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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION
14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
ChiRex Inc.
(Name of Subject Company)
ChiRex Inc.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
170038 10 3
(CUSIP Number of Class of Securities)
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Thomas I.H. Dubin, Esq.
Vice President, General Counsel and Secretary
ChiRex Inc.
300 Atlantic Street, Suite 402
Stamford, Connecticut 06901
Telephone: (203) 351-2300
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement)
With a copy to:
Philip A. Gelston, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
[_]Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9") relates to an offer by Cousin Acquisition, Inc., a Delaware
corporation ("Purchaser") and a wholly-owned subsidiary of Rhodia, a French
corporation ("Parent"), to purchase all of the outstanding Shares (as defined
below) of ChiRex Inc., a Delaware corporation (the "Company").
ITEM 1. Subject Company Information.
Name and Address.
The name of the subject company is ChiRex Inc. The address of its principal
executive offices is 300 Atlantic Street, Suite 402, Stamford, Connecticut
06901 and its telephone number is (203) 351-2300.
Securities.
This Schedule 14D-9 relates to the Company's Common Stock, par value $0.01
per share (the "Common Shares"), including the associated rights to purchase
preferred shares (the "Rights" and, together with the Common Shares, the
"Shares") issued pursuant to the Rights Agreement dated as of March 31, 1997
between the Company and The First National Bank of Boston, as Rights Agent
(the "Rights Agreement"). As of August 3, 2000, 15,306,525 Shares were
outstanding.
ITEM 2. Identity and Background of Filing Person.
Name and Address.
The name, business address and business telephone number of ChiRex Inc.,
which is the subject company and the person filing this Schedule 14D-9, are
set forth in Item 1 above.
Tender Offer.
This Schedule 14D-9 relates to the tender offer made by Purchaser, disclosed
in a Tender Offer Statement on Schedule TO dated August 4, 2000 (as amended or
supplemented from time to time, the "Schedule TO"), to purchase all the
outstanding Shares at a price of $31.25 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to
Purchase dated August 4, 2000, and filed as Exhibit (a)(1) to the Schedule TO
(the "Offer to Purchase"), and the related Letter of Transmittal, filed as
Exhibit (a)(2) thereto (which, as they may be amended and supplemented from
time to time, together constitute the "Offer"), copies of which are filed as
Exhibits (a)(1) and (a)(2) hereto, respectively, and are incorporated herein
by reference in their entirety.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of July 24, 2000 among Parent, Purchaser and the Company (the "Merger
Agreement"). Following the consummation of the Offer and the satisfaction or
waiver of certain conditions, Purchaser will merge with and into the Company
or, at Parent's election and subject to certain conditions, the Company will
merge with and into Purchaser or another wholly-owned subsidiary of Parent
(the "Merger"). A copy of the Merger Agreement is filed as Exhibit (e)(1)
hereto and is incorporated herein by reference in its entirety. In the Merger,
each Share outstanding at the Effective Time (as defined in the Merger
Agreement) (other than Shares held by Parent, Purchaser or the Company, by any
direct or indirect wholly-owned subsidiary of Parent or the Company or by
stockholders who perfect appraisal rights pursuant to Section 262 of the
Delaware General Corporation Law) will, by virtue of the Merger and without
any action by the holder thereof, be converted into the right to receive,
without interest, an amount in cash equal to $31.25 per Share or such greater
amount per Share which may be paid pursuant to the Offer.
The Schedule TO states that the principal executive offices of Parent is
located at 26, quai Alphonse Le Gallo, 92512 Boulogne-Billancourt, France, and
the telephone number is (33-1) 55-38-4000, and that the
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principal executive offices of Purchaser are located at 259 Prospect Plains
Road, Cranbury, New Jersey 08512, and its telephone number is (609) 860-4000.
ITEM 3. Past Contacts, Transactions, Negotiations, and Agreements.
Conflicts of Interest.
