERTIFICATES.
At or immediately after the Closing Date, BMS will send each
Former Axion Stockholder a letter (the "Letter of Transmittal") notifying such
stockholder of the consummation of the Merger and setting forth instructions for
the surrender of certificates (the "Certificates") that before the Effective
Time represented Axion Common Stock. Promptly after receipt by the Exchange
Agent of any Certificates surrendered in accordance with the instructions set
forth in the Letter of Transmittal, the Exchange Agent will distribute to the
Former Axion Stockholder entitled thereto the certificates representing whole
shares of BMS Common Stock and a check in lieu of fractional shares of BMS
Common Stock into which the shares of Axion Common Stock represented by the
surrendered Certificates were converted in the Merger. The new certificates
shall not include the number of Escrowed Shares deemed to have been placed in
escrow by such Former Axion Stockholder. AXION STOCKHOLDERS ARE REQUESTED NOT TO
SURRENDER THEIR CERTIFICATES REPRESENTING OUTSTANDING SHARES OF AXION COMMON
STOCK FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM BMS.
Execution and delivery of the Letter of Transmittal by each
Former Axion Stockholder will result in each such Former Axion Stockholder
irrevocably appointing AHC as his/her or its agent and attorney-in-fact to
execute and deliver on such Former Axion Stockholder's behalf, and thereby
result in each such Former Axion Stockholder becoming a party to and bound by,
the Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such indemnity; and will result in each such
Former Axion Stockholder ratifying and confirming any action taken by AHC in the
exercise of the power of attorney granted thereby. See "Indemnification
Arrangements--Terms of the Indemnification Agreement", "--Terms of the Tax
Matters Agreement" and "--Terms of the Escrow Agreement". Such agreements will,
among other things, subject each such Former Axion Stockholder as well as AHC
and certain of its subsidiaries to certain indemnity obligations to BMS and its
subsidiaries and provide for the Escrowed Shares and the Escrowed Cash to be
placed in escrow to secure these obligations. See "Special
Factors--Indemnification Obligations of the Former Axion Stockholders, AHC and
the 81% AHC Subsidiaries".
STOCK EXCHANGE LISTING.
BMS has agreed in the Merger Agreement to use its reasonable best
efforts to cause the shares of BMS Common Stock issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date. Such approval for listing is a condition to the obligation
of each of BMS, BMS Sub and Axion to consummate the Merger.
CONDITIONS.
The Merger Agreement provides that the respective obligation of
each party to effect the Merger is subject to certain conditions, including the
approval of the Merger Proposal by the stockholders of Axion, the approval of
the proposal to convert, immediately following the Distribution Record Date,
each issued and outstanding share of Axion Preferred Stock into one fully paid
and nonassessable share of Axion Common Stock by holders of Axion Preferred
Stock, the receipt and reaffirmation of opinions with respect to the tax
consequences of the Merger and the Distribution, respectively, consummation of
the Contributions and the Distribution, the absence of certain material adverse
changes, the receipt of certain regulatory approvals and, in the case of BMS,
the exercise or cancelation of all outstanding Axion Options, the conversion of
all shares of Axion Preferred Stock into shares of
24
Axion Common Stock, the absence of Axion indebtedness in excess of specified
levels and the absence of Dissenting Shares.
TERMINATION.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of Axion: (a) by mutual written
consent of BMS, BMS Sub and Axion; (b) by either BMS or Axion: (i) if, upon a
vote at the Special Meeting or any adjournment thereof, any required approval of
the stockholders of Axion shall not have been obtained; (ii) if the Merger shall
not have been consummated on or before October 31, 1996, unless the failure to
consummate the Merger is the result of a wilful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for any part
thereof (but in no event beyond December 31, 1996) during which any party will
be subject to a non-final order, decree, ruling or action restraining, enjoining
or otherwise prohibiting the consummation of the Merger or the calling or
holding of the Special Meeting; or (iii) if any governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action will have become final and nonappealable; (c) by
Axion if BMS or BMS Sub shall have failed to comply in any material respect with
any of the covenants or agreements contained in the Merger Agreement or any of
the other Documents to be performed by BMS or BMS Sub at or prior to the time of
termination, which breach will not have been cured within 30 days following
written notice of such breach; or (d) by BMS if Axion or any of its subsidiaries
shall have failed to comply in any material respect with any of the covenants or
agreements contained in the Merger Agreement or any Document to be performed by
Axion or any of its subsidiaries at or prior to the time of termination, which
breach shall not have been cured within 30 days following written notice of such
breach.
EXPENSES.
The Merger Agreement provides that (except as provided below) whether or not the
Merger is consummated, all out-of-pocket fees and expenses incurred in
connection with the Merger, the Distribution or the consummation of any of the
transactions contemplated by the Merger Agreement and the Documents and the
negotiation, preparation, review and delivery of the agreements contemplated
thereby, including all fees and expenses of accountants, legal counsel,
investment bankers and other advisors will be paid by the party incurring such
fees or expenses, except that expenses incurred in connection with printing and
mailing the Proxy Statement/Prospectus and the Form S-4 (as defined herein) will
be shared equally by BMS and Axion. Expenses incurred in connection with the
Required AHC Documents will be paid by Axion.
At the Closing, BMS will provide, or cause to be provided, to
Axion funds in an amount equal to the lesser of $2,000,000 and the aggregate
amount of Axion Expenses set forth in a true and complete schedule to be
submitted by Axion to BMS not later than five business days prior to Closing
(the "Transaction Expense Schedule"), and Axion will pay the Axion Expenses
listed in such schedule. The term "Axion Expenses" means all out-of-pocket fees
and expenses incurred or to be incurred by or on behalf of Axion or any of its
subsidiaries in connection with the Merger, the Distribution or the consummation
of any of the transactions contemplated by the Merger Agreement and the other
Documents and the negotiation, preparation, review and delivery of the Merger
Agreement and the agreements contemplated thereby and by the other Documents,
including all Axion's expenses incurred or to be incurred by Axion or any such
subsidiary in connection with printing and mailing the documents filed or
required to be filed by AHC (including this Information Statement) with the
Commission or any state securities commission or otherwise required to be
provided or delivered to the stockholders of Axion or, following the
Distribution, AHC, in connection with the distribution of shares of AHC
Preferred Stock in connection with the Distribution (collectively, the "Required
AHC Documents") other than the Proxy Statement and, subject to certain
provisions of the Merger Agreement, the Proxy Statement/Prospectus and the Form
S-4 and all fees and expenses incurred or to be incurred by Axion or any such
subsidiary of accountants, legal counsel, investment bankers and other advisors.
The term "Excess Axion Expenses" means all Axion Expenses in excess of
$2,000,000.
25
ACCOUNTING TREATMENT.
The Merger will be accounted for by BMS as a "purchase" for
financial accounting purposes in accordance with generally accepted accounting
principles ("GAAP") whereby the purchase price will be allocated based on the
fair values of assets acquired and liabilities assumed.
THE DISTRIBUTION
This section of the Information Statement describes certain
aspects of the proposed Distribution. To the extent that they relate to the
Distribution Agreement, the following descriptions do not purport to be complete
and are qualified in their entirety by reference to such agreement which is
attached as Appendix B to the Proxy Statement/Prospectus to which this
Information Statement is attached as Appendix G, and is incorporated herein by
reference. ALL STOCKHOLDERS ARE URGED TO READ SUCH AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Axion's management has regularly reviewed possible strategies and
transactions to enhance Axion's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
Axion's businesses and operations, thereby increasing stockholder value. These
strategies included a possible acquisition, joint ventures, internal
restructurings, outsourcing of operational services and divestiture of one of
its businesses. For a discussion of the events leading up to the execution of
the Merger Agreement, see "The Merger--Background of the Merger" in the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G.
Pursuant to the Merger Agreement and the transactions described
therein, BMS will acquire the Retained Business in each case, which consists of
(i) OTNC, including OTNC's interest in OTN, and (ii) OPUS, which at the
Effective Time will contain only the OPUS Station Business, including in each
case the assets and certain of the liabilities related thereto.
The Retained Business constitutes the only business, assets and
liabilities of Axion that BMS has agreed to acquire. As a result, the
disposition of the Retained Business will be effected through a series of
sequential transactions, including the Contributions, the Distribution and the
Merger, all as set forth in the Merger Agreement and the Distribution Agreement.
Prior to the Effective Time, the Acquired Business will be transferred to AHC
and OPUS Sub and the AHC Preferred Stock will be distributed to the stockholders
of Axion in the Distribution. After the Distribution and at the Effective Time,
Axion will hold the Retained Business, so that BMS will effectively acquire the
Retained Business in the Merger. The purpose of this complex structure is to
permit the disposition of the Retained Business in a transaction that should be
tax-free to Axion and its stockholders in a transaction in which Axion
stockholders will receive BMS Common Stock and will also retain their
proportionate equity interests in the Acquired Business in the form of AHC
Preferred Stock to be received in the Distribution. Accordingly, a "reverse
spinoff" structure was adopted pursuant to which the Acquired Business will be
transferred to AHC and its subsidiaries and the AHC Preferred Stock will, prior
to the Merger, be distributed to Axion stockholders in the Distribution. In the
event Axion stockholders do not approve the Merger, or if the Merger Agreement
is otherwise terminated, Axion nonetheless intends to consummate the
Contributions. See "Special Factors--Certain Federal Income Tax Consequences"
and "Certain Federal Income Tax Consequences".
Although the Distribution will not be effected unless the Merger
is approved and about to occur, the Distribution is separate from the Merger and
the AHC Preferred Stock to be received by holders of Axion Common Stock and
Axion Preferred Stock in the Distribution does not constitute a part of the
consideration to be received by Axion stockholders in the Merger. Axion
stockholders are not being asked to approve the Distribution, which is not
subject to stockholder approval. Consummation of the Distribution is a condition
to the Merger.
26
TERMS OF THE DISTRIBUTION AGREEMENT
FORMATION OF OPUS SUB
Prior to the execution of the Distribution Agreement, Axion will
cause the incorporation of OPUS Sub under Delaware law, and thereafter will not
permit OPUS Sub to engage in any business except as contemplated by the
Distribution Agreement.
DISTRIBUTION OF THE PREFERENCE AMOUNT
Immediately prior to the time as of which the Contributions are
effective (the "Time of Contribution") Axion will cause OTNC to cause OTN to
distribute to OTNC an amount equal to $13,615,147 (the "Preference Amount"), in
full satisfaction of all amounts that may be due as of, or in respect of any
period ending on or prior to, the Closing Date to OTNC in respect of its Capital
Account Prime Rate Amount and the General Partner Cumulative Preference Amount
(as each such term is defined in the Partnership Agreement). Notwithstanding the
preceding sentence, if the Closing Date occurs after September 30, 1996 and
Axion shall not have used Best Closing Efforts (as defined below) to cause the
Closing to occur on or prior to September 30, 1996, the Preference Amount will
be paid only to the extent of cash and cash equivalents held by OTN as of
September 30, 1996 (it being understood that for purposes of this paragraph the
amount of cash and cash equivalents held by OTN as of September 30, 1996 will be
reduced by the amount, if any, by which outstanding indebtedness for borrowed
money, or any guaranties in respect of any indebtedness for borrowed money of
any third party, in respect of which OTN is obligated on September 30, 1996 will
exceed $35,617,000). Notwithstanding that if OTNC fails to use Best Closing
Efforts it will not have received the full amount of the Preference Amount from
OTN to which it would otherwise have been entitled, under the terms of the Tax
Matters Agreement AHC shall nevertheless be obligated to indemnify Axion and BMS
for any taxes with respect to the income of OTN for all periods prior to June
30, 1996, including such income that is not distributed as a Preference Amount
to OTNC by reason of the fact that OTNC will not have used Best Closing Efforts.
"Best Closing Efforts" means, in addition to Axion not otherwise knowingly
taking any action to frustrate or delay the Merger, the following: (i) Axion
will have diligently responded to all Securities and Exchange Commission (the
"Commission") comments to the Registration Statement on Form S-4 filed by BMS
(including exhibits and amendments thereto, the "BMS Registration Statement" or
the "Form S-4") related to Axion or its subsidiaries (A) within five business
days after receipt by Axion or its counsel of any initial Commission comments to
the Form S-4 and (B) within a reasonably prompt period under the circumstances
after receipt by Axion or its counsel of any subsequent Commission comments to
the Form S-4; (ii) in the event that the no-action relief requested by Axion
from the Commission with respect to the distribution of AHC Preferred Stock
without registration under the Securities Act is obtained from the Commission,
this Information Statement will have been distributed to Axion stockholders at
the same time as the Proxy Statement/Prospectus to which this Information
Statement is attached is distributed to such Axion stockholders; and (iii) Axion
will have within two business days following notice to Axion of clearance by the
Commission of the Form S-4 called the Special Meeting for the purpose of
approving the Merger and the transactions contemplated by the Merger Agreement,
the Distribution Agreement, the Indemnification Agreement, the Tax Matters
Agreement, the Escrow Agreement, the Transitional Services Agreement, the AHC
Supply Agreement, the OnCare Supply Agreement, the License Agreement, the AHC
Medstation Agreement, the OnCare Medstation Agreement and each of the
Non-Competition Agreements (collectively, the "Documents") with such meeting to
be held within twenty business days after the date such meeting is called.
EMPLOYEE LOANS; EXERCISE OR CANCELATION OF AXION OPTIONS
Prior to the Time of Contribution, Axion intends to make the
Employee Loans to certain holders of Axion Options to facilitate the exercise of
such Axion Options by such holders. Immediately prior to the Time of
Contribution, all Axion Options then outstanding shall have been exercised or
shall be canceled.
27
THE CONTRIBUTIONS
Immediately prior to the Time of Contribution, OTN will
distribute to OTNC, which will in turn distribute to Axion, the Preference
Amount. Immediately prior to the Time of Distribution, (i) OPUS will contribute
the OPUS Sub Assets (as defined below) to OPUS Sub and OPUS Sub will assume the
OPUS Sub Liabilities (as defined below), (ii) OPUS will distribute the
outstanding capital stock of OPUS Sub to Axion and (iii) Axion will contribute
all the Acquired Assets (including the outstanding capital stock of OPUS Sub)
other than the OPUS Sub Assets (which will remain assets of OPUS Sub) to AHC and
will retain the Retained Assets (as defined below) and AHC will assume all the
Assumed Liabilities (as defined below) other than the OPUS Sub Liabilities
(which will remain Liabilities of OPUS Sub) but will not assume the Retained
Liabilities (as defined below) (the transactions in clauses (i), (ii) and (iii),
collectively, the "Contributions").
"OPUS Sub Assets" means all the assets of OPUS other than any
such assets that are OPUS Station Assets and will include the OPUS Matrix
Software, all Contracts relating to the use and installation of OPUS Matrix
Software and all commitments relating to the future development use and
installation of OPUS Matrix Software, including the contracts and commitments
scheduled in the Distribution Agreement, and certain other assets scheduled in
the Distribution Agreement.
"Acquired Assets" means all the Assets of Axion and its
subsidiaries, other than Retained Assets, and includes the following: (i) the
"Access Biotechnology", "Access Biotechnology (logo)", "Logo (Distribution
Services)", "Logo (Pharmaceutical Goods)", "Axion", "Axion HealthCare",
"Axion(TM)", "A Axion (& Design)", "OnCare Systems", "OnCare Health", "OnCare
Practice Utilization System", "OPUS", "OPUS & Design" and "OPUS Health Systems"
trademarks, trade names, service marks, service names and all derivatives
thereof; (ii) a copy of the OPUS Station Data collected from installed OPUS
Stations through the Time of Contribution, including the installed OPUS Stations
scheduled in the Distribution Agreement, to the extent that provision of such
OPUS Station Data to AHC is permitted under the terms of the applicable
agreements related to such OPUS Stations, provided that in no event shall such
OPUS Station Data be provided by AHC or any of its subsidiaries to any third
party (other than to OnCare and its subsidiaries who shall also be prohibited
from providing such OPUS Station Data to any third parties); (iii) the OPUS Sub
Assets; (iv) all the issued and outstanding shares of the capital stock of OPUS
Sub; (v) any AHC Tax Refunds (as such term is defined in the Tax Matters
Agreement); (vi) all cash and cash equivalents and all interest and dividends
receivable on cash invested in various short-term cash equivalent securities
held by Axion and its subsidiaries (including the Preference Amount distributed
by the Partnership to OTNC and then by OTNC to Axion), other than the Retained
Cash; (vii) the Employee Loans; (viii) the 2,700,000 shares of OnCare Preferred
Stock owned by Axion; (ix) the right to certain Insurance Proceeds (as defined
in the Distribution Agreement); and (x) certain other assets scheduled in the
Distribution Agreement.
"Liabilities" means all the debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or
however arising and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto of a person.
"OPUS Sub Liabilities" means all the Liabilities of OPUS other than Liabilities
that are OPUS Station Liabilities or are otherwise Retained Liabilities and
include Liabilities scheduled in the Distribution Agreement. "Assumed
Liabilities" means all Liabilities of Axion and its subsidiaries, other than
Retained Liabilities, and includes (i) the Liabilities set forth in the
Distribution Agreement relating to the indemnification by AHC of the BMS
Indemnified Parties of liabilities relating to or arising from certain employee
matters; (ii) those Taxes for which the AHC Indemnifying Parties (as defined
herein) have agreed to indemnify the BMS Indemnified Parties pursuant to the Tax
Matters Agreement; (iii) the OPUS Sub Liabilities; and (iv) certain Liabilities
scheduled in the Distribution Agreement.
"OPUS Station Assets" means all the assets of Axion and its
subsidiaries that are primarily used by or are held for use in or are necessary
for the conduct of the OPUS Station Business, including (a) the Pyxis Agreement
(as defined in the Distribution Agreement), as the same may be amended and in
effect as of the Time of Contribution, (b) all rental contracts for all
installed OPUS Station sites and all commitments for the future installation of
OPUS Station sites, as the same may be amended and in effect as of the Time of
Contribution, including the contracts and commitments scheduled in the
Distribution Agreement, (c) all intellectual property
28
related to the OPUS Station Business (including plans, drawings, product
software and other software used or useful to access data from and to operate
OPUS Stations) other than OPUS Matrix Software, (d) all information derived from
OPUS Station installations as described in a schedule to the Distribution
Agreement (the "OPUS Station Data") collected from installed OPUS Stations prior
to, at and after the Time of Contribution including the installed OPUS Stations
at sites subject to the contracts and commitments scheduled in the Distribution
Agreement, and (e) certain other assets scheduled in the Distribution Agreement;
provided, however, that no cash or cash equivalents of Axion or any of its
subsidiaries (other than the Partnership) and no guarantees, letters of credit
or foreign exchange contracts of Axion or any of its subsidiaries (other than
the Partnership) will constitute OPUS Station Assets. "OPUS Station Liabilities"
means any Liabilities of Axion, its subsidiaries and OTN directly and solely
related to the OPUS Station Business and includes certain Liabilities scheduled
in the Distribution Agreement. "Retained Cash" means (a) an amount in cash equal
to the excess, if any, of the Axion Expenses scheduled in the Transaction
Expense Schedule over $2 million, (b) any cash and cash equivalents held by the
Partnership (after giving effect to the payment of the Preference Amount in
accordance with the provisions of the Merger Agreement), (c) an amount in cash
equal to the sum of (i) the amount of any Pre-JV Sales Taxes paid by the
Partnership on behalf of Axion at or prior to the Time of Contribution and (ii)
the amount, if any, by which the amount of JV Sales Taxes paid by the
Partnership at or prior to the Time of Contribution exceeds $667,402 and (d) an
amount in cash equal to any amounts withheld from Continuing Axion Employees (as
defined in the Distribution Agreement) as of the Closing Date related to
employee benefit arrangements for Continuing Axion Employees or in respect of
payroll taxes (to the extent such payroll taxes shall not have been paid to the
relevant taxing authorities at the Time of Contribution) and employee
contributions to any Benefit Plan.
"Retained Assets" means (i) the OPUS Station Assets; (ii) all the
assets of the Partnership and any other assets of Axion and its subsidiaries
that are primarily used by or are held for use in or are necessary for the
conduct of the business of OTNC or the Partnership; (iii) all the outstanding
capital stock of OTNC and OPUS and the general partnership interest of OTNC in
the Partnership; (iv) subject to certain provisions of the Distribution
Agreement, all current and former insurance policies of Axion and its
subsidiaries in effect at or prior to the Time of Contribution and the right to
Insurance Proceeds (as defined in the Distribution Agreement) thereunder; (v)
the Retained Cash; (vi) any BMS Tax Refunds (as such term is defined in the Tax
Matters Agreement); (vii) the "Oncology Therapeutics Network(R)" trademarks,
trade names, service marks, service names and all derivatives thereof; and
(viii) certain other assets scheduled in the Distribution Agreement. "Retained
Liabilities" means the OPUS Station Liabilities, any Liabilities of Axion and
its subsidiaries directly and solely related to the business of OTN including
certain liabilities scheduled in the Distribution Agreement, those Taxes (as
defined herein) and other items for which the BMS Indemnifying Parties have
agreed to indemnify the AHC Indemnified Parties (as defined herein) pursuant to
the Tax Matters Agreement, such other Liabilities of Axion and its subsidiaries
to the extent they are directly and primarily related to OTN and/or the OPUS
Station Business including certain liabilities scheduled in the Distribution
Agreement, the Axion Expenses, but only to the extent that such expenses do not
exceed $2 million, any Liabilities of the Retained Companies to the extent such
Liabilities solely relate to or arise from events, occurrences, actions,
omissions, facts or circumstances that occur after the Effective Time, all
Liabilities of Axion and its subsidiaries related to the amounts described in
clause (d) of the definition of Retained Cash and the Liabilities scheduled in
the Distribution Agreement; provided, however, notwithstanding the foregoing,
that Retained Liabilities will not include any Liabilities described in the
definition of Assumed Liabilities.
THE DISTRIBUTION
Effective immediately following the Contributions and immediately
prior to the Effective Time, each issued and outstanding share of AHC Common
Stock will be converted into that number of shares of AHC Preferred Stock equal
to the quotient of (i)(A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the exercise of Axion Options in
connection with the consummation of the Merger) plus (B) the number of shares of
Axion Common Stock to be issued in connection with the conversion of Axion
Preferred Stock in connection with the consummation of the Merger divided by (i)
the number of shares of AHC Common Stock outstanding immediately prior to the
Time of Distribution. Axion will declare and pay a dividend of all the
outstanding AHC Preferred Stock to the holders of Axion Common Stock and the
holders of Axion Preferred Stock followed by the distribution of certificates
representing (a) one share of AHC Preferred Stock for each share of Axion Common
Stock held by each holder of record of Axion Common Stock, in the case of
holders of Axion Common Stock, and (b) one share of AHC Preferred Stock for each
share of
29
Axion Common Stock into which each share of Axion Preferred Stock held by each
holder of record of Axion Preferred Stock is then convertible in accordance with
the Certificate of Incorporation of Axion in the case of holders of Axion
Preferred Stock, in each case at the Time of Distribution. Immediately following
the Contributions and immediately prior to the Effective Time, subject to the
satisfaction or waiver of the conditions set forth in the Distribution
Agreement, the Axion Board will formally declare the Distribution and Axion will
effect the Distribution by delivery of certificates for AHC Preferred Stock to
the transfer agent for delivery to the holders of Axion Common Stock and the
holders of Axion Preferred Stock entitled thereto. The Distribution will be
deemed to be effective upon notification by Axion to the transfer agent that the
Distribution has been declared and that the transfer agent is authorized to
proceed with the distribution of AHC Preferred Stock, which notification Axion
agrees to deliver promptly following such declaration.
SETTLEMENT OF INTERCOMPANY ACCOUNTS
Subject to certain exceptions and limitations, all intercompany
balances between the Retained Business and the Acquired Business are to be
satisfied to the extent practicable immediately prior to the Time of
Distribution.
INSURANCE AND AHC'S RIGHT TO INSURANCE PROCEEDS
Subject to certain exceptions, all insurance policies covering
Axion and its directors and officers immediately prior to the Time of
Distribution shall be treated as Retained Assets, and all coverage thereunder
with respect to AHC and its subsidiaries shall terminate except with respect to
insured or insurable occurrences incurred prior to the Time of Contribution that
constitute Assumed Liabilities.
EMPLOYEE MATTERS
The Distribution Agreement contains provisions with respect to
certain employee-related matters, including with respect to which employees will
continue as employees of Axion or become employees of AHC after the Time of
Distribution, and with respect to the treatment of Axion employee benefit plans
after the Time of Distribution.
The AHC Indemnifying Parties will indemnify BMS and its
subsidiaries against any losses or claims relating to or arising from
employment-related claims (including, among other things, with respect to
severance, benefits, termination, payroll taxes and workers' compensation)
occurring prior to the Time of Distribution.
CONDITIONS TO THE DISTRIBUTION
The obligations of Axion to consummate the Distribution are
subject to the fulfillment of each of the following conditions: (a) all the
transactions or obligations contemplated by the Distribution Agreement to be
consummated or performed at or prior to the Time of Distribution will have been
successfully consummated or so performed; (b) each condition to the closing of
the Merger set forth in the Merger Agreement (other than the completion of the
Contributions and the Distribution) will have been satisfied (or waived by the
party for whose benefit such condition exists); (c) the Axion Board will be
reasonably satisfied that, after giving effect to the Distribution, (i) AHC will
not be insolvent and will not have unreasonably small capital with which to
engage in its businesses and (ii) Axion's surplus would be sufficient to permit,
without violation of Section 170 of the DGCL, the Distribution; (d) all filings
required to be made with, and all consents, approvals and authorizations
required to be obtained from, any governmental entity in connection with the
execution, delivery and performance of the Distribution Agreement or the
consummation of the Contributions, the Distribution or the other transactions
contemplated by the Distribution Agreement will have been made or obtained; (e)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution will be in effect;
and (f) Ernst & Young
30
shall have reaffirmed its opinion that the Distribution should qualify as a
tax-free spinoff pursuant to Section 355 of the Code.
TERMINATION, AMENDMENTS AND WAIVERS
Notwithstanding anything to the contrary therein, the
Distribution Agreement may be terminated and the transactions contemplated
thereby abandoned at any time prior to the Time of Distribution by mutual
written consent of Axion and AHC but only in the event the Merger is terminated
by any party thereto in accordance with the terms thereof. The Distribution
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties thereto and consented to by BMS. By an instrument in
writing, the parties thereto may waive compliance by any other party with any
term or provision of the Distribution Agreement that such other party was or is
obligated to comply with or perform; provided that no such waiver by Axion will
be effective unless consented to by BMS.
INDEMNIFICATION ARRANGEMENTS
This section of the Information Statement describes certain
indemnification arrangements. To the extent that they relate to the
Indemnification Agreement, the Escrow Agreement and the Tax Matters Agreement,
the following descriptions do not purport to be complete and are qualified in
their entirety by reference to such agreements, which are attached as Appendices
C through E to the Proxy Statement/Prospectus to which this Information
Statement is attached as Appendix G, respectively, and are incorporated herein
by reference. ALL STOCKHOLDERS ARE URGED TO READ SUCH AGREEMENTS IN THEIR
ENTIRETY.
TERMS OF THE INDEMNIFICATION AGREEMENT
INDEMNIFICATION BY THE AHC INDEMNIFYING PARTIES
AHC, OPUS Sub, the other 81% AHC Subsidiaries (as defined below),
and each Former Axion Stockholders (collectively, the "AHC Indemnifying
Parties"), will, jointly and severally, indemnify, defend and hold harmless BMS,
its direct and indirect subsidiaries, including the Surviving Corporation and
its subsidiaries (including the Partnership) and their respective affiliates and
each of their respective officers, directors, employees, stockholders, agents
and representatives (collectively, the "BMS Indemnified Parties"), from and
against, and pay or reimburse the BMS Indemnified Parties for, all Indemnifiable
Losses (as defined below), as incurred: (a) to the extent relating to or arising
from (i) any breach of any representation or warranty by Axion or any of its
subsidiaries (including OTN) in the Merger Agreement or any other Document (or
in any certificate or similar document delivered pursuant thereto) or (ii) any
breach of any covenant of Axion or any of its subsidiaries (including OTN) in
the Merger Agreement or any other Documents requiring performance on or prior to
the Closing Date or (iii) any breach of any covenant of AHC and its subsidiaries
in the Merger Agreement or any other Documents requiring performance after the
Closing Date; (b)(i) in the case of the Form S-4, relating to or arising from
any claim that there existed any untrue statement of a material fact or any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) in the case of the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G, any other Filings (as defined below) and, if required in connection with the
Distribution, this Information Statement, relating to or arising from any claim
that there existed any untrue statement of a material fact or any omission of 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; or (iii) in the case of any Required AHC Documents or other Filings
that are provided or required to be delivered to the Axion stockholders,
relating to or arising from any failure by Axion to so provide or deliver such
Required AHC Documents or other Filings; but only, in the case of (i) or (ii),
with respect to information furnished or to be furnished by Axion or its
representatives contained in or omitted from the Filings; (c) relating to or
arising from the Acquired Assets, the Assumed Liabilities (including the failure
by AHC or any of the AHC Companies to otherwise perform or discharge such
Assumed Liabilities), the Acquired Businesses or the current, former or future
operations or employees of AHC and its subsidiaries' businesses whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before, at or
after the
31
Effective Time, other than, in each case, any Retained Liabilities; (d)
relating to or arising from the current or former operations or employees of
Axion and its current or former subsidiaries' businesses whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring or existing before or at the
Effective Time, whether asserted before, at or after the Effective Time, other
than, in each case, any Retained Liabilities; (e) relating to or arising from
claims of any stockholders, directors, officers, employees or agents of Axion
and its subsidiaries (including OTN) to the extent related to or arising from
the execution by Axion or any of its subsidiaries of the Indemnification
Agreement or the other Documents or the consummation of the transactions
contemplated thereby (including any claims for indemnification by any officer or
director of Axion or any of its subsidiaries (including OTN) pursuant to any
applicable law, the charter and by-laws or other governing instruments of Axion
or any such subsidiary (including OTN) or any indemnification agreement between
Axion or any such subsidiary (including OTN) and any such person) (except for
any Indemnifiable Loss for which the AHC Indemnifying Parties are indemnified
pursuant to Section 3.01(c) of the Indemnification Agreement); (f) relating to
or arising from any Axion Expenses to the extent that such Axion Expenses were
not included in the schedule of Axion Expenses delivered to BMS pursuant to the
Merger Agreement and the aggregate amount of all Axion Expenses exceeds $2
million; (g) relating to or arising out of (i) the breach of any term, covenant
or condition contained in the Partnership Agreement, the Trademark License
Agreement dated as of July 8, 1993 between BMS and the Partnership (the
"Trademark License Agreement") or any other agreement to which any of the
Exculpated Parties (as defined below) and the Partnership are parties (other
than any breach by the Limited Partner (as such term is defined in the
Partnership Agreement), its officers, directors, stockholders, employees or
affiliates or any member of the Management Committee appointed by the Limited
Partner pursuant to Section 7.02 of the Partnership Agreement) or (ii) the gross
negligence or wilful misconduct by any Exculpated Party or its obligations under
the Partnership Agreement, the Trademark License Agreement or any other such
agreement, in each case relating to or arising out of events, occurrences,
actions, omissions, facts or circumstances occurring or existing at or prior to
the Effective Time, whether asserted at, prior to or after the Effective Time;
(h) that are Liabilities of the Partnership under Section 11(b) of the Sales
Agency Agreement dated as of July 8, 1993, as amended, between BMS and the
Partnership, relating to or arising out of events, occurrences, actions,
omissions, facts or circumstances occurring or existing at or prior to the
Effective Time, whether asserted at, prior to or after the Effective Time; or
(i) incurred in connection with the enforcement by the BMS Indemnified Parties
of their rights to be indemnified and held harmless under the Indemnification
Agreement.
"81% AHC Subsidiary" means any corporation, company or other
entity (i) more than 81% of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or securities (as may be the
case in the partnership, joint venture or unincorporated association), but more
than 81% of whose ownership interest representing the right to make decisions
for such other entity is, in each case, owned or controlled, directly or
indirectly, by AHC.
"Indemnifiable Losses" means all losses, liabilities, damages,
deficiencies, obligations, fines, expenses, claims, demands, actions, suits,
proceedings, judgments or settlements, whether or not resulting from third party
claims, including interest and penalties recovered by a third party with respect
thereto and out-of-pocket expenses and reasonable attorneys' and accountants'
fees and expenses incurred in the investigation or defense or any of the same or
in asserting, preserving or enforcing any of the rights of the AHC Indemnified
Parties (as defined below) or the BMS Indemnified Parties under the
Indemnification Agreement, suffered by any of the BMS Indemnified Parties or the
AHC Indemnified Parties who or which may seek indemnification under the
Indemnification Agreement; provided, however, that notwithstanding anything to
the contrary set forth in the Indemnification Agreement, Indemnifiable Losses
will not include any such losses relating to or arising from any breach of any
representation, warranty or covenant contained in Section 4.01(j) of the Merger
Agreement or any other amount relating to Taxes or for which indemnity is
payable under the Tax Matters Agreement. "Filings" means the Form S-4, the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G, the Required AHC Documents or any other document filed or required to be
filed with the Commission or any state securities commission or otherwise
provided, or required to be delivered, to the stockholders of Axion or,
following the Distribution, the stockholders of AHC, in connection with the
transactions contemplated by the Merger Agreement or the other Documents, any
preliminary or final form thereof or any amendment or supplement thereto. "AHC
Indemnified Parties" means AHC and its direct or indirect subsidiaries and their
respective affiliates and each of their respective officers, directors,
employees, stockholders, agents and
32
representatives. "Exculpated Parties" means OTNC, its officers, directors,
stockholders, employees, or affiliates, the Chairman of the Management Committee
(as such term is defined in the Partnership Agreement) or any other officer of
the Partnership or the members of the Management Committee appointed by OTNC
pursuant to the Partnership Agreement.
LIMITATIONS ON INDEMNIFICATION OBLIGATIONS OF THE AHC INDEMNIFYING PARTIES
The indemnification obligations of the AHC Indemnifying Parties
for (i) any Indemnifiable Loss of the type set forth in clause (a)(i) of
"--Indemnification by the AHC Indemnifying Parties" above or (ii) that is
directly related to OTN will equal 50% of such Indemnifiable Loss, and (ii) any
other Indemnifiable Loss will equal 100% of such Indemnifiable Loss.
The AHC Indemnifying Parties will not have any liability under
the Indemnification Agreement with respect to any Indemnifiable Loss of the type
set forth in clause (a)(i) of "--Indemnification by the AHC Indemnifying
Parties" above or (ii) that is directly related to OTN or the OPUS Station
Business unless the aggregate of all such Indemnifiable Losses for which the AHC
Indemnifying Parties would but for this sentence be liable exceeds on an
aggregate basis an amount equal to $500,000 and provided that the AHC
Indemnifying Parties' liability with respect to such Indemnifiable Losses will
in no event exceed $12 million. The indemnification obligations of the AHC
Indemnifying Parties under the Indemnification Agreement with respect to (i) any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that directly relates to OTN or
the OPUS Station Business (other than Indemnifiable Losses related to or arising
from any breach of the representations and warranties in Section 4.01(c),
4.01(n), or 4.01(p) of the Merger Agreement) will terminate on March 31, 1998,
(ii) any Indemnifiable Losses related to or arising from any breach of the
representations and warranties in Section 4.01(c), 4.01(n) or 4.01(p) of the
Merger Agreement will terminate on the third anniversary of the Effective Time
and (iii) all other Indemnifiable Losses will not terminate.
Notwithstanding anything to the contrary set forth in the
Indemnification Agreement (except as provided in the following sentence), the
indemnification obligations of the Former Axion Stockholders under the
Indemnification Agreement will be limited to the amount of the Escrowed Shares.
The limitations on the AHC Indemnifying Parties' liability under the
Indemnification Agreement as set forth in this paragraph will not apply to any
Indemnifiable Losses relating to or arising from fraud or any misrepresentation
or breach of which Axion, AHC, the 81% AHC Subsidiaries or their respective
officers and directors had knowledge or any intentional failure to perform or
comply with any covenant (collectively, "fraud"), and the AHC Indemnifying
Parties will be jointly and severally liable for all Indemnifiable Losses with
respect thereto; provided, however, that a Former Axion Stockholder will be
liable for Indemnifiable Losses related to or arising from fraud only with
respect to any fraud by such Former Axion Stockholder. The indemnification
obligations of the AHC Indemnifying Parties under the Indemnification Agreement
are subject to offset as provided in the Tax Matters Agreement.
INDEMNIFICATION BY THE BMS INDEMNIFYING PARTIES
Pursuant to the Indemnification Agreement, BMS, Axion, OTNC, the
Partnership and OPUS (collectively, the "BMS Indemnifying Parties") will,
jointly and severally, indemnify, defend and hold harmless the AHC Indemnified
Parties from and against, and pay or reimburse the AHC Indemnified Parties for
all Indemnifiable Losses, as incurred: (a) relating to or arising from the
Retained Assets, the Retained Liabilities (including the failure by Axion or any
of its subsidiaries to pay, perform or otherwise discharge such Retained
Liabilities in accordance with their terms), whether such Indemnifiable Losses
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the Effective
Time; (b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger Agreement
or any other Document (or in any certificate or similar document delivered
pursuant thereto); (c) (i) in the case of the Form S-4, relating to or arising
from any claim that there existed any untrue statement of a material fact or any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) in the case of the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G, any other Filings and, if required in connection with the Distribution, this
Information Statement, relating to or arising from any claim that there existed
any untrue statement of
33
a material fact or any omission of 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; but only in each case with respect to
information furnished or to be furnished by BMS or its representatives contained
in or omitted from the Filings; or (d) incurred in connection with the
enforcement by the AHC Indemnified Parties of their rights to be indemnified,
defended and held harmless under the Indemnification Agreement.
LIMITATION ON INDEMNIFICATION OBLIGATIONS OF THE BMS INDEMNIFYING PARTIES
The indemnification obligations of the BMS Indemnifying Parties
under the Indemnification Agreement with respect to (a) any Indemnifiable Loss
of the type set forth in clause (b) of "--Indemnification by the BMS
Indemnifying Parties" above will terminate on March 31, 1998 and (b) all other
Indemnifiable Losses will not terminate.
INDEMNIFIABLE LOSSES NET OF THIRD-PARTY RECOVERIES; INDEMNIFIABLE
LOSSES CALCULATED ON AN AFTER-TAX BASIS
The amount of any Indemnifiable Losses for which indemnification
is provided under the Indemnification Agreement will be net of amounts recovered
by the indemnified party under third-party insurance policies. The amount of any
Indemnifiable Losses is determined on an after-tax basis to the indemnified
party.
COVENANTS
For five years from the Effective Time, the BMS Indemnified
Parties and the AHC Indemnified Parties will give confidential treatment to
confidential and proprietary information with respect to each other's
businesses, subject to certain exceptions and limitations.
Unless BMS otherwise consents in writing, neither AHC nor any of
the 81% AHC Subsidiaries and/or any other 81% AHC Subsidiary will: (i) (A) in
the case of AHC, liquidate, dissolve or wind up its affairs or (B) in the case
of any 81% AHC Subsidiary, liquidate, dissolve or wind up its affairs unless the
assets of such 81% AHC Subsidiary (or, if such 81% AHC Subsidiary will not be
wholly owned, a proportionate amount of such assets equal to the direct and
indirect ownership interest of AHC in such 81% AHC Subsidiary) will have been
distributed to or otherwise acquired by AHC and/or any 81% AHC Subsidiary; (ii)
(A) merge with or into or consolidate with any other person, or (B) sell, lease
or otherwise transfer all or substantially all the assets of AHC and the 81% AHC
Subsidiaries, taken as a whole (including by means of the sale of the capital
stock of any subsidiary) to any other person (in each case, whether in one or a
series of transactions), unless, in each case, such person explicitly agrees to
assume the obligations of AHC and the 81% AHC Subsidiaries under the
Indemnification Agreement, the Tax Matters Agreement or the Escrow Agreement
pursuant to an agreement reasonably satisfactory in form and substance to BMS
and its counsel; (iii) engage in any recapitalization or restructuring pursuant
to which any cash, securities or other property will be distributed in respect
of its capital stock or effect any other distribution (by means of dividend,
redemption or otherwise) in respect of its capital stock (other than, in the
case of any 81% AHC Subsidiary, any such distribution to AHC); (iv) enter into
any transactions with affiliates of AHC or any 81% AHC Subsidiary unless (1) any
such transaction is between or among AHC and the 81% AHC Subsidiaries or (2) the
terms of such transactions are fair and reasonable to AHC or the 81% AHC
Subsidiaries, as the case may be, as in a comparable transaction made on an
arm's length basis between unaffiliated parties; or (v) agree to or otherwise
suffer any of the foregoing in (i), (ii), (iii) or (iv) above or otherwise take
any action or fail to take any action designed to restrict, reduce or otherwise
limit the rights of the BMS Indemnified Parties under the Indemnification
Agreement, the Tax Matters Agreement or the Escrow Agreement or the ability of
any BMS Indemnified Party to collect any amount owed to it under the
Indemnification Agreement, the Tax Matters Agreement or the Escrow Agreement.
For purposes of this covenant, OnCare and its subsidiaries are deemed to be
affiliates of AHC and the 81% AHC Subsidiaries.
AHC will cause each of its subsidiaries that will be or become an
81% AHC Subsidiary on or after the Closing Date to enter into an agreement,
reasonably satisfactory in form and substance to both BMS and its counsel and
AHC and its counsel, pursuant to which such subsidiary will agree to be bound by
the terms of each of
34
the Indemnification Agreement, the Tax Matters Agreement and the Escrow
Agreement as if such subsidiary were named an 81% AHC Subsidiary therein.
The foregoing provisions of this "--Covenants" section will
terminate on the later of (a) the sixth anniversary of the Effective Time and
(b) the expiration of the statute of limitations (including any extensions
thereof arising from audits commenced on or before such sixth anniversary) for
all Federal income tax returns of the Affiliated Group (as defined in the Tax
Matters Agreement) for all taxable years ending on or before the day on which
the Effective Time occurs is in process, provided that the foregoing provisions
shall not terminate until such time as any Tax Claims (as defined in the Tax
Matters Agreement) relating to such audit or contest have been settled and all
liabilities related thereto satisfied.
APPOINTMENT OF AHC AS REPRESENTATIVE
Execution and delivery of the Letter of Transmittal by each
Former Axion Stockholder will result in each such Former Axion Stockholder
irrevocably appointing AHC as his/her or its agent and attorney-in-fact to
execute and deliver on such Former Axion Stockholder's behalf, and thereby
result in each such Former Axion Stockholder becoming a party to and bound by,
the Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such indemnity; and will result in each such
Former Axion Stockholder ratifying and confirming any action taken by AHC in the
exercise of the power of attorney granted thereby.
See "Special Factors--Indemnification Obligations of the Former
Axion Stockholders, AHC and the 81% AHC Subsidiaries" and "Risk Factors" and
"The Merger--Indemnification Arrangements; Escrow; Appointment of AHC as
Representative" in the Proxy Statement/Prospectus to which this Information
Statement is attached as Appendix G.
TERMS OF THE TAX MATTERS AGREEMENT
Prior to the Time of Distribution, BMS, BMS Sub, Axion, certain
subsidiaries of Axion, AHC, the 81% AHC Subsidiaries, the Partnership and each
of the Former Axion Stockholders will enter into a Tax Matters Agreement, the
form of which is attached as Appendix D to the Proxy Statement/Prospectus to
which this Information Statement is attached as Appendix G and is incorporated
herein by reference (as it may be amended, supplemented or otherwise modified
from time to time, the "Tax Matters Agreement") which sets forth each party's
rights and obligations with respect to payments of Federal, state, local or
foreign Taxes for periods before and after the Merger and related matters such
as the filing of and right to tax returns and the control of tax contests.