Certain contracts, agreements, arrangements and understandings between the
Company and its executive officers, directors and affiliates are described in
the Information Statement pursuant to Section 14(f) of the Securities Exchange
Act of 1934, as amended, and Rule 14f-1 thereunder (the "Information
Statement") that is attached as Annex B to this Statement and is incorporated
herein by reference. Except as set forth in this Item 3 or in Annex B, there
exists on the date hereof no material agreement, arrangement or understanding
and no actual or potential material conflict of interest between the Company
or its affiliates and either (i) the Company, its executive officers,
directors or affiliates or (ii) Parent, Purchaser or any of their respective
executive officers, directors or affiliates.
Employment Agreements dated July 11, 2000. On July 11, 2000, the Company
entered into amended and restated employment agreements with Michael A.
Griffith, Francis Jackson Wright, Thomas I.H. Dubin and Jon E. Tropsa (the
"July 11 Employment Agreements"). Each of these agreements provides for an
initial term of three years. The agreements provide a base salary of $300,000
for Mr. Griffith, $210,000 for Mr. Wright, $175,000 for Mr. Dubin and $150,000
for Mr. Tropsa. Each executive is also entitled to receive an annual bonus
that is based on the Company's performance and upon the executive achieving
specific goals and objectives. In the case of Mr. Griffith, there is a minimum
guaranteed bonus of 50% of base salary. The Company has the right to terminate
each executive's employment immediately upon the occurrence of certain for
"cause" events. Each executive's employment may also be terminated by the
Company without cause, but in that event the Company must pay the executive a
percentage of his salary (300% in the case of Mr. Griffith and 140% in the
case of Messrs. Wright, Dubin and Tropsa) and other compensation and certain
expenses in connection with such termination. If any of these executives is
terminated without cause or if there is a change in control, all unvested
stock options, restricted stock, deferred compensation and similar benefits
will vest. If any of these executives terminate their employment within 90
days following a change in control, he is entitled to receive continuation of
benefits for two years and a lump sum payment equal to: in the case of Mr.
Griffith, three times the sum of base salary and guaranteed bonus; in the case
of Mr. Wright, 2.75 times the sum of base salary and 40% of base salary; and
in the case of Messrs. Dubin and Tropsa, 2.50 times the sum of base salary and
40% of base salary. In the event the payments to any executive under the July
11 Employment Agreements are subject to taxes imposed by Section 4999 of the
Internal Revenue Code (the so-called "golden parachute tax") the Company will
make payments to the executive to make him whole for such tax. Consummation of
the Offer would be a change in control for purposes of these agreements. This
summary is qualified in its entirety by reference to the July 11 Employment
Agreements, which are filed as Exhibits (e)(2) through (e)(5) hereto and are
incorporated by reference herein in their entirety.
New Employment and Consulting Agreements. At the time the Merger Agreement
was executed, the Company entered into consulting agreements with Messrs.
Griffith and Wright and employment agreements with Ian D. Shott, Stuart E.
Needleman and Bruce P. Shutts, all of which become effective upon consummation
of the Offer (the "New Consulting and Employment Agreements"). These
agreements, which were negotiated by Parent, will supersede the existing
employment agreements between the Company and these individuals. A summary of
the terms of these agreements is set forth under the caption "Background of
the Offer; Contacts with the Company; the Merger Agreement and Related
Agreements--Consulting and Employment Agreements" in the Offer to Purchase and
is incorporated herein by reference. The summary is qualified in its entirety
by reference to the New Consulting and Employment Agreements, which are filed
as Exhibits (e)(6) through (e)(10) hereto and are incorporated by reference
herein in their entirety.
Interests of Certain Persons in the Offer and the Merger. In considering the
recommendations of the Board of Directors of the Company (the "Board") with
respect to the Offer, the Merger and the Merger Agreement and
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the fairness of the consideration to be received in the Offer and the Merger,
stockholders should be aware that certain officers and directors of Parent,
Purchaser and the Company have interests in the Offer and the Merger, which
are described in the sections of the Offer to Purchase listed below, that may
present them with potential conflicts of interest. The information contained
under the captions "Background of the Offer; Contacts with the Company; the
Merger Agreement and Related Agreements--The Merger Agreement--Employee Stock
Options and Other Employee Benefits" and "Background of the Offer; Contacts
with the Company; the Merger Agreement and Related Agreements--The Merger
Agreement--Directors' and Officers' Indemnification and Insurance" in the
Offer to Purchase is incorporated herein by reference.