The Tax Matters Agreement specifically provides that: the AHC
Indemnifying Parties will jointly and severally indemnify and hold harmless BMS,
the Surviving Corporation, OPUS, OTNC, the Partnership, their affiliates and
each of their respective officers, directors, employees, stockholders, agents
and representatives (collectively, the "BMS Indemnified Parties") from all
liabilities for Federal, state, local, foreign and other governmental taxes,
assessments, duties, fees, levies or similar charges of any kind including all
interest, penalties and additions imposed with respect to such amounts
(collectively, "Taxes") imposed on Axion, OPUS, OTNC or any member of Affiliated
Group (as defined in the Tax Matters Agreement) (whether imposed directly or by
reason of United States Treasury Regulations Section 1.1502-76 or similar
provisions) (i) for any pre-merger tax period, including any Pre-JV Sales Taxes
(but excluding any Retained Tax Liabilities), which are in each case unpaid as
of the Effective Time (the "Pre-Merger Taxes"), such Indemnified Taxes, (ii)
with respect to the Contributions, (iii) as
35
a result of the Distribution, (iv) as a result of the provision of the OPUS
Station Data (as defined in the Distribution Agreement) to AHC, OnCare or any of
their assignees, (v) with respect to the OPUS License Agreement or (vi) in
respect of the transfer of assets or rights from OnCare or any of its
subsidiaries or affiliates or any other affiliate of Axion and its subsidiaries
to Axion prior to the Distribution. The AHC Indemnifying Parties shall also
jointly and severally indemnify the BMS Indemnified Parties from all liabilities
for fifty percent (50%) of any liability for any unpaid Taxes (other than JV
Sales Taxes) as of June 30, 1996 imposed on the Partnership for all periods up
to and including June 30, 1996 in excess of $225,000, and 100% of any liability
for JV Sales Taxes paid after June 30, 1996 in excess of $667,402; provided,
however, that no indemnification shall be payable with respect to any JV Sales
Taxes to the extent payment of such JV Sales Taxes increased the amount of
"Retained Cash" pursuant to clause (c) of the definition of "Retained Cash" in
the Distribution Agreement. "Retained Tax Liabilities" shall mean (W) any income
Tax liability (including any liability for any Tax measured by reference to
income) of OTNC (or the Affiliated Group) attributable to the allocation to OTNC
of Taxable income of the Partnership (whether or not such taxes are paid before
or after the Effective Time) and any other Taxes to the extent directly
attributable to the operation of the Partnership, in each case for the period
beginning on July 1, 1996, and ending on the day on which the Effective Time
occurs and in each case determined in accordance with certain principles
provided therein and (for the avoidance of doubt), in the case of Taxes measured
by reference to income, by assuming that such income is subject to Tax at the
highest applicable federal, state, and local tax rate as otherwise provided
therein, (X) any income Tax liability (including any liability for any Tax
measured by reference to income) to the extent directly attributable to the
reallocation of Partnership income by the IRS or any other governmental agency
from Bristol-Myers Oncology Therapeutics Network Inc., a Delaware corporation
and a wholly owned subsidiary of BMS ("BMOTN") to OTNC, (Y) all liabilities for
any unpaid Taxes as of June 30, 1996 imposed on the Partnership for all periods
up to and including June 30, 1996 that are not indemnified by the AHC
Indemnifying Parties pursuant to the preceding sentence, and (Z) any Tax
liabilities relating to the operations, assets or activities of a BMS
Entity (other than the Partnership). "Pre-JV Sales Taxes" shall mean any
liability of Axion with respect to unpaid sales and use Taxes on sales prior to
the date of formation of the Partnership. "JV Sales Taxes" shall mean any
liability of the Partnership with respect to unpaid sales and use Taxes on
sales prior to August 1, 1994.
The BMS Indemnifying Parties will jointly and severally indemnify
and hold harmless the AHC Indemnified Parties (A) from all liability for Taxes
imposed on the Surviving Corporation, OTNC, OPUS or the Partnership for any
Post-Merger Tax Period and (B) for any Retained Tax Liabilities.
Other provisions of the Tax Matters Agreement provide AHC with
the ability, under certain circumstances, to control tax contests relating to a
claim for which AHC would indemnify the BMS Indemnified Parties and, under
certain circumstances, allow AHC to obtain refunds for taxes paid by Axion prior
to the Effective Time, up to a certain threshold.
The indemnification obligations of the AHC Indemnifying Parties
under the Tax Matters Agreement survive for the term of the applicable statute
of limitations (generally six years). Other than in the case of fraud by a
Former Axion Stockholder, the indemnification obligations of the Former Axion
Stockholders are limited to the Escrowed Shares; the indemnification obligations
of AHC are unlimited.
APPOINTMENT OF AHC AS REPRESENTATIVE
Execution and delivery of the Letter of Transmittal by each
Former Axion Stockholder will result in each such Former Axion Stockholder
irrevocably appointing AHC as his/her or its agent and attorney-in-fact to
execute and deliver on such Former Axion Stockholder's behalf, and thereby
result in each such Former Axion Stockholder becoming a party to and bound by,
the Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to
36
indemnify any person pursuant to such agreements or may be entitled to
indemnification pursuant to such agreements or which may be brought by BMS
against each such Former Axion Stockholder to enforce such indemnity; and will
result in each such Former Axion Stockholder ratifying and confirming any action
taken by AHC in the exercise of the power of attorney granted thereby.
See "Special Factors--Indemnification Obligations of the Former
Axion Stockholders, AHC and the 81% AHC Subsidiaries" and "Risk Factors" and
"The Merger--Indemnification Arrangements; Escrow; Appointment of AHC as
Representative" in the Proxy Statement/Prospectus to which this Information
Statement is attached as Appendix G.
TERMS OF THE ESCROW AGREEMENT
DEPOSIT OF ESCROWED PROPERTY
Pursuant to the Escrow Agreement, at the Closing (a) the Exchange
Agent, on behalf of the Former Axion Stockholders, will deposit into escrow, and
the Escrow Agent will acknowledge receipt of, a number of shares of BMS Common
Stock equal to $5 million divided by the Average Value of BMS Common Stock,
rounded to the nearest whole share, which amount will be deemed to have been
deposited by the Former Axion Stockholders on a pro rata basis from the shares
of BMS Common Stock to be issued and delivered to each Former Axion Stockholder
with respect to its shares of Axion Common Stock pursuant to the Merger
Agreement as described under "The Merger" in the Proxy Statement/Prospectus to
which this Information Statement is attached as Appendix G, calculated based on
the ratio of the number of shares of BMS Common Stock to be so issued and
delivered to such Former Axion Stockholder with respect to its shares of Axion
Common Stock to the aggregate number of shares of BMS Common Stock to be so
issued to all the Former Axion Stockholders with respect to their shares of
Axion Common Stock. Such shares together with any dividends and distributions
with respect to such shares as set forth in the Escrow Agreement are referred to
as the "Escrowed Shares", and (b) AHC will deposit, or cause to be deposited
into escrow, and the Escrow Agent will acknowledge receipt of, $5 million in
cash. Such cash, together with any income received thereon, as on deposit or
invested from time to time in accordance with the terms of the Escrow Agreement,
is referred to as the "Escrowed Cash" (the Escrowed Shares and the Escrowed Cash
together being the "Escrowed Property"). During the term of the Escrow
Agreement, BMS will, from time to time and concurrently with the payment
thereof, (a) deliver to the Escrow Agent for deposit in accordance with the
terms of the Indemnification Agreement, all non-taxable stock dividends and
other non-taxable distributions made with respect to the Escrowed Shares and (b)
deliver to the Escrow Agent, who will promptly distribute the same to the Former
Axion Stockholders, all cash distributions and other taxable distributions
(other than taxable distributions representing the proceeds of a sale or
acquisition or a substantial restructuring in connection with a sale or
acquisition of only BMS) made with respect to the Escrowed Shares. BMS and each
AHC Indemnifying Party acknowledge and agree that, to the extent and so long as
any of the Escrowed Property is held by the Escrow Agent hereunder, BMS will
have, as of and from the date such Escrowed Property is received by the Escrow
Agent, a perfected first priority security interest in such Escrowed Property to
secure the payment of the amount, if any, payable by an AHC Indemnifying Party
pursuant to the Indemnification Agreement and the Tax Matters Agreement. Each of
BMS and each of the AHC Indemnifying Parties agree that the Escrowed Shares will
be voted by the Escrow Agent with respect to all matters as to which the holders
of BMS Common Stock are entitled to vote in accordance with written instructions
from AHC as the representative of the Former Axion Stockholders. AHC agrees that
if any Former Axion Stockholder provides AHC with written directions as to how
to vote the Escrowed Shares with respect to any matter, AHC will instruct the
Escrow Agent to vote such number of Escrowed Shares as are beneficially held for
such Former Axion Stockholder as so directed by such Former Axion Stockholder,
and if no such directions are received with respect to particular Escrowed
Shares on any matter for which such Escrowed Shares may be voted, AHC will
direct the Escrow Agent to abstain from voting such Escrowed Shares with respect
to such matter.
DISPOSITION OF ESCROWED PROPERTY
At any time on or prior to the Escrowed Cash Termination Date (as
defined below), BMS may deliver a certificate to the Escrow Agent requesting
delivery of Escrowed Property to BMS, and the Escrow Agent
37
will deliver the Escrowed Property to BMS to the extent and at the time provided
in accordance with the Escrow Agreement; provided, however, that (i) no
distribution of Escrowed Property will be made in respect of any Indemnified
Obligation (as defined below) related to a liability for Taxes for which a BMS
Indemnified Party is indemnified pursuant to Section 1 of the Tax Matters
Agreement unless and until such time as such liability for Taxes will be deemed
liquidated and therefore payable in accordance with the provisions of Section 9
of the Tax Matters Agreement, (ii) after the Escrowed Shares Termination Date
(as defined herein), no Escrowed Shares shall be released to BMS except with
respect to an Escrowed Shares Pending Claim (as defined herein) and (iii) after
the Second Anniversary Date (as defined herein), Second Anniversary Cash shall
be released to BMS only with respect to Second Anniversary Pending Claims (as
defined herein). For purposes of the foregoing, the amount of Second Anniversary
Cash as of any date will equal the excess, if any, of the amount of Escrowed
Cash on deposit with the Escrow Agent on such date over the amount specified in
clause (A) of the definition of "Retained Escrow Amount" (as defined herein)
calculated as of such date.
Immediately following the Escrowed Shares Termination Date, if
either (a) both BMS and AHC deliver a certificate to the Escrow Agent or (b) the
Escrow Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC as the
representative of the Former Axion Stockholders such number of Escrowed Shares
(rounded to the nearest whole share) that equals, when multiplied by the Average
Value of BMS Common Stock, the excess, if any, of (x) the number of Escrowed
Shares on deposit with the Escrow Agent on the Escrowed Shares Termination Date
multiplied by the Average Value of BMS Common Stock over (y) the amount of any
unpaid Escrowed Shares Pending Claims (as defined below) on the Escrowed Shares
Termination Date. Thereafter, if as of the last day of any fiscal quarter
following the Escrowed Shares Termination Date, Escrowed Shares remain on
deposit with the Escrow Agent, and either (a) both BMS and AHC deliver a
certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC as the representative of the Former Axion
Stockholders the number of Escrowed Shares that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the last day of such fiscal
quarter multiplied by the Average Value of BMS Common Stock over (y) the amount
of any unpaid Escrowed Shares Pending Claims on the last day of such fiscal
quarter. "Escrowed Shares Pending Claims" means all Pending Claims (as defined
below) existing on the Escrowed Shares Termination Date. The amount of any
Escrowed Shares Pending Claim on any date will be determined in accordance with
the provisions of the Escrow Agreement. "Escrowed Shares Termination Date" means
the earlier to occur of (i) one year after the date of the Escrow Agreement and
(ii) complete distribution of the Escrowed Shares in satisfaction of claims for
Indemnified Obligations.
Immediately following the second anniversary of the date of the
Escrow Agreement (the "Second Anniversary Date"), if either (a) both BMS and AHC
jointly deliver a certificate to the Escrow Agent or (b) the Escrow Agent (i)
receives a certificate from AHC, (ii) delivers a copy of such certificate to BMS
and (iii) does not, within 15 business days following delivery of such
certificate to BMS, receive written notice from BMS objecting to the certificate
given by AHC, the Escrow Agent will deliver to AHC an amount in cash equal to
the excess, if any, of Escrowed Cash on deposit with the Escrow Agent as of the
Second Anniversary Date over the Retained Escrow Amount on the Second
Anniversary Date. Thereafter, if as of the last day of any fiscal quarter
following the Second Anniversary Date, Escrowed Cash remains on deposit with the
Escrow Agent and either (a) both BMS and AHC deliver a certificate to the Escrow
Agent or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers
a copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
an amount in cash equal to the excess, if any, of Escrowed Cash on deposit with
the Escrow Agent as of the last day of such fiscal quarter over the Retained
Escrow Amount as of the last day of such fiscal quarter. "Retained Escrow
Amount" means, as of any date, the sum of (A) an amount, if any, equal to the
excess of $1 million over (i) the aggregate amount, if any, of Escrowed Cash
that will have been released during the period from the Second Anniversary Date
to such date in respect of any Pending Claim that was not an existing Pending
Claim at any time on or prior to the Second Anniversary Date and (ii) the
aggregate amount, if any, released to AHC pursuant to the
38
paragraph below from and after the Escrowed Cash Termination Date and (B) plus
the amount of any unpaid Second Anniversary Pending Claims on such date. "Second
Anniversary Pending Claims" means all the Pending Claims existing on the Second
Anniversary Date (and, for the avoidance of doubt, includes all Escrowed Shares
Pending Claims existing on such date). The amount of any Second Anniversary
Pending Claim on any date will be determined as provided in the Escrow
Agreement, provided that, for all purposes of this paragraph, the amount of
unpaid Second Anniversary Pending Claims on the last day of any fiscal quarter
ending after the Second Anniversary Date will be reduced by an amount equal to
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the last
day of such fiscal quarter (such number to be determined based on the assumption
that any Escrowed Shares that are to be delivered to AHC as the representative
of the Former AHC Stockholders in respect of the last day of such fiscal quarter
as provided in the second sentence of the paragraph above will have been so
delivered and will not be on deposit with the Escrow Agent on the last day of
such fiscal quarter), if any, multiplied by (y) the Average Value of BMS Common
Stock.
Immediately following the Escrowed Cash Termination Date, if
either (a) both BMS and AHC deliver a certificate to the Escrow Agent or (b) the
Escrow Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC an amount
equal to the excess, if any, of Escrowed Cash on deposit with the Escrow Agent
as of the Escrowed Cash Termination Date (calculated as provided below) over an
amount equal to any unpaid Final Pending Claims (as defined below) on the
Escrowed Cash Termination Date. Thereafter, if as of the last day of any fiscal
quarter following the Escrowed Cash Termination Date Escrowed Cash remains on
deposit with the Escrow Agent and either (a) both BMS and AHC deliver a
certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC an amount equal to the excess, if any, of
Escrowed Cash on deposit with the Escrow Agent as of the last day of such fiscal
quarter (calculated as provided below) over an amount equal to any unpaid Final
Pending Claims on the last day of such fiscal quarter. For purposes of this
paragraph, the amount of any Escrowed Cash on deposit with the Escrow Agent will
be calculated by treating the amount, if any, of Escrowed Cash that is to be
delivered to AHC pursuant to the paragraph above on such date as having been so
delivered and as not being on deposit with the Escrow Agent on such date. "Final
Pending Claims" means all Pending Claims existing on the Escrowed Cash
Termination Date (and, for the avoidance of doubt, includes all Escrowed Shares
Pending Claims and Second Anniversary Pending Claims existing on such date). The
amount of any Final Pending Claim on any date will be determined as provided in
the Escrow Agreement, provided that, for purposes of this paragraph the amount
of unpaid Final Pending Claims on the last day of any fiscal quarter ending
after the Escrowed Cash Termination Date will be reduced by an amount equal to
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the last
day of such fiscal quarter (such number to be determined based on the assumption
that any Escrowed Shares that are to be delivered to AHC as the representative
of the Former AHC Stockholders in respect of the last day of such fiscal quarter
is provided in the second sentence of the second paragraph of "--Disposition of
Escrowed Property" above will have been so delivered and will not be on deposit
with the Escrow Agent on the last day of such fiscal quarter), if any,
multiplied by (y) the Average Value of BMS Common Stock. The "Escrowed Cash
Termination Date" means the earlier to occur of (i) six years after the date of
the Escrow Agreement and (ii) complete distribution of the escrowed cash in
satisfaction of claims for Indemnified Obligations.
Either BMS or AHC may deliver to the Escrow Agent a certificate
accompanied by a final and nonappealable award or order of a court of competent
jurisdiction (a "Court Order") with respect to the payment of all or any portion
of the Escrowed Property requesting delivery of Escrowed Property to BMS, AHC or
such other person(s) as may be specified in such award or order. Such
certificate also will be accompanied by an opinion of outside counsel to the
effect that the applicable court award or order is final and nonappealable. In
either such case, the Escrow Agent will deliver all or a portion of the Escrowed
Property to BMS or AHC, as the case may be, in the amount specified in the Court
Order.
If AHC has delivered to the Escrow Agent and BMS at any time
within 30 days before or after the due date (including extensions) for payment
by AHC of its final Federal income tax liability for a taxable year (or, if
39
later, 30 days after the Escrow Agent supplies all information relating to the
income realized with respect to the Escrowed Cash necessary to prepare the
certificate referred to in this paragraph a certificate setting forth the amount
of Federal and State of California income tax due from AHC with respect to any
taxable income realized with respect to the Escrowed Cash for such taxable year
(based on the assumption that AHC is, with respect to such income, subject to
Federal and State of California income tax at the highest regular marginal tax
rate applicable to corporations for such year), and the accuracy and
completeness of such certificate is certified by Ernst & Young or such other
nationally recognized accounting firm chosen by AHC and reasonably satisfactory
to BMS, then the Escrow Agent will pay to AHC in cash the amount set forth in
such certificate no more than fifteen days after receipt of such certificate.
The Escrow Agent will use commercially reasonable efforts to supply to AHC the
tax information referred to above prior to the start of the 60-day period
referred to above.
All distributions under the Escrow Agreement that are not the
subject of a dispute will be made no later than 20 days from receipt of a
certificate and will be made from the Escrowed Shares and/or the Escrowed Cash,
as the case may be, in accordance with the provisions described above.
Distributions made to BMS pursuant to the provisions described above will first
be made from any Escrowed Shares on deposit and then, to the extent so required,
from any Escrowed Cash. Distributions made pursuant to the preceding paragraph
will be deemed to have been made from the Escrowed Cash.
If BMS delivers a written notice to the Escrow Agent objecting to
any Certificate from AHC requesting the release of the Escrowed Property, such
notice must specify the disputed amount of such release request and the amount
not in dispute. The Escrow Agent will deliver to AHC the amount of such release
request not in dispute.
Each Escrowed Share distributed pursuant to the Escrow Agreement
is valued at a price per share equal to the Average Value of BMS Common Stock,
rounded to the nearest whole share. All Escrowed Shares distributed to AHC will
be distributed by AHC pro rata to the Former Axion Stockholders based on the
ratio of the number of shares of BMS Common Stock received by such Former Axion
Stockholder at the Closing to the aggregate number of shares of BMS Common Stock
received by all Former Axion Stockholders at the Closing.
DISTRIBUTIONS FOR INDEMNIFIED OBLIGATIONS
At any time on or prior to the Escrowed Cash Termination Date,
BMS may deliver to the Escrow Agent a certificate (i) stating that (A) a BMS
Indemnified Party has incurred an Indemnifiable Loss against which such BMS
Indemnified Party is entitled to be indemnified pursuant to the Indemnification
Agreement or (B) a BMS Indemnified Party is liable for Taxes against which such
BMS Indemnified Party is entitled to be indemnified pursuant to the Tax Matters
Agreement (each, an "Indemnified Obligation"), (ii) stating the aggregate amount
of such Indemnified Obligation (or, in the case of an unliquidated Indemnified
Obligation, a good faith and reasonable estimate thereof) and (iii) specifying
in reasonable detail the nature of each item included in such Indemnified
Obligation (an "Indemnification Item"), the amount thereof and the date on which
such Indemnification Item was paid or incurred; provided, however, that BMS may
not deliver to the Escrow Agent a certificate stating that a BMS Indemnified
Party is liable for Taxes against which such BMS Indemnified Party is entitled
to be indemnified pursuant to the Tax Matters Agreement unless and until any of
the following will have occurred: (a) a Tax Return will have been filed as
provided in the Tax Matters Agreement showing such Taxes to be due and payable
and the full amount of such Taxes will not have been paid at the time such Tax
Return was filed; (b) a Taxing Authority will have asserted in writing or
determined that there is a deficiency with respect to such Taxes; (c) except
with respect to any claim for indemnification for Taxes relating in any respect
to (i) the Contributions, the Distribution, the Merger or any of the other
Transactions, (ii) any sales or use Taxes, other than (A) Pre-JV Sales Taxes,
(B) JV Sales Taxes and (C) any liability of any BMS Indemnified Party with
respect to unpaid sales and use taxes on rentals of OPUS Station machines, and
(iii) the distribution of the stock of OnCare by Axion, BMS will have received
an opinion of a nationally recognized accounting firm or law firm reasonably
acceptable to AHC that it is more likely than not that such Taxes will be
properly payable; or (d) there will have been a "determination" (as defined in
Section 1313 of the Code) that such Taxes are due and payable.
40
If AHC objects to the Indemnified Obligation specified in such
certificate, AHC will, within 10 business days after delivery of the written
notice containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent will deliver a copy of such Reply
Certificate to BMS. BMS and AHC will negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
If no Reply Certificate is delivered with respect to any
certificate or any Indemnification Item contained therein, then AHC will be
deemed to have acknowledged BMS's right to receive any amount or amounts
specified in such certificate (or the undisputed portion thereof), and the
Escrow Agent will transfer to BMS, Escrowed Property in an amount equal to the
undisputed amount claimed in such certificate (plus interest at a rate per annum
equal to the prime rate announced from time to time by The Chase Manhattan Bank
on such amount from the later of (i) the date of such certificate and (ii) the
date such indemnified amount was actually incurred by the applicable Indemnified
Party), all in accordance with the procedures set forth in the Escrow Agreement.
If the Escrow Agent receives a Reply Certificate in a timely
manner, the disputed amount requested for reimbursement pursuant to the
applicable certificate will be held by the Escrow Agent and will not be released
to BMS except in accordance with either (i) written instructions signed by each
of an authorized officer of BMS and AHC or (ii) the final nonappealable judgment
of a court having jurisdiction over the matters relating to the claim by the
applicable Indemnified Party for indemnification from AHC accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date the portion of the amount due to such
Indemnified Party determined pursuant to clauses (i) or (ii) in this paragraph
will promptly be paid to BMS in accordance with the procedures set forth in the
Escrow Agreement.
The payment of Indemnified Obligations contemplated by the Escrow
Agreement will not be deemed to be a waiver of any right, claim or amount to
which BMS may be entitled under the Indemnification Agreement, the Tax Matters
Agreement or otherwise, including any claim relating to an Indemnified
Obligation, to the extent that the amount paid to BMS pursuant hereto is
insufficient to satisfy the entire amount of any such Indemnified Obligation.
Notwithstanding anything to the contrary set forth in
"--Disposition of Escrowed Property" and "--Distributions for Indemnified
Obligations", upon receipt of written notice from the Escrow Agent containing a
copy of a certificate relating to an Indemnified Obligation the final amount of
which will have been liquidated, AHC may elect to pay to BMS such amount in cash
in lieu of payment being made from the Escrowed Property if AHC, within ten
business days after delivery of the written notice containing a copy of the
certificate, will have delivered to BMS and the Escrow Agent a written notice
stating its election to make such cash payment and, thereafter, will have made
such cash payment to BMS on the earliest date that a payment of Escrowed
Property would otherwise be made hereunder with respect to such Indemnified
Obligation; provided, however, that such Indemnified Obligation will constitute
a Pending Claim for all purposes of this Agreement until the time the full
amount of such cash payment is actually received by BMS.
PENDING CLAIMS
"Pending Claims" means, at any time, (a) all indemnification
claims with respect to which a certificate will have been delivered at or prior
to such time with respect to which the final amount of such claims will have
been liquidated and which will not have been paid in full at such time whether
because the payment of such amount is in dispute or otherwise and (b) all
indemnification claims with respect to which a Certificate will have been
delivered and with respect to which the final amount of such claim will not have
been liquidated.
The amount of any Pending Claim as of any date will be equal to
BMS's reasonable estimate of such amount. If any Pending Claim exists on the
last day of any fiscal quarter during the term of the Escrow Agreement, not
later than 10 business days after the last day of such fiscal quarter, BMS will
deliver to the Escrow Agent a certificate (a "Quarterly Certificate") setting
forth BMS's reasonable estimate of the amount of each then
41
existing Pending Claim as of the last day of such fiscal quarter, provided that,
if BMS will not deliver a Quarterly Certificate in respect of any fiscal quarter
or will not include in such Quarterly Certificate all Pending Claims existing on
the last day of such fiscal quarter, the amount of each Pending Claim (or the
amount of any Pending Claim not included in such Quarterly Certificate, as
applicable) will be the amount of each such Pending Claim set forth in the most
recent Certificate (including any Quarterly Certificate) delivered by BMS to the
Escrow Agent in respect of the amount of such Pending Claim, provided further
that failure of BMS to deliver a Quarterly Certificate in respect of any fiscal
quarter will not affect in any manner the obligations of the AHC Indemnifying
Parties under the Escrow Agreement, the Indemnification Agreement or the Tax
Matters Agreement or the rights of BMS or any other BMS Indemnified Party
thereunder.
If AHC reasonably objects to the amount of any Pending Claim
specified in any certificate delivered pursuant to the Escrow Agreement, AHC
will, within 10 business days after delivery of such certificate, deliver to the
Escrow Agent a certificate (the "Amount Certificate"), (i) specifying each such
amount to which AHC reasonably objects and (ii) specifying in reasonable detail
the nature and basis for each such objection. Within five business days of
delivery to the Escrow Agent of the Amount Certificate, the Escrow Agent will
deliver a copy of such Amount Certificate to BMS. BMS and AHC will negotiate in
good faith for a period of 30 days after delivery by the Escrow Agent to BMS of
such Amount Certificate to reach a written resolution of any matters raised in
the Amount Certificate and, if such matters are not resolved within a 30-day
period, either party may bring an action to resolve such dispute as provided in
the Escrow Agreement. Notwithstanding the foregoing, the amount of any Pending
Claim with respect to which an Amount Certificate will have been delivered will
be for all purposes of the Escrow Agreement the amount reasonably determined by
BMS as provided in the paragraph above unless and until such time as the Escrow
Agent either (a) receives written instructions signed by an authorized officer
of each of BMS and AHC adjusting the amount of such Pending Claim or (b) the
final nonappealable judgment of a court having jurisdiction over the matters
relating to the claim by the applicable BMS Indemnified Party for
indemnification from any AHC Indemnifying Party adjusting the amount of such
Pending Claim accompanied by an opinion of outside counsel to the effect that
the applicable judgment is final and nonappealable, at which date, in the event
that the Escrow Agent will have received an Amount Certificate from AHC within
the time frame set forth above, the amount of the Pending Claim for all purposes
of this Agreement will be adjusted to the amount determined pursuant to clauses
(a) or (b) of this sentence.
ESCROW AGENT
The Escrow Agent shall not be liable except for its gross
negligence or wilful misconduct, and shall be indemnified jointly and severally
by the AHC Indemnifying Parties and the BMS Indemnifying Parties against losses
or claims arising out of or in connection with the Escrow Agreement. The Escrow
Agent will be required to make all Escrowed Property available for withdrawal on
not less than two business days' prior written notice.
APPOINTMENT OF AHC AS REPRESENTATIVE
Execution and delivery of the Letter of Transmittal by each
Former Axion Stockholder will result in each such Former Axion Stockholder
irrevocably appointing AHC as his/her or its agent and attorney-in-fact to
execute and deliver on such Former Axion Stockholder's behalf, and thereby
result in each such Former Axion Stockholder becoming a party to and bound by,
the Indemnification Agreement, Tax Matters Agreement and Escrow Agreement. Such
execution and delivery of the Letter of Transmittal will result in the
irrevocable appointment of AHC as each such Former Axion Stockholder's agent and
attorney-in-fact to take any and all actions on behalf of each such Former Axion
Stockholder that may be necessary in connection with the transactions
contemplated by such agreements, including to give and receive notices on each
such Former Axion Stockholder's behalf and to represent each such Former Axion
Stockholder with respect to any matter, suit, claim, action or proceeding
arising with respect to any transaction contemplated by such agreements,
including the defense, appeal or settlement of any claim, action or proceeding
for which each such Former Axion Stockholder may be obligated to indemnify any
person pursuant to such agreements or may be entitled to indemnification
pursuant to such agreements or which may be brought by BMS against each such
Former Axion Stockholder to enforce such
42
indemnity; and will result in each such Former Axion Stockholder ratifying and
confirming any action taken by AHC in the exercise of the power of attorney
granted thereby.
See "Special Factors--Indemnification Obligations of the Former
Axion Stockholders, AHC and the 81% AHC Subsidiaries" and "Risk Factors" and
"The Merger--Indemnification Arrangements; Escrow; Appointment of AHC as
Representative" in the Proxy Statement/Prospectus to which this Information
Statement is attached as Appendix G.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Distribution to holders of Axion capital stock who are
citizens or residents of the United States. This discussion does not consider
all the tax consequences that may be relevant to Axion stockholders entitled to
special treatment under the Code (such as insurance companies, dealers in
securities, tax exempt organizations or, except as specifically provided below,
foreign persons) or to Axion stockholders who acquired their shares of Axion
Common Stock pursuant to the exercise of employee stock options or otherwise in
compensatory transactions. In addition, this discussion does not address any
state, local or foreign tax considerations nor does it address any federal
estate, gift, employment, excise or other non-income tax consideration. The
following discussion is based upon provisions of the Code, regulations,
administrative rulings and judicial decisions presently in effect, all of which
are subject to change (possibly with retroactive effect) or to different
interpretations. ALL AXION STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
In the opinion of Ernst & Young, certified public accountants to
Axion, based upon certain representations of BMS, BMS Sub, Axion, AHC and
certain Former Axion Stockholders, the Distribution should qualify as a tax-free
spinoff under Section 355 of the Code. In such event, the following consequences
would obtain:
1. An Axion stockholder should not recognize any income, gain or
loss as a result of the Distribution.
2. An Axion stockholder should apportion the tax basis of his or
her Axion Common Stock between such Axion Common Stock and AHC Preferred Stock
received in the distribution in proportion to the relative fair market values of
such Axion Common Stock and AHC Preferred Stock immediately following the
Distribution.
3. An Axion stockholder's holding period for the AHC Preferred
Stock received in the Distribution should include the holding period applicable
to the Axion Common Stock with respect to which the Distribution was made,
provided that such Axion Common Stock is held as a capital asset by such
stockholder as of the date of the Distribution.
4. Under current law, no gain or loss should be recognized by
Axion as a result of the Distribution, except to the extent that immediately
after the Distribution AHC Preferred Stock is owned (either directly, or
indirectly through one or more entities that are treated for United States tax
purposes as partnerships, estates or trusts) or deemed to be owned by certain
individuals who are not citizens or residents of the United States or by certain
foreign corporations (such actual or deemed owners are collectively referred to
herein as "Non-United States Holders"). AHC Preferred Stock that is owned by
entities that are treated for United States tax purposes as partnerships,
estates or trusts will for this purpose be deemed to be indirectly owned by
Non-United States Holders unless certain certification procedures are complied
with by the partners of such partnerships or the beneficiaries of such trusts or
estates. In the case of such direct or indirect ownership by certain Non-United
States Holders, Axion will recognize gain in an amount equal to the excess of
the value of the AHC Preferred Stock that is so held by such Non-United States
Holders over Axion's tax basis in such stock. It is expected that at the Time of
43
Distribution a substantial portion of Axion Common Stock will be held by
Non-United States Holders. Based on Axion's business judgment as to the value of
the businesses to be distributed by Axion in the Distribution, Axion does not
expect to report a material amount of tax liability as a result of the
distribution of AHC Preferred Stock to Non-United States Holders. It should also
be noted that legislation (the "Proposed Legislation") has been proposed that
would cause the Distribution to constitute a taxable event to Axion whereby
Axion would recognize gain in an amount equal to the excess of the value of the
AHC Preferred Stock distributed over Axion's tax basis in such stock, whether or
not such stock is owned by Non-United States Holders. While the Proposed
Legislation has not yet been enacted into law, as currently drafted such
legislation would, if enacted, apply retroactively to the Distribution. Based on
Axion's business judgment as to the value of the businesses to be distributed by
Axion in the Distribution, Axion does not expect to report a material amount of
tax liability on its federal income tax returns as a result of the distribution
of AHC Preferred Stock even if the Proposed Legislation were adopted with an
effective date that applied to the Distribution. There can be no assurance,
however, that the IRS will agree with Axion's business judgment as to the
valuation of the businesses to be distributed by Axion in the Distribution or
will not establish a higher valuation that would make Axion's tax liability
higher, and, accordingly, there can be no assurance that the distribution of the
AHC Preferred Stock to Non-United States Holders or the adoption of the Proposed
Legislation would not cause Axion to incur a material amount of tax liability.
Pursuant to the Tax Matters Agreement, the AHC Indemnifying Parties have agreed
to indemnify the BMS Indemnified Parties against such tax liability, which may
result in a claim against part or all of the Escrowed Cash or the Escrowed
Shares or directly against the AHC Indemnifying Parties. Regardless of the
existence of Non-United States Holders or whether the Proposed Legislation is
adopted, Axion and/or its subsidiaries may also be required to recognize gain as
a result of the transfer of various assets and liabilities among various
entities in anticipation of the Distribution.
No ruling from the IRS has been or will be sought with respect to
any of the tax matters relating to the Distribution. The opinion of Ernst &
Young described above will not be binding on the IRS. In addition, Axion
stockholders should be aware that such opinion is based on Ernst & Young's
interpretation as to how various requirements of Code Section 355 should apply
to the particular facts presented by the Distribution. With respect to some of
these interpretations, no direct legal precedents exist. Accordingly, there can
be no assurance that the IRS will agree with the conclusions set forth in the
Ernst & Young opinion. Moreover, no published rulings or cases squarely address
the qualifications of a transaction identical to the Distribution under Section
355 of the Code.
A successful IRS challenge to the qualification of the
Distribution as a tax-free spinoff qualifying under Section 355 of the Code (as
a result of the inaccuracy of any of the representations of BMS, BMS Sub, Axion,
AHC or certain Former Axion Stockholders, or otherwise) would result in the
following consequences:
1. Axion would recognize gain in an amount equal to the excess of
the value of the AHC Preferred Stock distributed to Axion stockholders over
Axion's tax basis in such stock (to the extent such gain has not previously been
recognized by Axion in connection with the distribution of AHC Preferred Stock
to Non-United States Holders). As noted above, Axion does not expect that it
would incur a material amount of tax liability. Also as noted above, Axion
and/or its subsidiaries may also be required to recognize gain as a result of
the transfer of various assets and liabilities among various entities in
anticipation of the Distribution, regardless of whether the Distribution
qualifies as a tax-free spinoff under Section 355 of the Code.
2. The receipt of AHC Preferred Stock would constitute a taxable
distribution to all Axion stockholders (including Non-United States Holders) so
that the fair market value of the AHC Preferred Stock received by an Axion
stockholder would be treated (i) first, as a dividend to the extent of such
Axion stockholder's share of Axion's current and accumulated earnings and
profits, (ii) next, as a tax-free return of capital to the extent of such
stockholder's tax basis in the Axion Common Stock with respect to which the AHC
Preferred Stock is distributed (as determined, for Axion stockholders who hold
two or more blocks of stock with different bases, on a block-by-block approach
rather than by aggregating the bases of all blocks of stock held by each Axion
stockholder) and (iii) finally, as gain from the sale of Axion Common Stock. In
addition, Axion would incur certain withholding tax liabilities to the extent
such distributions were made to certain foreign individuals and entities.
44
3. An Axion stockholder's aggregate basis in the shares of AHC
Preferred Stock received in the distribution would equal the fair market value
of such shares, and the stockholder's holding period for such AHC Preferred
Stock would not include the period during which the shares of Axion Stock were
held.
Under the Tax Matters Agreement, the AHC Indemnifying Parties
have agreed to indemnify the BMS Indemnified Parties against any tax liability
arising from the failure of the Distribution to qualify as a tax-free spinoff
under Section 355 of the Code or any other tax liabilities arising from the
Contributions, the Distribution or the related transactions. See
"Indemnification Arrangements--Terms of the Tax Matters Agreement".
The foregoing is included herein for general information only.
Such opinions are based in part on representations provided by Axion and BMS.
The summary does not address the Federal income tax consequences to all
categories of Axion stockholders, including those who acquired shares of Axion
capital stock pursuant to the exercise of stock options or otherwise in
compensatory transactions. EACH AXION STOCKHOLDER IS URGED TO CONSULT HIS OR HER
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
RELATIONSHIP WITH BMS
Following the Merger, AHC will continue to have certain
relationships with BMS and its subsidiaries.
INDEMNIFICATION AGREEMENT; ESCROW AGREEMENT; TAX MATTERS AGREEMENT
AHC and the 81% Subsidiaries (including OPUS Sub), the Former
Axion Stockholders, BMS, the Surviving Corporation, OPUS, OTNC and the
Partnership will be parties to the Indemnification Agreement, the Tax Matters
Agreement and the Escrow Agreement. See "Indemnification Arrangements--Terms of
the Indemnification Agreement", "--Terms of the Tax Matters Agreement" and
"--Terms of the Escrow Agreement".
NONCOMPETITION AGREEMENTS
Michael D. Goldberg, Garrett J. Roper, AHC and OnCare are subject
to separate Noncompetition Agreements with BMS. The Noncompetition Agreements
will become effective at Closing and will, for two years following the Closing
Date, prohibit such entities or persons and their affiliates, as the case may
be, from, as applicable, ownership, management, operation or control of,
employment by, holding certain equity interests in or serving as a director,
advisor or consultant to, or having certain other relationships with, any entity
that engages in the distribution of oncology drugs, supplies or biologics to
certain customers of OTN or the automated drug dispensing and inventory tracking
systems business in the United States. In addition, each of the Noncompetition
Agreements provides that none of AHC or OnCare or any of their respective
subsidiaries or Michael D. Goldberg or Garrett J. Roper will solicit for
employment or hire, whether as an employee, consultant or otherwise, David
Levison, President of OTNC, during the term of his employment agreement with
OTNC.
AHC SUPPLY AGREEMENT; ONCARE SUPPLY AGREEMENT; AHC MEDSTATION AGREEMENT; ONCARE
MEDSTATION AGREEMENT
Pursuant to the AHC Supply Agreement and OnCare Supply Agreement,
which will become effective at the Closing, each of AHC and OnCare,
respectively, will purchase from OTN all the products and supplies offered by
OTN required by all oncology treatment facilities that are either owned by AHC
or OnCare, as the case may be, or any of their respective subsidiaries or
controlled affiliates, managed by AHC or OnCare, as the case may be, or any of
their respective subsidiaries or controlled affiliates or which AHC or OnCare,
as the case may be, or any of their respective subsidiaries or controlled
affiliates has the authority at the discretion of the oncology treatment
facility to purchase products or supplies. In general OTN will provide each of
AHC and OnCare the lowest prices at which OTN sells such products or supplies to
other oncology physician management
45
companies with the authority to make purchasing decisions on behalf of physician
office practices which have agreed to make purchase or other commercial
commitments equivalent to those agreed to by AHC or OnCare, as the case may be,
provided that in the event AHC or OnCare, as the case may be, receives an offer
pricing products or supplies at a price of at least 10% less than the lowest
price offered by OTN and OTN chooses not to match such lower offer, AHC or
OnCare, as the case may be, may purchase such products or supplies pursuant to
such lower offer for a term to end upon the later of 30 days after the receipt
of such lower offer and the term of such lower offer. The existing supply
agreement between OTN and OnCare will terminate on the Closing Date.
Similar arrangements have been made between each of AHC and
OnCare and OPUS pursuant to the AHC Medstation Agreement and the OnCare
Medstation Agreement, respectively, regarding the lease from OPUS of OPUS
Stations. As of June 30, 1996, eight OPUS Stations were in use at six different
oncology practices operated by OnCare. The relevant OPUS Station agreements will
remain in effect after the Closing Date.
LICENSE AGREEMENT
In the License Agreement, AHC will agree to provide to the
Surviving Corporation a royalty-free exclusive, fully paid up right and license
to use the "OPUS" name and other scheduled intellectual property in connection
with the OPUS Station Business for a period of one year. The License Agreement
also provides that the Surviving Corporation may use certain supplies bearing
the "Axion" name as specified in the License Agreement for a period of not more
than two months; provided that the Surviving Corporation agrees to use
commercially reasonable efforts to terminate its use of such supplies as soon as
practicable following the Effective Time.
TRANSITIONAL SERVICES AGREEMENT
In the Transitional Services Agreement, AHC will agree to provide
to Axion certain services, including certain financial and information systems
services, at cost, and the Surviving Corporation will agree to provide to AHC
certain services, including certain information systems services, at $15,000 per
month. The services provided under the Transitional Services Agreement will be
performed for a period of three months after the date thereof with renewals of
one month upon the mutual consent of the parties with such renewals not to
exceed an aggregate of three months in addition to the original term.
TRADING OF AHC PREFERRED STOCK
There is no existing trading market for AHC Preferred Stock. AHC
has not sought and does not intend to apply for listing of AHC Preferred Stock
on a securities exchange or seek approval for quotation through an automated
quotation system. There can be no assurance that any trading market will develop
for AHC Preferred Stock.
The AHC Preferred Stock received by Axion stockholders pursuant
to the Distribution will not be freely transferable under the Securities Act. In
addition, the AHC Certificate of Incorporation will be amended prior to the
Distribution to provide for various restrictions on transfer of the AHC
Preferred Stock. AHC Preferred Stock will not be transferable except for (i)
transfers to AHC; (ii) transfers to existing AHC stockholders; (iii) transfers
by gift bequest or operation of the laws of descent, provided that the AHC
Preferred Stock in the hands of the transferee remains subject to the same
restrictions on transfer as they were when held by the transferor; (iv)
transfers to an entity unaffiliated with AHC pursuant to the merger,
consolidation, stock for stock exchange or similar transaction involving AHC;
(v) transfers by a partnership to its partners, provided that the AHC Preferred
Stock in the hands of the transferee remains subject to the same restrictions on
transfer as they were when held by the transferor; and (vi) transfers which
would be exempt from the registration requirements of Section 5 of the
Securities Act by virtue of the exemption provided by Section 4(2) of the
Securities Act if the transferor were the issuer of the AHC Preferred Stock,
provided that the transferee is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the AHC Preferred Stock in the hands of
such transferee remains subject to the same restrictions on transfer as they
were when held by the transferor, or a transfer pursuant to an effective
registration under the Securities Act. In addition, the Restated AHC Certificate
and Restated AHC Bylaws provide
46
for the same restrictions on transfer to be placed on AHC Common Stock once
such stock is issued. Holders of AHC Preferred Stock will be permitted to sell
their AHC Preferred Stock received pursuant to the Distribution only pursuant
to an effective registration statement under the Securities Act or pursuant to
an exemption from registration, such as the exemptions afforded by Section 4(2)
of the Securities Act and Rule 144 thereunder. The stock certificates
evidencing the AHC Preferred Stock will bear legends referring to such
restrictions.
47
CAPITALIZATION
The following table summarizes the consolidated capitalization of
AHC and OPUS Matrix Business as of June 30, 1996 on a historical basis and also
on a pro forma basis. The pro forma presentation reflects: (i) the transfer by
Axion to AHC of certain assets, including all cash and cash equivalents and
short-term investments and the final distribution of the Preference Amount from
the Partnership to Axion net of Retained Cash (which is assumed to equal zero),
and the OnCare Preferred Stock; (ii) reconstituting the OPUS Matrix Business as
a subsidiary of AHC; and (iii) the elimination of non-interest bearing advances
from Axion and affiliates, all as a contribution to the capital of AHC. The pro
forma presentation also reflects the recapitalization of AHC in which 9,970,509
shares of AHC Preferred Stock are expected to be issued in exchange for and
cancelation of the 1,000 shares of AHC Common Stock outstanding as of June 30,
1996.
JUNE 30, 1996
----------------------------------------
PRO FORMA
ADJUSTMENTS
INCREASE (DECREASE) PRO
HISTORICAL (IN THOUSANDS) FORMA
---------- -------------- -----
Non-interest bearing advances due Axion by:
AHC $ 1,196 $(1,196) $ --
OPUS Matrix 2,367 (2,367) --
------- ------- -------
Consolidated 3,563 (3,563)(d) --
Consolidated stockholders equity
(net capital deficiency):
AHC:
Preferred stock, $0.0001 par
value, 5,000,000 shares
authorized, none issued and -- (a)
outstanding (10,000,000 shares (1,212)(b)
authorized, 9,970,509 shares issued 29,600 (c)
and outstanding, pro forma) 3,563 (d)
31,951
Common stock, $0.0001 par value,
15,000,000 shares authorized, 1,000
shares issued and outstanding (10,000,000
shares authorized; none issued and -- -- (a) --
outstanding, pro forma)
Accumulated deficit (1,588) (1,588)
------- ------- -------
AHC net capital deficiency (1,588) 31,951 30,363
OPUS Matrix:
Accumulated deficit (1,212) 1,212 (b) --
------- ------- -------
Consolidated stockholders' equity
(net capital deficiency) (2,800) 33,163 (a-d) 30,363
------- ------- -------
Total capitalization $ 763 $29,600 $30,363
======= ======= =======
48
Notes to Capitalization Table:
Pro forma adjustments:
(a) Recapitalization of AHC resulting in issuance of
9,970,509 shares of AHC Preferred Stock and
cancelation of 1,000 shares of AHC Common
Stock ..................................................... $ --
==========
(b) Reclassification of OPUS Matrix Business accumulated
deficit as adjustment to capital
stock of AHC upon reconstitution of OPUS
Matrix as a subsidiary of AHC ............................. $ 1,212
==========
(c) Transfer of the following assets by Axion to
AHC as a contribution to capital of AHC:...................
(i) Final cash distribution from Axion's
interest in the Partnership ....................... $ 13,615
(ii) Cash and cash equivalents and short-term
investments held by Axion and other
affiliated entities other than the Partnership
at June 30, 1996 .................................. 2,485
(iii) Redemption value of 2,700,000 shares of OnCare
Preferred Stock ................................... 13,500
----------
$ 29,600
==========
(d) Elimination of indebtedness due Axion and subsidiaries
as a contribution to capital of AHC ....................... $ 3,563
==========
49
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
AXION HEALTHCARE INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
50
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Axion Inc.
We have audited the accompanying combined balance sheet of Axion HealthCare Inc.
(including OPUS Matrix) as of December 31, 1995, and the related combined
statements of operations and accumulated deficit and net capital deficiency and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Axion HealthCare Inc.
(including OPUS Matrix) at December 31, 1995, and the combined results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Palo Alto, California
March 22, 1996, except for Note 3
as to which the date is
August 2, 1996 and Note 6 as to
which the date is September 10, 1996
51
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PAR VALUE PER SHARE)
DECEMBER 31, JUNE 30,
1995 1996
-----------------------
(Unaudited)
ASSETS
Current assets:
Cash $ 1 $ 1
Accounts receivable -- 21
Prepaid expenses and other 311 1,384
-----------------------
Total current assets 312 1,406
Net property and equipment -- 780
-----------------------
Total assets $ 312 $ 2,186
-----------------------
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable $ 89 $ 1,011
Accrued liabilities 75 412
-----------------------
Total current liabilities 164 1,423
Noninterest bearing advances due parent and affiliates:
AHC 744 1,196
OPUS Matrix 828 2,367
-------
Total advances due parent and affiliates 1,572 3,563
Net capital deficiency:
AHC:
Preferred stock, $0.0001 par value, 5,000,000
shares authorized, none issued -- --
Common stock, $0.0001 par value, 15,000,000
shares authorized, 1,000 shares issued and
outstanding -- --
Accumulated deficit (832) (1,588)
-----------------------
AHC net capital deficiency (832) (1,588)
OPUS Matrix:
Accumulated deficit (592) (1,212)
-----------------------
Total net capital deficiency (1,424) (2,800)
-----------------------
Total liabilities and net capital deficiency $ 312 $ 2,186
=======================
See accompanying notes.
52
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
COMBINED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT AND NET CAPITAL DEFICIENCY
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1995 1995 1996
-------------------------------
(Unaudited)
Net revenues $ 970 $ 253 $ 104
Cost and expenses:
Cost of revenues 292 157 65
General and administrative 2,965 1,487 2,309
-------------------------------
Total costs and expenses 3,257 1,644 2,374
-------------------------------
Loss before allocated income tax benefit (2,287) (1,391) (2,270)
Income tax benefit allocated from parent 863 547 894
-------------------------------
Net loss (1,424) (844) (1,376)
Accumulated deficit and net capital deficiency,
beginning of period -- -- (1,424)
-------------------------------
Accumulated deficit and net capital deficiency,
end of period $(1,424) $(844) $(2,800)
===============================
See accompanying notes.
53
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------
1995 1995 1996
-----------------------------
(Unaudited)
OPERATING ACTIVITIES
Net loss $(1,424) $ (844) $(1,376)
Adjustment to reconcile net loss to net cash used in
operating activities
Depreciation expense -- -- 120
Income tax benefit allocated from parent (863) (547) (894)
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other (311) (618) (1,094)
Accounts payable and accrued liabilities 164 175 1,259
------------------------------
Net cash used in operating activities (2,434) (1,834) (1,985)
INVESTING ACTIVITIES - purchases of property and
equipment -- -- (628)
FINANCING ACTIVITIES - amounts advanced on
noninterest basis by parent and affiliates 2,435 1,840 2,613
------------------------------
Net increase in cash 1 6 --
Cash, beginning of period -- -- 1
-----------------------------
Cash and cash equivalents, end of period $ 1 $ 6 $ 1
=============================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES - property and equipment transferred
from parent $ -- $ -- $ 272
==============================
See accompanying notes.
54
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
1. FORMATION, OWNERSHIP AND BUSINESS
Axion HealthCare Inc. ("AHC") was incorporated in December 1994 as a wholly
owned subsidiary of Axion Inc. ("Axion") but had no operations in 1994.
Effective January 1, 1995, AHC commenced operations. These operations included
the continuation of a clinical studies program begun by Axion in 1987. Axion is
a cancer-focused healthcare service firm whose principal business is the
distribution of oncology drugs and related products to U.S. office-based
oncologists. The pharmaceutical distribution business is conducted through a
partnership (the "Partnership") with Bristol-Myers Squibb Company ("BMS").
AHC provides cancer-specific managed care services to cancer care payers and
providers. AHC will provide services and information tools specifically designed
to assist in better managing cancer care from both a clinical quality and cost
standpoint. AHC is in the early stages of development and has derived limited
revenues to date from such services.
As described in Note 3, Axion and BMS have entered into an agreement and plan of
merger and, immediately prior thereto, Axion intends to distribute to its then
stockholders all of the outstanding shares of stock in AHC. Included among the
net assets and business of AHC at the date of distribution will be the net
assets of the OPUS Matrix business and the management information systems
operations (together "OPUS Matrix") of OPUS Health Systems Inc. ("OPUS"),
another subsidiary of Axion. The OPUS Matrix Business consists of computer
software which provides office-based oncology practices with access to drug and
treatment information. OPUS Matrix also consists of the management information
systems to support Axion's business. OPUS Matrix is in the early stages of
development and has not derived any revenues to date.
55
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the combined accounts and
operating results of AHC and OPUS Matrix. From inception to date, AHC and OPUS
Matrix, as part of OPUS, have been subsidiaries of Axion. During that time,
Axion incurred certain expenses on behalf of AHC and OPUS Matrix. Allocated
charges for these expenses have been reflected in the combined financial
statements.
UNAUDITED FINANCIAL STATEMENTS
The financial statements at June 30, 1996 and for the six month periods ended
June 30, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUES
Revenues have been derived primarily from clinical outcome services and cancer
prevention studies, and such revenues are recognized as the services and studies
are provided. Revenues also include the sale of a software license, related to
software developed for use by Opus Matrix.
56
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
SOFTWARE DEVELOPMENT
Under an agreement with Electronic Data Systems Corporation ("EDS"), OPUS
receives information technology services for its operations and also for
software development related to its OPUS Matrix product line. Under this
agreement, OPUS Matrix reflected $1,180 as part of general and administrative
costs in 1995. No further services are expected to be provided by EDS to OPUS
Matrix.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives, primarily five years. Leasehold
improvements are amortized by the straight-line method over the estimated useful
lives or the lease term, whichever is less.
INCOME TAXES
The Company accounts for income taxes using the liability method. Using this
method, deferred tax liabilities and assets are to be recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
An income tax benefit has been recognized for the use in the consolidated tax
return of Axion of the operating losses of AHC and OPUS Matrix.
3. PROPOSED MERGER OF AXION AND BMS AND DISTRIBUTION OF THE OUTSTANDING STOCK
OF AHC TO STOCKHOLDERS OF AXION
As of August 2, 1996, Axion and BMS signed an amended and restated agreement and
plan of merger, which contemplates the merger of a newly formed wholly owned
subsidiary of BMS into Axion, with Axion being the surviving company. Holders of
shares of Axion's common stock at the consummation of the proposed merger would
receive shares of common stock of BMS having an aggregate value at $86,000
subject to a holdback of shares of common stock of BMS having a value of $5,000.
The $5,000 in shares of common stock of BMS plus $5,000 in cash otherwise
available to AHC will constitute an escrow fund to secure indemnification
obligations to BMS in the event BMS
57
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
were to suffer certain defined indemnifiable losses. Consummation of the merger
of Axion and the newly formed BMS subsidiary requires approval by the holders of
Axion's various classes of stock. Consummation also is conditioned upon
satisfactory completion of certain U.S. regulatory matters and certain other
conditions.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. Prior to that distribution, AHC will have
received from Axion, as a contribution to the capital of AHC, substantially all
of Axion's assets and liabilities other than those assets and liabilities
related to Axion's interest in the Partnership and the OPUS Station automated
drug dispensing business. Among the more significant assets to be transferred to
AHC by Axion will be: (i) a cash distribution from the Partnership to Axion of
$13,615, subject to adjustment in certain situations, and the remainder of
Axion's cash and cash equivalents and short-term investments ($2,485 at June 30,
1996), subject to adjustment in certain situations, of which $5,000 will be
placed in an escrow fund; (ii) the shares of Series A redeemable preferred stock
of OnCare (2,700,000 shares with a redemption value and cost of $13,500); and
(iii) amounts due under loans extended to those persons exercising Axion stock
options and warrants (none at June 30, 1996, but approximately $6,500 at that
date had substantially all of the options and warrants then outstanding been
exercised and loans extended for the full exercise price). None of those items
had been transferred to AHC as of June 30, 1996. None has been reflected in its
combined balance sheet at that date.
4. PRO FORMA CONDENSED BALANCE SHEET
The following pro forma condensed balance sheet gives effect to the transfer
from Axion to AHC, as a contribution to the capital of AHC, of: (i) a cash
distribution from the Partnership to Axion of $13,615 (which would have required
additional borrowings of $12,915 at that date), and the remainder of Axion's
cash and cash equivalents and short-term investments ($2,485 at June 30, 1996),
subject to adjustment in certain situations, of which $5,000 will be placed in
an escrow fund; and (ii) $13,500 redemption and carrying value of the 2,700,000
shares of Series A redeemable preferred stock of OnCare. The pro forma condensed
balance sheet does not reflect the exercise of unexercised Axion stock options
and warrants or the transfer of loans receivable and cash received thereby from
Axion to AHC. The pro forma condensed balance sheet also gives effect to the
elimination of the existing intercompany indebtedness due Axion and its
affiliates, the amount of which was $3,563 at June 30, 1996, as an additional
contribution to the capital of AHC.
58
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
HISTORICAL PRO FORMA PRO FORMA
JUNE 30, ADJUSTMENTS JUNE 30,
1996 INCREASE (DECREASE) 1996
-------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1 $ 13,615(a) $ 16,101
2,485(b)
Other current assets 1,405 -- 1,405
-------------------------------------------
1,406 16,100 17,506
Net property and equipment 780 -- 780
Interest in OnCare -- 13,500(c) 13,500
-------------------------------------------
Total assets $ 2,186 $ 29,600 $ 31,786
===========================================
LIABILITIES AND STOCKHOLDER'S
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts Payable and Accrued
Liabilities $ 1,423 -- $ 1,423
Non interest bearing advances
due parent and affiliates 3,563 (3,563)(d) --
Stockholders' equity (net
capital deficiency) (2,800) 33,163(a-d) 30,363
-------------------------------------------
Total liabilities and stockholder's
equity (net capital deficiency) $ 2,186 $ 29,600 $ 31,786
===========================================
- -----------------
Contribution to capital of AHC as a result of:
(a) $13,615 final cash distribution from the Partnership to Axion.
(b) $2,485 of cash and cash equivalents held by Axion and its subsidiaries
other than the Partnership at June 30, 1996.
(c) 2,700,000 shares of Series A redeemable preferred stock of OnCare with a
redemption value of $13,500.
(d) Elimination of indebtedness due Axion and subsidiaries.
59
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
As a consolidated subsidiary of Axion, AHC has been allocated an income
tax benefit for the use of its losses in Axion's consolidated income tax
returns. Had the distribution of the shares of common stock of AHC been made at
January 1, 1995, no such benefit would have been allocated to AHC.
5. INTEREST IN ONCARE TO BE TRANSFERRED TO AHC
OnCare, formed by Axion in June 1995 is an oncology physician practice
management company. On December 31, 1995, Axion distributed all of its holdings
of the common stock of OnCare to the stockholders of Axion, including the
holders of shares of preferred and common stock and the holders of options and
other rights to acquire shares of common stock, and OnCare ceased to be a
consolidated subsidiary of Axion. Axion retained a $3,500 interest in OnCare's
Series A redeemable preferred stock and in February and March 1996 increased
that interest to $13,500. OnCare is obligated to redeem the Series A preferred
stock at a redemption price of $5 per share at the earlier of December 31, 1996,
the closing of a qualifying underwritten public offering of the common stock in
OnCare, the merger or consolidation of OnCare with or into another corporation,
or the sale of all or substantially all of OnCare's assets. The condensed
financial position of OnCare at June 30, 1996 and Axion's interest to be
transferred to AHC are summarized as follows:
6. Subsequent Event
On September 10, 1996, Axion agreed to extend the final date for the redemption
of the OnCare preferred stock from December 31, 1996 to December 31, 2000.
60
AXION HEALTHCARE INC. ("AHC")
(INCLUDING OPUS MATRIX)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Information at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 is unaudited)
JUNE 30,
1996
--------
ASSETS:
Cash $ 2,557
Receivables, property and other assets 9,091
Unamortized management services and other
intangible assets 4,776
--------
16,424
LIABILITIES:
Bank borrowings --
Other 3,206
--------
3,206
--------
NET ASSETS, REPRESENTED BY:
Series A redeemable preferred stock held by
Axion - 2,700,000 shares 13,500
Common equity (deficit) ($1,563 paid in less $1,845
accumulated deficit) (282)
--------
$ 13,218
========
AXION'S INTEREST, TO BE TRANSFERRED TO AHC-
2,700,000 shares of Series A redeemable preferred
stock $ 13,500
========
Revenues of OnCare for 1995 were $2,645 and its net loss was $670 after
income tax benefit of $450 allocated from Axion. Revenues of OnCare for the
six-month period ended June 30, 1996 were $7,118 and its net loss was $1,175,
without any income tax benefit.
61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
The following discussion contains forward-looking statements.
AHC's actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Information
Statement, particularly in "Special Factors".
OVERVIEW
Neither AHC nor the OPUS Matrix Business has realized significant
revenues to date. Both have operated and continue to operate at a loss. Both
have been dependent upon Axion to finance their development activities.
RESULTS OF OPERATIONS
Revenues ($970 in 1995; $253 and $104 in the six month periods
ended June 30, 1995 and 1996, respectively) have been derived primarily from
clinical outcomes services and cancer prevention studies done by AHC and a
software license sold by the OPUS Matrix Business.
Costs and expenses ($3,257 in 1995; $1,644 and $2,374 in the six
month periods ended June 30, 1995 and 1996) have represented primarily
management information systems costs for AHC and OPUS, software development
costs of the OPUS Matrix products, clinical studies costs incurred by AHC and
administrative costs incurred by both AHC and Opus Matrix, including amounts
charged by Axion for administrative services. Such amounts have increased
primarily due to development costs of the OPUS Matrix products.
AHC and the OPUS Matrix Business have been allocated income tax
credits by Axion for the benefits arising from inclusion of their operating
losses in the consolidated income tax returns of Axion.
The AHC Business has generated limited revenues and has incurred
losses since AHC's formation in 1994. The OPUS Matrix Business has incurred
losses since its inception in 1994.
LIQUIDITY
Axion has provided the funds used by both AHC and the OPUS Matrix
Business for their development activities since inception. Advances by Axion and
other affiliates of Axion amounted to $1,572 in 1995 and an additional $1,991 in
the six months ended June 30, 1996. There can be no assurance that adequate
funding will be available to AHC from Axion or any other source. Axion is
expected not to provide funding to AHC after the Distribution and the Merger.
Prior to the planned distribution of all of the outstanding
shares of stock of AHC (including OPUS Matrix), Axion intends to transfer to
AHC: (i) a cash distribution of the Preference Amount from OTN to OTNC and, in
turn, from OTNC to Axion of $13,615, and the remainder of Axion's cash and cash
equivalents and short-term investments ($2,485 at June 30, 1996) (net of
Retained Cash, which is assumed to equal zero) subject to adjustment in certain
situations of which $5,000 will be placed in an escrow fund; (ii) 2,700,000
shares of OnCare Preferred Stock (with a redemption value of $13,500); and (iii)
receivables from the Employee Loans (estimated to be approximately $6,500).
These cash and cash equivalents and short-term investments balances plus other
assets transferred to AHC will be used to assist the financing of its ongoing
operations and for general corporate purposes. The restrictive covenants under
the Indemnification Agreement and the existence of potentially unlimited
indemnification obligations may restrict the ability of AHC to obtain financing,
and there can be no assurance that AHC will have the ability to obtain financing
(or that the failure to obtain financing will not have a material adverse effect
on AHC). AHC believes that the cash and cash equivalents and short-term
investments it will hold immediately after the Merger should be sufficient to
satisfy its cash needs through the end of 1997, assuming no
62
indemnification payments from AHC to BMS in excess of the Escrowed Cash and no
release of Escrowed Cash to AHC. Subject to such assumptions, the Company does
not anticipate that it will attempt to seek financing from other sources prior
to the end of such period. See Note 3 to consolidated financial statements
elsewhere herein.
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of AHC, and their ages as of June 30,
1996, are as follows:
NAME AGE POSITION
---- --- --------
Michael D. Goldberg................. 38 President, Chief Executive Officer, Chairman of the
Board and director
Garrett J. Roper.................... 45 Vice President, Finance, Chief Financial Officer,
Secretary, Treasurer and director
Eric T. Herfindal................... 54 Senior Vice President and director
- -----------------------------
Mr. Goldberg has served as President, Chief Executive Officer and
a director of AHC since founding AHC in 1994. Mr. Goldberg has served as
President, Chief Executive Officer and a director of Axion since its founding in
1987. Prior to founding Axion, Mr. Goldberg was a partner at the venture capital
firm Sevin Rosen Funds, where he was responsible for the firm's investments in
the biomedical industry. Prior to his tenure with Sevin Rosen, he was Director
of Corporate Development and a member of the Operating Committee at Cetus
Corporation, a biotechnology company. Mr. Goldberg received a B.A. from Brandeis
University and an M.B.A. from the Stanford Graduate School of Business.
Mr. Roper has served as Vice President, Finance, Chief Financial
Officer, Secretary, Treasurer and a director of AHC since its inception in 1994.
Mr. Roper has served as Vice President, Finance and Chief Financial Officer of
Axion since January 1993. From March 1989 to April 1992, Mr. Roper was Vice
President of Finance for the North American operations of Memorex Telex
Corporation, a supplier of IBM compatible computer equipment ("Memorex"). He
joined Memorex in October 1987. For the 12 years prior to joining Memorex, Mr.
Roper was a certified public accountant with Arthur Young & Company (now Ernst &
Young), an accounting firm. Mr. Roper holds a B.A. from Denison University and
an M.B.A. from Rutgers Graduate School of Business.
Dr. Herfindal has served as Senior Vice President and a director
of AHC since its inception in 1994. Dr. Herfindal has served as Senior Vice
President of Axion since September 1993. From August 1988 until accepting his
current position with Axion, he served as a consultant to Axion. From 1968 to
1993 Dr. Herfindal was a professor at the University of California at San
Francisco, where he served most recently as Chairman of Clinical Pharmacy and
Director of Pharmaceutical Services. Dr. Herfindal received a Pharm.D. from the
University of California at San Francisco and an M.P.H. from the University of
California at Berkeley.
The officers and directors of AHC serve in their same capacities
as officers and directors for OnCare. There are no family relationships between
any of the directors or executive officers of AHC. The officers serve at the
discretion of the AHC Board. See "Special Factors--Dependence Upon Key
Personnel; Potential Conflicts of Interest with OnCare".
63
DIRECTOR COMPENSATION
AHC currently has authorized three directors. Each director holds
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified. Directors of AHC currently receive no compensation
for their services as directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by AHC's
Chief Executive Officer and the two other executive officers whose salary and
bonus for the 1995 fiscal year was in excess of $100,000 (collectively, the
"Named Officers") for services rendered in all capacities to Axion and its
subsidiaries for that fiscal year:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
---------------------- ----------------------
AWARDS
------
SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#)(5)
- ------------------ --------- -------- --------------
Michael Goldberg $242,307 $187,836(2) 250,000
President, Chief
Executive Officer and
Chairman of the Board
Eric T. Herfindal $155,000 $ 86,625(3) 125,000
Senior Vice President
Garrett J. Roper $143,750 $ 97,164(4) 100,000
Vice President, Finance,
Secretary and Treasurer
- --------
(1) Represents salary and bonus paid during fiscal year 1995 as an Axion
employee.
(2) Includes $44,236 paid in the form of OnCare common stock.
(3) Includes $24,625 paid in the form of OnCare common stock.
(4) Includes $22,164 paid in the form of OnCare common stock.
(5) Shares of Axion Common Stock subject to exercise of Axion Options.
64
OPTION GRANTS IN LAST FISCAL YEAR
No option grants for shares of AHC's stock were made to the Named
Officers in fiscal year 1995. However, the following table contains information
concerning the grants of options to purchase shares of Axion Common Stock made
to each of the Named Officers for the fiscal year ended December 31, 1995. No
stock appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED EXERCISE APPRECIATION FOR
UNDERLYING TO OR OPTION
OPTIONS EMPLOYEES BASE TERM(3)
GRANTED IN PRICE EXPIRATION -------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ------ ----------- --------- ---- ----- ------
Michael D. Goldberg 150,000 15% $6.00 12/31/04 $566,005 $1,434,368
100,000 10% $10.00 12/31/04 $628,895 $1,593,742
Eric T. Herfindal 125,000 12.5% $6.00 12/31/04 $471,671 $1,195,307
Garrett J. Roper 100,000 10% $6.00 12/31/04 $377,337 $ 956,245
- -----------------------------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by Axion at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and
the options vest in a series of 72 equal monthly installments. The
option shares will vest in full upon an acquisition of Axion by merger
or asset sale, including the Merger. Each option has a maximum term of
ten (10) years, subject to earlier termination in the event of the
optionee's cessation of employment or service with Axion or its
affiliates.
(2) The exercise price may be paid in cash, in shares of Axion Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
Axion may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
(3) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Commission. There can be no
assurance provided to any executive officer or any other holder of
Axion's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of Axion Common Stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
65
OPTION EXERCISES AND JUNE 30, 1996 OPTION VALUES
None of the Named Officers held options on shares of AHC during
the fiscal year ended December 31, 1995. None of the Named Officers exercised
options on shares of Axion Common Stock during such fiscal year. The following
table sets forth information concerning holdings of options on Axion stock at
June 30, 1996 with respect to each of the Named Officers. No stock appreciation
rights were exercised during the fiscal year ended December 31, 1995 or were
outstanding at the end of that year.
JUNE 30, 1996 OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT JUNE 30, 1996(#) AT JUNE 30, 1996 ($)(1)
------------------- -----------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------- ----------- -------------
Michael D. Goldberg 87,083 22,917 $661,830.80 $174,169.20
250,000* 0 $390,000 0
Eric T. Herfindal 60,416 14,584 $482,287 $110,836.40
125,000* 0 $325,000 0
Garrett J. Roper 68,333 11,667 $519,331 $88,669
100,000* 0 $260,000 0
(1) Based on an assumed value of Axion Common Stock at June 30, 1996 of
$8.60 per share less the exercise price payable for such shares.
(2) Certain of the options are immediately exercisable for option shares
(noted by an asterisk in the table), but any shares purchased under the
options will be subject to repurchase by Axion at the original exercise
price per share upon the optionee's cessation of service. The repurchase
right has lapsed as to the following number of shares as of June 30,
1996: Mr. Goldberg: 62,500; Dr. Herfindal: 31,250; Mr. Roper: 25,000.
The repurchase right lapses in a series of 72 monthly installments and
will fully lapse upon an acquisition of Axion by merger or asset sale,
including the Merger.
1995 EXECUTIVE STOCK OPTION PLAN
Axion's 1995 Executive Stock Option Plan (the "Axion 1995 Plan")
was adopted by the Axion Board on April 4, 1995, and approved by the
stockholders on June 7, 1995. 600,000 shares of Axion Common Stock have been
authorized for issuance under the Axion 1995 Plan. As of June 30, 1996, no
shares had been issued under the Axion 1995 Plan, options for 600,000 shares had
been granted and were outstanding and no shares remained available for future
grant. Shares of Axion Common Stock subject to outstanding options which expire
or terminate prior to exercise will be available for future issuance under the
Axion 1995 Plan. The Merger Agreement provides, however, that from August 2,
1996 until consummation of the Merger or termination of the Merger Agreement,
Axion will not, nor will it permit any of its subsidiaries to, issue any shares
of capital stock or rights, warrants or options to purchase any such shares. See
"The Merger--Covenants" in the Proxy Statement/Prospectus to which this
Information Statement is attached as Appendix G.
Under the Axion 1995 Plan, employees who are officers of Axion
may, at the discretion of the plan administrator, be granted options to purchase
shares of Axion Common Stock. The exercise price may be more or less than the
fair market value of such shares on the grant date. The Axion 1995 Plan is
administered by the Axion Board.
66
The exercise price for options granted under the Axion 1995 Plan
may be paid in cash or in outstanding shares of Axion Common Stock. Options may
also be exercised on a cashless basis through the sameday sale of the purchased
shares, provided the Axion Common Stock is then registered under Federal
securities laws. The Axion Board may also permit the optionee to pay the
exercise price through a promissory note payable in installments over a period
of years. The amount financed may include any Federal or state income and
employment taxes incurred by reason of the option exercise.
Each option includes a special stock appreciation right which
provides that, upon the acquisition of 50% or more of Axion's outstanding voting
stock pursuant to a hostile tender offer, when Axion's officers are subject to
the short-swing profit restrictions of the Federal securities laws, such option,
if outstanding for at least six months, will automatically be canceled in
exchange for a cash distribution to the officer based upon the tender offer
price.
The Axion Board has the authority to effect, from time to time,
the cancelation of outstanding options under the Axion 1995 Plan in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the Axion Common
Stock on the new grant date. The Merger Agreement provides, however, that from
August 2, 1996 until consummation of the Merger or termination of the Merger
Agreement, Axion will not, nor will it permit any of its subsidiaries to, issue
any shares of capital stock or rights, warrants or options to purchase any such
shares. See "The Merger--Covenants" in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G.
In the event Axion is acquired by merger, consolidation, reverse
merger or asset sale, the shares of Axion Common Stock subject to each option
outstanding at the time under the Axion 1995 Plan will immediately vest in full.
Options not exercised prior to the Merger will terminate. The Merger will
constitute a corporate transaction under the Axion 1995 Plan and therefore will
result in acceleration of the exercisability of all options and the accelerated
lapsing of the repurchase right under all outstanding options. Axion options
will not be assumed in connection with the Merger and Axion's repurchase right
will not be assigned in connection with the Merger.
The Axion Board may amend or modify the Axion 1995 Plan at any
time. The Axion 1995 Plan will terminate on April 3, 2005, unless sooner
terminated by the Axion Board.
1989 STOCK OPTION AND RESTRICTED STOCK PLAN
The Axion 1989 Stock Option and Restricted Stock Plan (the "Axion
1989 Plan") was adopted by the Axion Board of Directors on February 21, 1990,
and approved by the stockholders on February 21, 1990. The Axion 1989 Plan has
been amended on several occasions, most recently on August 10, 1994, to increase
the number of shares issuable thereunder by 1,000,000 shares, and on April 4,
1995, to add an automatic option grant program. Two million shares of Axion
Common Stock have been authorized for issuance under the Axion 1989 Plan. As of
June 30, 1996, 266,596 shares had been issued under the Axion 1989 Plan, options
for 1,105,215 shares had been granted and were outstanding and 628,189 shares
remained available for future grants of options. Shares of Axion Common Stock
subject to outstanding options which expire or terminate prior to exercise will
be available for future issuance under the Axion 1989 Plan. The Merger Agreement
provides, however, that from August 2, 1996 until consummation of the Merger or
termination of the Merger Agreement, Axion will not, nor will it permit any of
its subsidiaries to, issue any shares of capital stock or rights, warrants or
options to purchase any such shares. See "The Merger--Covenants" in the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G.
Under the Axion 1989 Plan, employees (including officers),
non-employee members of the Board and independent consultants of Axion or its
subsidiaries may, at the discretion of the plan administrator, be granted
options to purchase shares of Axion Common Stock at an exercise price not less
than 85% of the fair market value of such shares on the grant date or issued
shares directly for consideration which may consist of cash or past services
rendered to Axion or its subsidiaries. Non-employee members of the Axion Board
are also eligible for automatic option grants under the Axion 1989 Plan. The
Axion 1989 Plan is administered by the Axion Board.
67
The exercise price for options granted under the Axion 1989 Plan
may be paid in cash or in outstanding shares of Axion Common Stock. Options may
also be exercised on a cashless basis through the sameday sale of the purchased
shares, provided the Axion Common Stock is publicly traded.
Each option granted to an officer of Axion subject to the
short-swing profit restrictions of the Federal securities laws includes a
special stock appreciation right which provides that, upon the acquisition of
50% or more of Axion's outstanding voting stock pursuant to a hostile tender
offer, such option, if outstanding for at least six months, will automatically
be canceled in exchange for a cash distribution to the officer based upon the
tender offer price.
The Axion Board has the authority to effect, from time to time,
the cancelation of outstanding options under the Axion 1989 Plan in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the Axion Common
Stock on the new grant date. The Merger Agreement provides, however, that from
August 2, 1996 until consummation of the Merger or termination of the Merger
Agreement, Axion will not, nor will it permit any of its subsidiaries to, issue
any shares of capital stock or rights, warrants or options to purchase any such
shares. See "The Merger--Covenants" in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G.
In the event Axion is acquired by merger, consolidation or asset
sale ("corporate transaction"), options granted after August 10, 1994, will
terminate unless assumed by the successor corporation; options granted before
that date accelerate and then terminate upon a corporate transaction unless the
option is assumed by the successor corporation. The shares of Axion Common Stock
awarded under the Axion 1989 Plan, including unvested shares purchased upon
exercise of an option, will immediately vest in full upon a corporate
transaction, except to the extent Axion's repurchase rights with respect to
those shares are to be assigned to the acquiring entity. The Merger will
constitute a corporate transaction under the Axion 1989 Plan and therefore will
result in acceleration of the exercisability of all pre-August 10, 1994 options
and the accelerated lapsing of the repurchase right under all outstanding
options. Axion options will not be assumed in connection with the Merger and
Axion's repurchase right will not be assigned in connection with the Merger.
Under the automatic grant program, each individual serving as a
non-employee director on April 4, 1995, and each individual who first joins the
Axion Board as a non-employee director on or after that date, will receive an
automatic option grant for 10,000 shares of Axion Common Stock. In addition, on
April 1 each year beginning April 1, 1996, each non-employee director will
automatically be granted a stock option to purchase 10,000 shares of Axion
Common Stock, provided such individual has served on the Axion Board for at
least six months prior to such date. Each option will have an exercise price
equal to the fair market value of the Axion Common Stock on the automatic grant
date and a maximum term of ten years, subject to earlier termination following
the optionee's cessation of Axion Board service. The option will be immediately
exercisable for all of the shares but the shares will be subject to repurchase
at original cost. The repurchase right shall lapse and the shares vest in a
series of 48 monthly installments over the optionee's period of Axion Board
service, beginning one month from the grant date, subject to accelerated lapsing
upon a corporate transaction.
In the event that more than 50% of Axion's outstanding voting
stock were to be acquired pursuant to a hostile tender offer, each automatic
option grant which has been outstanding for at least six months may be
surrendered to Axion in return for a cash distribution from Axion based upon the
tender offer price per share of Axion Common Stock at the time subject to the
surrendered option.
The Axion Board may amend or modify the Axion 1989 Plan at any
time. The Axion 1989 Plan will terminate on February 20, 2000, unless sooner
terminated by the Axion Board.
68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AHC
All of the outstanding shares of AHC Common Stock are, and will
be prior to the Distribution, held beneficially and of record by Axion. The
following table sets forth certain information regarding beneficial ownership of
Axion's Common Stock as of July 31, 1996, (i) by each person who is known by AHC
to beneficially own more than five percent of Axion's common stock, (ii) by each
of AHC's directors and executive officers, and (iii) by all current directors
and executive officers as a group. Because the Distribution will be made on the
basis of one share of AHC Preferred Stock for each share of then outstanding
Axion Common Stock, the percentage ownership of each person or entity named
below immediately following the Distribution will be the same as the percentage
ownership of such person or entity immediately prior to the Distribution.
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED
- ------------------------ ----------- -----
Sevin Rosen Fund II L.P.(3) .............................. 3,060,067 36.66%
c/o Sevin Rosen Funds
Two Galleria Towers, Suite 1670
Dallas, TX 75240
Galen Partners(4) ........................................ 1,079,755 12.88
666 Third Avenue
Suite 1400
New York, NY 10017
Funds affiliated with Kleiner Perkins Caufield & Byers (5) 1,005,000 12.04
2750 Sand Hill Rd ....................................
Menlo Park, CA 94025
Michael D. Goldberg (6) .................................. 799,000 9.18
Garrett J. Roper (7) ..................................... 180,000 2.11
David L. Levison (8) ..................................... 245,000 2.86
Eric T. Herfindal (9) .................................... 250,000 2.92
Donna M. Williams (10) ................................... 50,000 *
Robert V. Gunderson, Jr. (11) ............................ 5,000 *
George B. Borkow (12) .................................... 20,000 *
Stephen M. Dow (13) ...................................... 3,090,067 36.93
Steven M. Gluckstern (14) ................................ 180,000 2.15
Joseph S. Lacob (15) ..................................... 30,000 *
William R. Miller (16) ................................... 40,000 *
L. John Wilkerson (4) .................................... 1,079,755 12.88
All current directors and executive officers as a group
(12 persons) (17) .................................... 5,968,822 62.93%
- -----------------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Axion
Common Stock set forth opposite their respective names. Unless otherwise
noted, the address of all persons named in this table is c/o Axion, 1111
Bayhill Drive, Suite 125, San Bruno, CA 94066.
69
(2) The number of shares set forth as beneficially owned includes (a) shares
of Axion Common Stock issuable pursuant to Axion Options which are
exercisable within 60 days after July 31, 1996, or would become
exercisable within such period based on the assumption that the Merger
will occur within 60 days of such date, giving effect to the
acceleration of the exercisability of all Axion Options pursuant to the
Merger Agreement ("Acceleration Exercise"), as well as (b) shares of
Axion Common Stock issuable pursuant to Axion Options exercisable within
60 days after July 31, 1996 ("60-Day Exercise"). Wherever applicable,
the footnotes to this table set forth separately beneficial ownership
based on 60-Day Exercise and beneficial ownership based on Acceleration
Exercise. The number of shares set forth as beneficially owned also
includes shares of Axion Common Stock issuable upon conversion of shares
of Axion Preferred Stock.
(3) Excludes 19,933 shares of Axion Common Stock held by a general partner
of SRB Associates II, a Texas general partnership ("SRB Associates").
SRB Associates is the general partner of Sevin Rosen Fund II L.P., a
Texas limited partnership ("Sevin Rosen II").
(4) Includes 750,900 shares of Axion Common Stock held by Galen Partners II,
L.P., a Delaware limited partnership ("Galen II"), 287,301 shares of
Axion Common Stock held by Galen Partners International II, L.P., a
Delaware limited partnership ("Galen International II"), 5,000 Axion
shares of Axion Common Stock held by Rebound Two (Delaware), LLC, a
Delaware limited liability company, and 4,054 shares held by Galen
Employee Fund, L.P., a Delaware limited partnership. Also includes an
option exercisable into 30,000 shares of Axion Common Stock under the
Axion 1989 Plan held by Galen Associates, a Delaware limited partnership
("Galen Associates"), and an option exercisable into 2,500 shares of
Axion Common Stock under the Axion 1989 Plan held by Longbow Partners, a
New York general partnership ("Longbow") (based on Acceleration
Exercise) and includes options exercisable into 30,000 shares of Axion
Common Stock under the Axion 1989 Plan held by Galen Associates and
2,500 shares of Axion Common Stock under the Axion 1995 Plan held by
Longbow (based on 60-Day Exercise). Dr. Wilkerson, a director of Axion,
is a general and limited partner of GWW Partners L.P. ("GWW Partners"),
the general partner of Galen II and Galen International II. Dr.
Wilkerson disclaims beneficial ownership of the shares held by Galen II
and Galen International II except to the extent of his pecuniary
interest therein arising from his interest in GWW Partners. Dr.
Wilkerson is also a controlling stockholder of two corporations that are
general partners of Galen Associates. Dr. Wilkerson disclaims beneficial
ownership of the options held by Galen Associates except to the extent
of his pecuniary interest therein arising from his interests as a
stockholder in the corporations that are general partners of Galen
Associates. Dr. Wilkerson is a general partner of Longbow Partners and
disclaims beneficial ownership of the options held by Longbow Partners
except to the extent of his pecuniary interest therein arising from his
interest in Longbow Partners. Dr. Wilkerson is a director of Axion.
(5) Includes 954,750 shares of Axion Common Stock held by Kleiner Perkins
Caufield & Byers V, a California limited partnership ("KPCB V"), and
50,250 shares of Axion Common Stock held by KPCB Zaibatsu Fund I, a
California limited partnership ("Zaibatsu").
(6) Includes options exercisable into 110,000 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares of Axion Common Stock under
the Axion 1995 Plan (based on Acceleration Exercise) and includes
options exercisable into 93,882 shares of Axion Common Stock under the
Axion 1989 Plan and 250,000 shares of Axion Common Stock under the Axion
1995 Plan (based on 60-Day Exercise). Mr. Goldberg has advised Axion
that he does not intend to exercise the Goldberg $10.00 Options, and,
accordingly, the Goldberg $10.00 Options will be canceled prior to the
Effective Time. Mr. Goldberg is the President, Chief Executive Officer
and director of Axion, OnCare and AHC.
(7) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares of Axion Common Stock under
the Axion 1995 Plan (based on Acceleration Exercise) and includes
options exercisable into 73,277 shares of Axion Common Stock under the
Axion 1989 Plan and 100,000 shares of Axion Common Stock under the Axion
1995 Plan (based on 60-Day Exercise). Mr. Roper is the Senior Vice
President and Chief Financial Officer of Axion, OnCare and AHC and the
Secretary and a director of AHC.
70
(8) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares under the Axion 1995 Plan
(based on Acceleration Exercise) and includes options exercisable into
76,638 shares of Axion Common Stock under the Axion 1989 Plan and
125,000 shares of Axion Common Stock under the Axion 1995 Plan (based on
60-Day Exercise). Includes 6,500 shares of Axion Common Stock held in a
trust for the benefit of Mr. Levison's children (the "Levison Trust"),
of which Mr. Levison is a trustee. Mr. Levison disclaims beneficial
ownership of the shares held by the Levison Trust. Mr. Levison is
President and Chief Executive Officer of OTNC.
(9) Includes options exercisable into 75,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock under
the Axion 1995 Plan (based on Acceleration Exercise) and includes
options exercisable into 63,507 shares of Axion Common Stock under the
Axion 1989 Plan and 125,000 shares of Axion Common Stock under the Axion
1995 Plan (based on 60-Day Exercise). Dr. Herfindal is Senior Vice
President of Axion and AHC and a director of AHC.
(10) Includes options exercisable into 50,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and includes
options exercisable into 17,674 shares of Axion Common Stock under the
Axion 1989 Plan (based on 60-Day Exercise). Ms. Williams is Treasurer of
Axion.
(11) Robert V. Gunderson, Jr., is a member of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to Axion. Mr. Gunderson is
the Secretary of Axion.
(12) Includes options exercisable into 20,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and 20,000
shares of Axion Common Stock under the Axion 1989 Plan (based on 60-Day
Exercise). Mr. Borkow is a director of Axion.
(13) Includes 3,060,067 shares of Axion Common Stock held by Sevin Rosen II
and options exercisable into 20,000 shares of Axion Common Stock under
the Axion 1989 Plan (based on Acceleration Exercise) and includes
options exercisable into 20,000 shares of Axion Common Stock under the
Axion 1989 Plan (based on 60-Day Exercise). Mr. Dow disclaims beneficial
ownership of such shares of Axion Common Stock held by Sevin Rosen II
except to the extent of his pecuniary interest therein arising from his
interest in Sevin Rosen II. Mr. Dow is a director of Axion.
(14) Includes 150,000 shares held by Centre Reinsurance Holdings Limited
("Centre") and options exercisable into 30,000 shares of Axion Common
Stock under the Axion 1989 Plan (based on Acceleration Exercise) and
includes options exercisable into 30,000 shares of Axion Common Stock
under the 1989 Plan (based on 60-Day Exercise). Mr. Gluckstern disclaims
beneficial ownership of such shares of stock held by Centre except to
the extent of his pecuniary interest therein arising from his interest
in Centre. Mr. Gluckstern is a director of Axion.
(15) Includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and includes
options exercisable into 30,000 shares of Axion Common Stock under the
Axion 1989 Plan (based on 60-Day Exercise). Mr. Lacob does not have
voting or investment power over the shares held by KPCB V and Zaibatsu.
Mr. Lacob is a director of Axion.
(16) Includes options exercisable into 10,000 shares of Axion Common Stock
under the Axion 1989 Plan (based on Acceleration Exercise) and includes
options exercisable into 10,000 shares of Axion Common Stock under the
Axion 1989 Plan (based on 60-Day Exercise). Mr. Miller is a director of
Axion.
(17) Includes options exercisable into 1,137,500 shares of Axion Common Stock
under the Axion 1989 Plan and 600,000 shares of Axion Common Stock under
the Axion 1995 Plan (based on Acceleration Exercise) and includes
options exercisable into 499,804 shares of Axion Common Stock under the
Axion 1989 Plan and 600,000 shares of Axion Common Stock under the Axion
1995 Plan (based on 60-Day Exercise).
71
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
Set out below is a description of the principal employee benefit
and compensation plans of AHC that will be in effect following the Distribution
and the Merger and in which Mr. Goldberg, Dr. Herfindal and Mr. Roper, the three
Named Officers, will participate. Also set out below is a description of the
effect of the Distribution and Merger on certain of the existing plans
maintained by Axion in which the Named Officers currently participate. Mr.
Levison will not participate in plans of AHC after the Merger but was eligible
to participate in plans maintained by Axion and will be eligible to participate
in plans of BMS or its subsidiaries for which he is eligible after the Merger.
401(K) PLAN
AHC expects to maintain a 401(k) Plan to be effective at the Time
of Distribution for the eligible employees of AHC. The 401(k) Plan will permit
salary deferral contributions and employer matching and profit sharing
contributions at the discretion of AHC. Account balances held on behalf of
employees of AHC under the existing Axion 401(k) Plan will be transferred in a
trustee-to-trustee transfer from the Axion 401(k) Plan to AHC's 401(k) Plan.
ANNUAL INCENTIVE AWARDS
In past years, the Axion Board has approved bonuses payable in
cash or stock to the officers and key employees of Axion. Bonuses are accrued
quarterly and paid annually based on the eligible employee's achievement of
individual goals specified by the Axion Board, in the case of officers, and
specified by management, in the case of other employees. Payment of bonuses and
eligibility for bonuses is subject to the discretion of the Axion Board. AHC
maintains a comparable bonus plan. AHC anticipates that it will pay bonuses at
the end of the 1996 fiscal year to the employees who continue in employment with
AHC for services performed during the 1996 fiscal year. Bonuses are generally in
proportion to base salary and normally fall within a range of 5% to 40% of base
salary.
OTHER FEATURES OF STOCK PLANS AND PREDECESSOR PLANS
Options outstanding under the Axion 1989 Plan and the Axion 1995
Plan will terminate upon consummation of the Merger to the extent not exercised
prior to the Merger.
Consistent with the Axion 1989 Plan and the Axion 1995 Plan, the
Axion Board intends to loan to each optionee, including each of the Named
Officers, the sum of money necessary to exercise his or her stock options
granted under the Axion 1989 Plan or Axion 1995 Plan and will receive the
optionee's full recourse promissory note. Such note may or may not be secured.
Each such note shall bear interest at the applicable Federal rate established by
the IRS and shall be due at the end of two years, subject to acceleration to the
extent the optionee sells any of the Axion Common Stock purchased with the note
or the BMS shares received in exchange for such Axion Common Stock. Such notes
will be contributed by Axion to AHC pursuant to the Distribution.
Upon exercise of an option under the Axion 1989 Plan or Axion
1995 Plan, each optionee, including each of the Named Officers, will participate
as a stockholder in the Distribution and accordingly will receive one share of
the Series A Preferred Stock of AHC on account of each share of Axion Common
Stock owned by such individual as of the Distribution Record Date. In the case
of shares of Axion Common Stock and Axion Options that are not yet vested as of
the date of the Distribution, the optionees must agree, in consideration of
being permitted to exercise such options by delivering a promissory note, that
the shares of AHC Preferred Stock will be subject to repurchase by AHC at a
price equal to the fair market value of the AHC Preferred Stock on the date of
the spinoff in the event that the holder's employment terminates prior to full
vesting. AHC's repurchase right will lapse and the optionee will vest in the
shares in a series of installments over the term of the individual's service
with AHC, with credit for service at Axion.
72
AHC INDEMNIFICATION AGREEMENTS
It is anticipated that AHC will enter into indemnification
agreements with its directors and officers. These agreements will require that
AHC, among other things, indemnify its directors and officers against certain
liabilities that arise by reason of their status or service as directors or
officers (other than liabilities arising from actions not taken in good faith or
in a manner the indemnitee believed to be in the best interests of AHC) and
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. The Restated AHC Certificate and Restated AHC
Bylaws will provide, as applicable, for the indemnification of directors and
officers and the exculpation under certain circumstances of directors. See
"Comparison of Certain Rights of Holders of AHC Preferred Stock, Holders of
Axion Common Stock and Holders of Axion Preferred Stock--Indemnification of
Officers and Directors".
DESCRIPTION OF AHC CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of AHC currently consists of
15,000,000 shares of Common Stock, $.0001 par value, and 5,000,000 shares of
Preferred Stock, $.0001 par value.
In accordance with the Distribution Agreement, Axion will
appropriately cause AHC to amend its Certificate of Incorporation in effect
prior to the Distribution to, among other things, increase the authorized number
of shares of AHC Preferred Stock and to convert each issued and outstanding
share of AHC Common Stock into a number of shares of AHC Preferred Stock equal
to the quotient of (A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the conversion of Axion Preferred Stock
to Axion Common Stock and the exercise of Axion Options, in each case in
connection with the consummation of the Merger) divided by (B) the number of
shares of AHC Common Stock outstanding immediately prior to the Time of
Distribution. See "The Distribution--Terms of the Distribution Agreement".
Under the Restated AHC Certificate, the total number of shares of all classes of
stock that AHC will have authority to issue is 20,000,000 of which 10,000,000
may be shares of AHC Common Stock.
Based on the number of shares of Axion Common Stock outstanding
as of June 30, 1996 (and assuming the exercise of all Axion Options outstanding
immediately prior to the Time of Distribution other than the Goldberg $10.00
Options), it is estimated that approximately 9,970,509 shares of AHC Preferred
Stock will be distributed to Axion stockholders in the Distribution. No shares
of the Axion Preferred Stock were outstanding at July 31, 1996. All the shares
of AHC Preferred Stock to be distributed to Axion stockholders in the
Distribution will be fully paid and non-assessable.
The following summary describes material provisions of, but does
not purport to be complete and is subject to, and qualified in its entirety by,
the Restated AHC Certificate attached as Annex I hereto and by applicable
provisions of law.
AHC COMMON STOCK
As of July 31, 1996, there were 1,000 shares of AHC Common Stock
outstanding. There will be no shares of AHC Common Stock outstanding after
giving effect to the Distribution.
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, any holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividends and Dividend Policy". In the event of liquidation, dissolution or
winding up of AHC, any holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
73
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.
AHC PREFERRED STOCK
The Restated AHC Certificate authorizes 10,000,000 shares of
Preferred Stock. The AHC Board has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of AHC without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, AHC has no plans to issue any series of
Preferred Stock other than AHC Preferred Stock.
Upon consummation of the Distribution, the holders of Axion
Common Stock will become holders of AHC Preferred Stock. In accordance with the
Distribution Agreement, Axion will cause AHC to amend the Certificate of
Incorporation of AHC to establish certain rights, preferences and privileges of
the AHC Preferred Stock. The AHC Preferred Stock will not be redeemable.
Holders of AHC Preferred Stock will be entitled to one vote per
share on all matters to be voted upon by the stockholders and will have a
liquidation preference of $3.00 plus all declared but unpaid dividends per share
in the event of any liquidation, dissolution or winding up of AHC and are paid
before any payments are made to any holders of AHC Common Stock. Subject to the
rights of series of Preferred Stock that may from time to time come into
existence, any holders of Preferred Stock will be entitled to receive ratably
such dividends at a rate of $.21 per share per annum out of funds legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in AHC Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of AHC Common Stock) on the AHC Common Stock. See
"Dividends and Dividend Policy". Each share of AHC Preferred Stock will be
convertible at any time and from time to time at the option of the holder into
one share of AHC Common Stock, subject to adjustments for among other things,
stock splits and stock dividends. AHC Preferred Stock will not be transferable
except as permitted in the Restated AHC Certificate: AHC Preferred Stock will
not be transferable except for (i) transfers to AHC; (ii) transfers to existing
AHC stockholders; (iii) transfers by gift bequest or operation of the laws of
descent, provided that the AHC Preferred Stock in the hands of the transferee
remains subject to the same restrictions on transfer as they were when held by
the transferor; (iv) transfers to an entity unaffiliated with AHC pursuant to
the merger, consolidation, stock for stock exchange or similar transaction
involving AHC; (v) transfers by a partnership to its partners, provided that the
AHC Preferred Stock in the hands of the transferee remains subject to the same
restrictions on transfer as they were when held by the transferor; and (vi)
transfers which would be exempt from the registration requirements of Section 5
of the Securities Act by virtue of the exemption provided by Section 4(2) of the
Securities Act if the transferor were the issuer of the AHC Preferred Stock,
provided that the transferee is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act and the AHC Preferred Stock in the hands of
such transferee remains subject to the same restrictions on transfer as they
were when held by the transferor, or a transfer pursuant to an effective
registration under the Securities Act.
NO PREEMPTIVE RIGHTS
No holder of any stock of any class of AHC authorized at the Time
of Distribution will then have any preemptive right to subscribe to any
securities of any kind or class.
74
DESCRIPTION OF CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Restated AHC Certificate provides that the number of
directors will be determined from time to time by a majority of the AHC Board.
The AHC Board is currently comprised of three directors. The Restated AHC Bylaws
provide that only the AHC Board will be entitled to fill vacancies, including
vacancies created by expansion of the AHC Board.
The Restated AHC Bylaws provide that directors may be removed
with or without cause by the holders of a majority of shares entitled to vote at
an election of directors.
STOCKHOLDER ACTION BY UNANIMOUS CONSENT; SPECIAL MEETINGS
The Restated AHC Bylaws provide that stockholder action may be
taken at an annual or special meeting of stockholders and that action may be
taken by the written consent of stockholders in lieu of a meeting. The Restated
AHC Bylaws also provide that special meetings of AHC's stockholders may be
called pursuant to a resolution approved by a majority of the AHC Board or a
majority of AHC's stockholders.
AMENDMENT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Restated AHC Certificate provides that the AHC Board may
make, repeal, alter, amend or rescind any provision of the Restated AHC Bylaws.
The Restated AHC Bylaws provide that Bylaw provisions may be adopted, amended or
repealed by the affirmative vote of a majority of stockholders who are entitled
to cast votes.
PREFERRED STOCK
Under the Restated AHC Certificate, the AHC Board will have the
authority to provide by resolution for the issuance of shares of one or more
series of AHC Preferred Stock and to fix the terms and conditions of each such
series. See "Description of AHC Capital Stock". The authorized shares of AHC
Preferred Stock, as well as authorized but unissued shares of AHC Common Stock,
will be available for issuance without further action by AHC's stockholders,
unless stockholder action is required by applicable law or by the rules of a
stock exchange on which any series of AHC's stock may then be listed.
These provisions will give the AHC Board the power to approve the
issuance of a series of AHC Preferred Stock that could, depending on its terms,
either impede or facilitate the completion of a merger, tender offer or other
takeover attempt. For example, the issuance of new shares might impede a
business combination if the terms of those shares include voting rights which
would enable a holder to block business combinations. Conversely, the issuance
of new shares might facilitate a business combination if those shares have
general voting rights sufficient to cause an applicable percentage vote
requirement to be satisfied.
INDEMNIFICATION
The Restated AHC Certificate provides that an AHC director shall
not be personally liable to AHC or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to AHC or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. Any
repeal or modification of the preceding sentence by the stockholders of AHC will
not adversely affect any right or protection of a director of AHC existing at
the time of such repeal or modification.
DGCL Section 145 contains provisions permitting, and in some
situations requiring, Delaware corporations, such as AHC, to provide
indemnification to their officers and directors for losses and litigation
expenses incurred in connection with their service to the corporation in those
capacities. The Restated AHC Bylaws
75
will contain provisions requiring indemnification by AHC of, and advancement of
expenses to, its directors and officers to the fullest extent permitted by law.
Among other things, these provisions will provide indemnification for AHC's
officers and directors against liabilities for judgments in and settlements of
lawsuits and other proceedings and for the advance and payment of fees and
expenses reasonably incurred by the director or officer in defense of any such
lawsuit or proceeding.
The form of the Restated AHC Certificate and Restated AHC Bylaws
are attached to this Information Statement as Annex I and Annex II,
respectively, and are incorporated herein by reference. The foregoing
descriptions of certain provisions of the Restated AHC Certificate and Restated
AHC Bylaws does not purport to be complete and are subject to, and are qualified
in entirety by reference to, the Restated AHC Certificate and Restated AHC
Bylaws, respectively, including the definitions therein of certain terms.
COMPARISON OF CERTAIN RIGHTS OF
HOLDERS OF AHC PREFERRED STOCK, HOLDERS OF AXION COMMON STOCK
AND HOLDERS OF AXION PREFERRED STOCK
The rights of the holders of AHC Preferred Stock will be governed
by the Restated AHC Certificate and the Restated AHC Bylaws. The rights of the
holders of Axion Common Stock and holders of Axion Preferred Stock are governed
by the Axion Certificate of Incorporation and the Axion Bylaws. Both AHC and
Axion are governed by the DGCL. Upon consummation of the Merger, the
stockholders of Axion will become stockholders of AHC. The Restated AHC
Certificate and the Restated AHC Bylaws will remain in effect after the Merger.
Below is a summary of certain differences among the rights of holders of AHC
Common Stock, the holders of Axion Common Stock and the holders of Axion
Preferred Stock, resulting from differences in governing law and the respective
AHC and Axion certificates of incorporation and bylaws.
The following summary does not purport to be a complete statement
of the rights of AHC stockholders under the Restated AHC Certificate and the
Restated AHC Bylaws compared with the rights of holders of Axion Common Stock
and holders of Axion Preferred Stock under the Axion Certificate of
Incorporation and the Axion Bylaws. This summary is qualified in its entirety by
reference to the respective AHC and Axion certificates of incorporation and
bylaws.
VOTING
The Restated AHC Certificate provides that holders of AHC
Preferred Stock are entitled to one vote for each share held.
The Axion Certificate of Incorporation provides that holders of
Axion Common Stock are entitled to one vote for each share held.
The Axion Certificate of Incorporation provides that holders of
Axion Preferred Stock are entitled to the number of votes equal to the number of
shares of Axion Common Stock into which such shares of Axion Preferred Stock
could be converted on the record date for the vote or the date of the
solicitation of any written consent of Axion stockholders (excluding fractional
shares) and shall have voting rights and powers equal to the voting rights and
powers of holders of Axion Common Stock. Holders of Axion Preferred Stock vote
together as a single class with the holders of Axion Common Stock upon all
matters submitted to a vote of Axion stockholders. The Axion Certificate of
Incorporation also provides for certain matters specified therein to be
submitted to a vote of holders of Axion Preferred Stock, voting in some cases
together as a single class and in other cases separately by series.
LIQUIDATION PREFERENCE
The Restated AHC Certificate provides that in the event of any
liquidation, dissolution or winding up of AHC, subject to the rights of series
of Preferred Stock of AHC that may from time to time come into
76
existence, the holders of AHC Preferred Stock are entitled to receive, prior and
in preference to any distribution of any assets of AHC to the holders of AHC
Common Stock by reason of their ownership thereof, for the AHC Preferred Stock,
an amount per share equal to the sum of (A) $3.00 for each outstanding share of
AHC Preferred Stock, and (B) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the AHC Preferred Stock are insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then subject to the rights of series of Preferred Stock of AHC that may from
time to time come into existence, the entire assets and funds of AHC legally
available for distribution shall be distributed ratably among the holders of the
AHC Preferred Stock, so that each holder receives the same percentage of the
applicable preferential amount.
The Axion Certificate of Incorporation does not provide holders
of Axion Common Stock with any liquidation preference in the event of any
liquidation, dissolution, or winding up of Axion.
The Axion Certificate of Incorporation provides that in the event
of any liquidation, dissolution, or winding up of Axion, whether voluntary or
involuntary, the holders of each share of Axion Preferred Stock shall be
entitled to be paid out of the assets of Axion legally available for
distribution to its stockholders the following liquidation preferences: $.75 per
share of Axion Series A Preferred Stock, par value $.001 per share (the "Axion
Series A"), $3.40 per share of Axion Series B Preferred Stock, par value $.001
per share (the "Axion Series B"), $4.79 per share of Axion Series C Preferred
Stock, par value $.001 per share (the "Axion Series C"), $5.60 per share of
Axion Series D Preferred Stock, par value $.001 per share (the "Axion Series
D"), $7.25 per share of Axion Series E Preferred Stock, par value $.001 per
share (the "Axion Series E"), and $10.00 per share of Axion Series F Preferred
Stock, par value $.001 per share (the "Axion Series F", and together with the
Axion Series A, Axion Series B, Axion Series C, Axion Series D and Axion Series
E, the "Axion Preferred Stock"), plus, for each such share, an amount equal to
all declared but unpaid dividends thereon, if any, to the date fixed for
distribution to such series (such sum, subject to certain adjustments, the
"Axion Preference Amount").
After holders of Axion Preferred Stock have received their full
Axion Preference Amount, any remaining assets or surplus funds of Axion will be
shared by and distributed ratably among the holders of Axion Common Stock and
the holders of Axion Preferred Stock; provided, however, that holders of Axion
Series A, Axion Series B, Axion Series C, and Axion Series E are entitled to
participate in such ratable distribution and sharing only until such time as
they receive certain aggregate per share maximum amounts set forth in the Axion
Certificate of Incorporation.
For purposes of the foregoing two paragraphs relating to the
liquidation rights of Axion Preferred Stockholders, a merger or consolidation of
Axion into or with another corporation, a sale, transfer or other disposition of
all or substantially all of Axion's assets or the effectuation by Axion of a
transaction or series of related transactions in which more than 50% of the
voting power of Axion is disposed of, shall, unless the holders of at least
66-2/3% of the Axion Preferred Stock, voting together as a class, elect in
writing otherwise, be deemed to be a liquidation, dissolution or winding up of
Axion.
In the event Axion proposes to take any action regarding the
liquidation, dissolution or winding up of Axion which will involve the
distribution of assets other than cash, the value of the assets to be
distributed to the holders of Axion Preferred Stock is to be determined by the
vote or written consent of the Axion Board (subject to certain guidelines
specified in the Axion Certificate of Incorporation with respect to the
valuation of securities), and such determination will be binding upon the
holders of Axion Preferred Stock.
DIVIDENDS
The Restated AHC Certificate provides that subject to the rights
of series of Preferred Stock of AHC that may from time to time come into
existence, the holders of AHC Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in AHC Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of AHC Common
Stock) on the AHC Common Stock, at the rate of $.21 per share per annum for the
AHC Preferred Stock.
77
The Axion Certificate of Incorporation provides that the holders
of the outstanding Axion Series A, Axion Series B, Axion Series C, Axion Series
D, Axion Series E and Axion Series F are entitled to receive in any fiscal year,
when and as declared by the Axion Board, out of any assets at the time legally
available therefor, dividends in cash at the rate of $.075 per share, $.34 per
share, $.42 per share, $.56 per share, $.725 per share and $1.00 per share
respectively (subject to adjustment), per annum before any dividend is declared
or paid on shares of Common Stock. Dividends may be payable quarterly or
otherwise as the Axion Board may from time to time determine, and the right to
such dividends is not cumulative. The holders of the outstanding Axion Preferred
Stock can waive any dividend preference that such holders may be entitled to
receive upon the affirmative vote or written consent of the holders of at least
66-2/3% of the Axion Preferred Stock then outstanding, voting or consenting as a
single class on an as-if-converted basis. The holders of the outstanding Axion
Preferred Stock have unconditionally and irrevocably waived the right to any
such dividend preference that such holders are entitled to receive through
December 31, 1996.
The Axion Certificate of Incorporation provides that no
distributions (as defined in the Axion Certificate of Incorporation) may be paid
on the Axion Common Stock until the holders of the outstanding Axion Preferred
Stock have first received dividends at the dividend rates specified in the
preceding paragraph. If, in any fiscal year, any cash or other distributions are
declared by the Axion Board to be paid on the Axion Common Stock as a class,
then an additional dividend must be paid at the same time to the holders of the
outstanding Axion Preferred Stock at the rate per share equal to the product of
(x) such per share dividend or other distribution on the Axion Common Stock,
multiplied by (y) the number of shares of Axion Common Stock into which each
share of Axion Preferred Stock is then convertible.
CONVERSION RIGHTS
The Restated AHC Certificate provides that each share of AHC
Preferred Stock is convertible at any time, without payment of any additional
consideration by the holder and at the option of the holder, into one fully paid
and nonassessable share of AHC Common Stock, subject to adjustment. Each share
of AHC Preferred Stock will automatically be converted into one share of AHC
Common Stock upon the earlier of (i) AHC's sale of AHC Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 under the Securities Act, the public offering price of which was not
less than $10,000,000 in the aggregate or (ii) the date specified by written
consent or agreement of the holders of a majority of the then outstanding shares
of AHC Preferred Stock.
The Axion Common Stock is not convertible.
The Axion Certificate of Incorporation provides that each share
of Axion Preferred Stock is convertible at any time, without the payment of any
additional consideration by the holder and at the option of the holder, into
such number of fully paid and nonassessable shares of Axion Common Stock as is
determined according to a formula set forth in the Axion Certificate of
Incorporation, subject to adjustment. Each share of Axion Preferred Stock will
automatically be converted into shares of Axion Common Stock at the applicable
conversion price then in effect upon the affirmative vote or written consent of
the holders of at least 66-2/3% of the Axion Preferred Stock then outstanding,
voting or consenting as a single class on an as-if-converted basis. Axion may
not, by amendment of the Axion Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Axion Certificate of
Incorporation relating to conversion and must take all action necessary or
appropriate in order to protect the conversion rights of the holders of Axion
Preferred Stock against impairment.
CERTAIN BUSINESS COMBINATIONS
The Restated AHC Certificate requires the affirmative vote of the
holders of more than 50% of the outstanding shares of stock of AHC for any
transaction that would result in a reorganization of AHC, or the merger or
consolidation of AHC with or into another corporation, or the effectuation by
AHC of a transaction or series of transactions resulting in the disposition of
more than 50% of the voting power of AHC.
78
The Axion Certificate of Incorporation requires, so long as no
fewer than an aggregate of 500,000 shares of Axion Series A, Axion Series B,
Axion Series C, Axion Series D, Axion Series E or Axion Series F are
outstanding, any transaction that would result in a reorganization of Axion, or
the merger or consolidation of Axion with or into another corporation, or the
effectuation by Axion of a transaction or series of transactions in which more
than 50% of the voting power of Axion is disposed of, Axion or the sale of all
or substantially all of the assets of Axion must be approved by the holders of
at least 50% of the then outstanding shares of Axion Preferred Stock (excluding
from such vote the shares of any series of Axion Preferred Stock of which there
are fewer than 100,000 shares outstanding), voting together as a single class.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The AHC Board currently consists of three directors and is not
classified. The number of authorized directors may be modified from time to time
by amendment of the Restated AHC Bylaws
The Axion Board currently consists of six directors and is not
classified. The number of authorized directors may be modified from time to time
by amendment of the Axion Bylaws.
REMOVAL OF DIRECTORS
The Restated AHC Bylaws provide that the AHC Board or any
individual director may be removed from office, with or without cause, by a vote
of stockholders holding a majority of outstanding shares entitled to vote at an
election of directors.
The Axion Bylaws provide that, at a special meeting of
stockholders called for such purpose, the Axion Board or any individual director
may be removed from office, with or without cause, and a new director or
directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
The Restated AHC Bylaws provide that vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected will
hold office until the next annual election and until his successor is duly
elected and qualified.
The Axion Bylaws provide that vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected will
hold office for the unexpired portion of the term of the director whose place
shall be vacant and until his successor is duly elected and qualified. Vacancies
are deemed to exist in the case of the death, removal or resignation of any
director, or if the stockholders fail at any meeting of stockholders of which
directors are to be elected to elect the number of directors constituting the
entire Axion Board.
Under the Axion Certificate of Incorporation, any vacancy
occurring because of the death, resignation, or removal of a director elected by
the holders of Axion Series A, the holders of Axion Series B or the holders of
Axion Series C will be filled by the vote or written consent of the holders of a
majority of the shares of that series or, in the absence of such action by such
holders, by action of the remaining directors then in office. Any vacancy
occurring because of the death, resignation or removal of a director elected by
the holders of outstanding Axion Common Stock will be filled by the vote or
written consent of the holders of a majority of the outstanding shares of Axion
Common Stock or, in the absence of such action by such holders, by action of the
remaining directors then in office.
79
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
The Restated AHC Certificate requires approval by the holders of
at least 50% of the then outstanding shares of AHC Common Stock or AHC Series A
Preferred Stock, as applicable, for the addition, amendment or repeal of any
provision of AHC's Restated AHC Certificate that would adversely alter or change
the preferences, rights, privileges or powers of the holders of such shares of
AHC Common Stock or AHC Series A Preferred Stock, as applicable. Notwithstanding
the previous sentence, the Restated AHC Certificate provides that AHC reserves
the right to amend, alter, change or repeal any provision contained in the
Restated AHC Certificate, in the manner now or hereafter prescribed by statute
and that all rights conferred upon stockholders therein are granted subject to
that reservation.
The Axion Certificate of Incorporation requires, so long as no
fewer than an aggregate of 500,000 shares of Axion Series A, Axion Series B,
Axion Series C, Axion Series D, Axion Series E or Axion Series F are
outstanding, that the amendment, repeal or addition of any provision of or to
the Axion Certificate of Incorporation that would adversely alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Axion Preferred Stock must be approved by the holders of at
least 50% of the then outstanding shares of Axion Preferred Stock (excluding
from such vote the shares of any series of Axion Preferred Stock of which there
are fewer than 100,000 shares outstanding), voting together as a single class.
Notwithstanding the previous sentence, the Axion Certificate of Incorporation
provides that Axion reserves the right to amend, alter, change or repeal any
provision contained in the Axion Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and that all rights conferred upon
stockholders therein are granted subject to that reservation.
AMENDMENTS TO RESTATED AHC BYLAWS
The Restated AHC Bylaws may be altered, amended or repealed by or
new Restated AHC Bylaws adopted by the AHC stockholders. Under the Restated AHC
Bylaws, the affirmative vote of stockholders holding a majority of outstanding
shares entitled to vote is required to adopt, amend or repeal any provisions of
the Restated AHC Bylaws. Notwithstanding the preceding, the AHC Board may from
time to time make, amend, supplement or repeal the Restated AHC Bylaws.
The Axion Bylaws may be repealed, altered or amended or new
Restated Bylaws adopted by the Axion stockholders. Under the Axion Bylaws, the
affirmative vote of the holders of at least 66-2/3% of the voting power of all
the then outstanding shares of the capital stock of Axion entitled to vote
generally in the election of directors, voting together as a single class, is
required to adopt, amend or repeal any provisions of the Axion Bylaws. The Axion
Certificate of Incorporation requires, so long as no fewer than an aggregate of
500,000 shares of Axion Series A, Axion Series B, Axion Series C, Axion Series
D, Axion Series E or Axion Series F are outstanding, the approval of the holders
of at least 50% of the then outstanding shares of Axion Preferred Stock
(excluding from such vote the shares of any series of Axion Preferred Stock of
which there are fewer than 100,000 shares outstanding), voting together as a
single class, to amend, repeal or add any provision to the Axion Bylaws, if such
action would adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Axion Preferred
Stock. Notwithstanding the foregoing, the Axion Certificate of Incorporation
provides that the Axion Board may from time to time make, amend, supplement or
repeal any Axion Bylaws adopted by the Axion Board; provided, however, that the
stockholders of Axion may change or repeal any Bylaw adopted by the Axion Board;
and provided, further, that no amendment or supplement to the Axion Bylaws
adopted by the Axion Board will vary or conflict with any amendment or
supplement to the Axion Certificate of Incorporation adopted by the stockholders
of Axion.
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT
The Restated AHC Bylaws provide that special meetings of AHC
stockholders may be called for any purpose or purposes, by the President of AHC,
or at the request in writing of the AHC Board or of the stockholders holding a
majority of outstanding shares entitled to vote. The Restated AHC Bylaws provide
that, any action required to be taken at any annual or special meeting of
stockholders or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote,
80
if written consent, setting forth the action so taken, is signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
The Axion Bylaws provide that special meetings of Axion
stockholders may be called at any time, for any purpose or purposes, only by the
President of Axion or the Axion Board. The Axion Bylaws provide that any action
required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if written consent setting forth the action so taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated AHC Bylaws require AHC to indemnify its directors to
the fullest extent permitted by the DGCL and give AHC the power to indemnify its
officers and employees as set forth in the DGCL. The Restated AHC Certificate
provides that a director of AHC will not be personally liable to AHC or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of fiduciary duty as a director, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived any improper personal benefit.
Any repeal or modification of the preceding sentence by the stockholders of AHC
will not adversely affect any rights or protection of a director of AHC existing
at the time of such repeal or modification. See "Executive Compensation Plans in
Effect After the Distribution--AHC Indemnification Agreements".
The Axion Bylaws require Axion to indemnify its directors to the
fullest extent permitted by the DGCL and give Axion the power to indemnify its
officers, employees and other agents as set forth in the DGCL. The Axion
Certificate of Incorporation provides that a director of Axion will not be
personally liable to Axion or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Axion or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation or law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. Any
repeal or modification of the preceding sentence by the stockholders of Axion
will not adversely affect any rights or protection of a director of Axion
existing at the time of such repeal or modification.
NO CUMULATIVE VOTING
Neither the Restated AHC Certificate nor the Axion Certificate of
Incorporation provides for cumulative voting.
EXPERTS
The consolidated financial statements of AHC as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, included in this Information Statement have been audited by Ernst & Young,
independent auditors, set forth in their report appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
81
INDEX OF DEFINED TERMS
TERM PAGE
- ---- ----
Acceleration Exercise ................................................................. 71
Acquired Assets........................................................................ 28
Acquired Business........................................................................1
AHC......................................................................................1
AHC Business......................................................................... 1,19
AHC Board................................................................................4
AHC Certificate of Incorporation.........................................................3
AHC Common Stock.........................................................................1
AHC Indemnified Parties.................................................................31
AHC Indemnifying Parties.............................................................7, 32
AHC Medstation Agreement................................................................10
AHC Preferred Stock......................................................................1
AHC Supply Agreement.....................................................................9
Amount Certificate......................................................................43
Assumed Liabilities.....................................................................29
Average Value of BMS Common Stock....................................................5, 22
Axion....................................................................................1
Axion Board..............................................................................2
Axion Common Stock.......................................................................1
Axion Expenses ........................................................................ 26
Axion Options............................................................................5
Axion Preferred Stock ................................................................. 78
Axion Series A..........................................................................78
Axion Series B..........................................................................78
Axion Series C..........................................................................78
Axion Series D..........................................................................78
Axion Series E..........................................................................78
Axion Series F..........................................................................78
Axion 1989 Plan ........................................................................68
Axion 1995 Plan ........................................................................67
Best Closing Efforts....................................................................27
BMOTN...................................................................................37
BMS......................................................................................1
BMS Board................................................................................5
BMS Common Stock.........................................................................5
BMS Indemnified Parties.............................................................32, 36
BMS Indemnifying Parties................................................................34
BMS Registration Statement .............................................................28
BMS Rights...............................................................................5
BMS Sub..................................................................................1
Capital Account Prime Rate Amount ..................................................... 27
Certificate of Merger...................................................................24
Certificates............................................................................24
Closing.............................................................................11, 24
Closing Date.............................................................................5
Code.....................................................................................3
Commission..............................................................................27
Continuity of Interest Letters..........................................................13
Contributions...........................................................................28
82
Conversion Number.......................................................................22
Corporate Transaction...................................................................69
Court Order.............................................................................41
Description of AHC Capital Stock........................................................74
DGCL.....................................................................................4
Diluted Share Assumption.............................................................5, 22
Dissenting Shares........................................................................4
Distribution.............................................................................1
Distribution Agreement...................................................................1
Distribution Record Date.................................................................1
Documents...............................................................................28
Effective Time........................................................................2, 4
Employee Loans..........................................................................16
Ernst & Young............................................................................3
Escrow Agent.............................................................................8
Escrow Agreement.........................................................................9
Escrowed Cash...........................................................................38
Escrowed Cash Termination Date..........................................................40
Escrowed Property.......................................................................38
Escrowed Shares.........................................................................23
Escrowed Shares Pending Claims..........................................................39
Escrowed Shares Termination Date........................................................39
Ex-Date..................................................................................5
Excess Axion Expenses ................................................................. 26
Exculpated Parties......................................................................33
Filings.................................................................................33
Final Pending Claims....................................................................40
Form S-4................................................................................28
Former Axion Stockholders.............................................................3, 7
Fraud...................................................................................34
GAAP....................................................................................26
Galen II................................................................................71
Galen Associates........................................................................71
Galen International II..................................................................71
General Partner Cumulative Preference Amount............................................27
Goldberg $10.00 Options.................................................................23
GWW Partners............................................................................71
Indemnifiable Losses....................................................................33
Indemnification Agreement................................................................7
Indemnification Item....................................................................41
Indemnified Obligation..................................................................41
Information Statement....................................................................1
Investment Company Act .................................................................16
IRS......................................................................................3
JV Sales Taxes..........................................................................37
KPCB V .................................................................................71
Letter of Transmittal...................................................................24
Levison Trust ..........................................................................72
Liabilities.............................................................................29
License Agreement.......................................................................10
Longbow.................................................................................71
Maximum Price............................................................................5
Memorex.................................................................................64
Merger...................................................................................1
83
Merger Agreement.........................................................................2
Merger Consideration....................................................................22
Minimum Price............................................................................5
Named Officers..........................................................................65
Noncompetition Agreements............................................................9, 42
Non-United States Holders ..............................................................45
NYSE.....................................................................................5
NYSE Tape................................................................................5
OnCare...................................................................................1
OnCare Medstation Agreement.............................................................10
OnCare Preferred Stock...................................................................1
OnCare Supply Agreement..................................................................9
Oncology Therapeutics NetworkTM.........................................................30
OPUS.....................................................................................1
OPUS Matrix Business ................................................................... 1
OPUS Matrix Software ...................................................................20
OPUS Station Assets ....................................................................29
OPUS Station Business....................................................................1
OPUS Station Data.......................................................................29
OPUS Station Liabilities................................................................29
OPUS Sub.................................................................................1
OPUS Sub Assets.........................................................................28
OPUS Sub Liabilities....................................................................29
OTN......................................................................................1
OTN Medstation...........................................................................9
OTNC.....................................................................................1
Partnership .............................................................................1
Pending Claims..........................................................................43
Preference Amount.......................................................................27
Pre-JV Sales Taxes......................................................................37
Pre-Merger Taxes........................................................................36
Proposed Legislation....................................................................45
Proxy Statement/Prospectus...............................................................1
Quarterly Certificate...................................................................43
Record Date.............................................................................23
Reply Certificate.......................................................................42
Required AHC Documents .................................................................24
Restated AHC Bylaws......................................................................4
Restated AHC Certificate.................................................................3
Retained Assets.........................................................................29
Retained Business........................................................................1
Retained Cash...........................................................................29
Retained Company or Retained Companies..................................................22
Retained Escrow Amount..................................................................40
Retained Liabilities....................................................................30
Retained Tax Liabilities................................................................37
Rights Agreement.........................................................................5
Second Anniversary Date.................................................................39
Second Anniversary Pending Claims.......................................................40
Sevin Rosen II..........................................................................71
Special Meeting..........................................................................6
SRB Associates..........................................................................71
Surviving Corporation....................................................................1
Tax Matters Agreement................................................................8, 36
84
Taxes...................................................................................36
Time of Contribution....................................................................27
Time of Distribution.....................................................................2
Trademark License Agreement.............................................................32
Transaction Expense Schedule............................................................26
Transitional Services Agreement.....................................................10, 40
Zaibatsu................................................................................71
60-Day Exercise.........................................................................71
81% AHC Subsidiaries....................................................................33
85
Appendix I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AXION HEALTHCARE INC.
A DELAWARE CORPORATION
Axion HealthCare Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "General Corporation
Law"),
DOES HEREBY CERTIFY THAT:
FIRST: The name of the corporation is Axion HealthCare Inc. and
that the corporation was originally incorporated on December 1, 1994 under the
name of OnCare Health Inc. pursuant to the General Corporation Law.
SECOND: The following resolutions amending and restating the
corporation's Certificate of Incorporation were approved by the Board of
Directors of the corporation by unanimous written action in lieu of meeting in
accordance with the provisions of Sections 245 and 242 of the General
Corporation Law:
"RESOLVED, that the Certificate of Incorporation of the
corporation (the "Certificate") be and it hereby is amended and restated
to read in its entirety as follows:
ARTICLE I
The name of this Corporation is Axion HealthCare Inc.
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
(A) Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is twenty million (20,000,000) shares. Ten million (10,000,000) shares shall be
Common Stock, par value $.0001 per share, and ten million (10,000,000) shares
shall be Preferred Stock, par value $.0001 per share.
(B) Common Stock.
1. Dividend Rights. Subject to the rights of holders
of Preferred Stock, when, as and if dividends or distributions are declared on
the Common Stock, whether payable in cash, in property or in securities of the
Corporation, the holders of the Common Stock shall be entitled to share equally,
share for share, in such dividends as may be declared from time to time by the
Board of Directors, when and as declared by the Board of Directors, out of any
assets of the Corporation legally available therefor.
2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the Corporation
shall be distributed as provided in Section 2 of Division (C) of this Article
IV.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights.
a. In General. The holder of each share of
Common Stock shall have the right to one vote, and shall be entitled to notice
of any stockholders' meeting in accordance with the Bylaws of this Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
b. Change in Control. The affirmative vote of
holders of more than 50% of the outstanding shares of the Corporation's stock is
required for any transaction that would result in a reorganization of the
Corporation, or the merger or consolidation of the Corporation with or into
another corporation, or the effectuation by the Corporation of a transaction or
series of transactions in which more than 50% of the voting power of the
Corporation is disposed of (a "Change in Control").
c. Covenants. So long as any shares of Common
Stock shall be outstanding, the Corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
a majority of the then outstanding shares of Common Stock, add, amend or repeal
any provision of the Corporation's Amended and Restated Certificate of
Incorporation that would adversely alter or change the preferences, rights,
privileges or powers of such shares.
2
5. Restrictions on Transfer. Common Stock may not be
transferred except for:
a. transfers to the Corporation;
b. transfers to existing Corporation stockholders;
c. transfers by gift, bequest or operation of the laws
of descent, provided that the Common Stock in the hands of the transferee
remains subject to the same restrictions on transfer as when it was held by the
transferor;
d. transfers to an entity unaffiliated with the
Corporation pursuant to the merger, consolidation, stock for stock exchange or
similar transaction involving the Corporation;
e. transfers by a partnership to its partners,
provided that the Common Stock in the hands of the transferee remains subject to
the same restrictions on transfer as when it was held by the transferor; or
f. transfers which would be exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "Act") by virtue of the exemption provided by Section 4(2) of the Act if
the transferor were the issuer of Common Stock, provided that the transferee is
an "accredited investor" within the meaning of Rule 501(a) under the Act and the
Common Stock in the hands of such transferee remains subject to the same
restrictions on transfer as when it was held by the transferor, or a transfer
pursuant to an effective registration under the Act.
C. Preferred Stock. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is hereby authorized,
within the limitations and restrictions stated in this Certificate of
Incorporation, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series. The rights, preferences, privileges and restrictions granted to
and imposed on the Series A Preferred Stock, which series shall consist of
10,000,000 shares, are as set forth below in this Article IV(C).
1. Dividend Rights. Subject to the rights of Series of Preferred
Stock that may from time to time come into existence, the holders of Series A
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or
3
indirectly, additional shares of Common Stock of the Corporation) on the Common
Stock of the Corporation, at the rate of $.21 per share per annum for the Series
A Preferred Stock.
2. Liquidation Preference.
a. In the event of any liquidation, dissolution or
winding up of the Corporation, subject to the rights of series of Preferred
Stock that may from time to time come into existence, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of Common Stock by
reason of their ownership thereof, for the Series A Preferred Stock, an amount
per share equal to the sum of (A) $3.00 for each outstanding share of Series A
Preferred Stock, and (B) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock, so that each holder receives
the same percentage of the applicable preferential amount.
b. Upon the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, if assets remain in this corporation, the holders of the
Common Stock of this corporation, shall receive all of the remaining assets of
this Corporation.
3. Redemption. The Series A Preferred Stock is not
redeemable.
4. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
a. Right to Convert. Each share of Series A Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of this Corporation or
any transfer agent for such stock, into one share of Common Stock (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization).
b. Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common Stock
upon the earlier of (i) the Corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 under the Securities Act of 1933, as amended, the public offering price
of which was not less than $10,000,000 in the aggregate or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
c. Mechanics of Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall
4
surrender the certificate or certificates therefor, duly endorsed, at the office
of this Corporation or of any transfer agent for the Series A Preferred Stock,
and shall give written notice to this Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. This Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock shall not be deemed
to have converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
5. Voting Rights.
a. In General. Except as set forth below, the holder
of each share of Series A Preferred Stock shall have the right to one vote, and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation, and shall be entitled to vote upon such matters and
in such manner as may be provided by law.
b. Change in Control. The affirmative vote of holders
of more than 50% of the outstanding shares of the Corporation's stock is
required for any Change in Control.
c. Covenants. So long as any shares of Series A
Preferred Stock shall be outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock, add, amend or repeal any provision of the Corporation's Amended and
Restated Certificate of Incorporation that would adversely alter or change the
preferences, rights, privileges or powers of such shares.
6. Restrictions on Transfer. Series A Preferred Stock may not
be transferred except for:
a. transfers to the Corporation;
b. transfers to existing Corporation stockholders;
5
c. transfers by gift bequest or operation of the laws
of descent, provided that the Series A Preferred Stock in the hands of the
transferee remain subject to the same restrictions on transfer as they were when
held by the transferor;
d. transfers to an entity unaffiliated with the
Corporation pursuant to the merger, consolidation, stock for stock exchange or
similar transaction involving the Corporation;
e. transfers by a partnership to its partners,
provided that the Series A Preferred Stock in the hands of the transferee
remains subject to the same restrictions on transfer as they were when held by
the transferor; or
f. transfers which would be exempt from the
registration requirements of Section 5 of the Act by virtue of the exemption
provided by Section 4(2) of the Act if the transferor were the issuer of Series
A Preferred Stock, provided that the transferee is an "accredited investor"
within the meaning of Rule 501(a) under the Act and the Series A Preferred Stock
in the hands of such transferee remains subject to the same restrictions on
transfer as they were when held by the transferor, or a transfer pursuant to an
effective registration under the Act.
ARTICLE V
Except as otherwise provided in this Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from
time to time by, or in the manner provided in, the bylaws or amendment thereof
duly adopted by the Board of Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
6
ARTICLE IX
A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this
Article X by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE X
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
****
THIRD: The Restated Certificate of Incorporation as set forth
above has been duly adopted by this Corporation's Board of Directors in
accordance with the provisions of Section 245 of the General Corporation Law.
7
IN WITNESS WHEREOF, AXION HEALTHCARE INC. has caused this Amended
and Restated Certificate of Incorporation to be signed by its President and
attested to by its Secretary this the ______ day of ________________ , 1996.
AXION HEALTHCARE INC.
------------------------------------
Michael D. Goldberg
President
ATTEST:
- -------------------------------
Robert V. Gunderson, Jr.
Secretary
8
Appendix II
AMENDED AND RESTATED BYLAWS
OF
AXION HEALTHCARE INC.
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of stockholders, commencing with the
year 1997, shall be held at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
2
SECTION 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
SECTION 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
SECTION 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
3
SECTION 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no
4
proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
SECTION 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors which shall constitute the
whole board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
SECTION 2. Vacancies and new created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be
5
held in the manner provided by statute. If, at the time of filling any vacancy
or any newly created directorship, the directors then in office shall constitute
less than a majority of the whole board (as constituted immediately prior to any
such increase), the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten percent of the total number of the shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
SECTION 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
6
SECTION 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the board may be called by the
president on two (2) days notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
SECTION 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of
7
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
8
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the
9
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
SECTION 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
SECTION 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
10
SECTION 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
SECTION 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE PRESIDENTS
SECTION 8. The president shall be the chief executive officer of
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
SECTION 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
11
SECTION 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
SECTION 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary
12
and shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
SECTION 14. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
SECTION 15. If required by the Board of Directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
SECTION 16. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall
13
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating,
14
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a
15
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
RESTRICTIONS ON TRANSFER
SECTION 7. Stock of the corporation shall not be transferred
except for:
a. transfers to the corporation;
b. transfers to existing corporation stockholders;
c. transfers by gift, bequest or operation of the laws
of descent, provided that the stock in the hands of the transferee remains
subject to the same restrictions on transfer as when it was held by the
transferor;
d. transfers to an entity unaffiliated with the
corporation pursuant to the merger, consolidation, stock for stock exchange or
similar transaction involving the corporation;
e. transfers by a partnership to its partners,
provided that the stock in the hands of the transferee remains subject to the
same restrictions on transfer as when it was held by the transferor; or
f. transfers which would be exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the 'Act') by virtue of the exemption provided by Section 4(2) of the Act if
the transferor were the issuer of stock, provided that the transferee is an
'accredited investor' within the meaning of Rule 501(a) under the Act and the
stock in the hands of such transferee remains subject to the same restrictions
on transfer as when it was held by the transferor, or a transfer pursuant to an
effective registration under the Act.
MARKET STAND-OFF
SECTION 8. In connection with any underwritten public offering by
the corporation of its equity securities pursuant to an effective registration
statement filed
16
under the Act, including the corporation's initial public offering, no
stockholder of the corporation shall sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, shares of stock of the corporation without the
prior written consent of the corporation or its underwriters. Such restriction
(the "Market Stand-Off") shall be in effect for such period of time from and
after the effective date of the final prospectus for the offering as may be
requested by the corporation or such underwriters. In no event, however, shall
such period exceed one hundred eighty (180) days and the Market Stand-Off
shall in all events terminate two (2) years after the effective date of the
corporation's initial public offering.
Any new, substituted or additional securities that are by reason
of any recapitalization or reorganization distributed with respect to the shares
of stock of the corporation shall be immediately subject to the Market
Stand-Off, to the same extent the shares of stock of the corporation on which
such new, substituted or additional securities are distributed are at such time
covered by such provisions.
In order to enforce the Market Stand-Off, the corporation may
impose stop-transfer instructions with respect to the shares of stock of the
corporation until the end of the applicable stand-off period.
17
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal,
18
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
SECTION 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon
19
receipt of an undertaking by or on behalf of such director to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized by relevant sections of the General Corporation
Law of Delaware. Notwithstanding the foregoing, the corporation shall not be
required to advance such expenses to an agent who is a party to an action, suit
or proceeding brought by the corporation and approved by a majority of the Board
of Directors of the corporation which alleges willful misappropriation of
corporate assets by such agent, disclosure of confidential information in
violation of such agent's fiduciary or contractual obligations to the
corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be
a contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section
20
6, be interpreted as follows: an "other enterprise" shall be deemed to include
such an employee benefit plan, including without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as... ...ss.
The trademark symbol shall be expressed as ....(TM)
The registered symbol shall be expressed as ...(R)