The Board was aware of these actual and potential conflicts of interest and
considered them along with the other matters described below in Item 4, "The
Solicitation or Recommendation--Reasons for Recommendation."
Item 4. The Solicitation or Recommendation.
Recommendation of the Board.
At a meeting held on July 23, 2000 the Board unanimously (i) determined that
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, are fair to, and in the best interests of, holders of
Shares, (ii) approved, adopted and declared advisable the Merger Agreement and
(iii) resolved to recommend that holders of Shares accept the Offer and tender
their Shares pursuant to the Offer and approve and adopt the Merger Agreement
and the transactions contemplated thereby. Accordingly, the Board unanimously
recommends that the stockholders of the Company tender their Shares pursuant
to the Offer. Copies of a letter to the stockholders of the Company
communicating the Board's recommendation and the Company's press release
announcing the Merger Agreement and the transactions contemplated thereby are
filed as Exhibits (a)(3) and (a)(4) hereto, respectively, and are incorporated
herein by reference.
Reasons for Recommendation.
In making the determinations and recommendations set forth above, the Board
considered a number of factors, including, without limitation, the following:
(i) the amount and form of consideration to be received by the Company's
stockholders in the Offer and the Merger and the Company's prospects after
the Merger;
(ii) the Company's prospects if it were to remain independent, and the
risks and benefits inherent in remaining independent, including the risk
arising from the increasing investment required to compete in the market
for pharmaceutical active ingredients and the dependence of the Company on
a small number of customers;
(iii) the possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's stockholders of
such alternatives and the timing and likelihood of accomplishing the goal
of any of such alternatives;
(iv) information with regard to the financial condition, results of
operations, business and prospects of the Company, as well as current
economic and market conditions (including current conditions in the
industry in which the Company competes);
(v) the historical and recent market prices of Shares and the fact that
the Offer and the Merger will enable the holders of Shares to realize a
premium over the prices at which such Shares traded prior to the
negotiation and execution of the Merger Agreement;
(vi) the written opinion of Chase Securities Inc. ("Chase Securities")
dated July 23, 2000 to the effect that, as of such date, and based upon and
subject to certain matters stated in such opinion, the $31.25 per
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Share cash consideration to be received by holders of Shares (other than
Parent and its affiliates) in the Offer and the Merger, taken together as a
whole and not separately, was fair, from a financial point of view, to such
holders and the presentation made by Chase Securities to the Board relating
to the financial analysis performed by Chase Securities in connection with
such opinion. The full text of Chase Securities' written opinion, dated
July 23, 2000, which sets forth the assumptions made, matters considered
and limitations on the review undertaken by Chase Securities, is set forth
in Annex A hereto and is filed as Exhibit (a)(7) hereto and is incorporated
herein by reference. Chase Securities' opinion is limited to the fairness,
from a financial point of view, of the cash consideration to be received in
the Offer and the Merger, taken together as a whole and not separately, by
the holders of Shares (other than Parent and its affiliates) and does not
constitute a recommendation as to whether any stockholder should tender
Shares pursuant to the Offer or how such stockholder should vote with
respect to the Merger. Holders of Shares are urged to read such opinion
carefully in its entirety;
(vii) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants and the conditions to their
respective obligations; and
(viii) the high likelihood that the proposed acquisition would be
consummated, in light of the fact that the Offer and Merger are not subject
to any financing contingencies.
The Board also considered the actual and potential conflicts of interest
described above in Item 3. The Board did not assign relative weights to the
above factors or determine that any factor was of particular importance.
Rather, the Board viewed its position and recommendations as being based on
the totality of the information presented to and considered by it. In
addition, it is possible that different members of the Board assigned
different weights to the various factors described above.
Intent to Tender.
To the Company's knowledge after reasonable inquiry, all of the Company's
executive officers, directors and affiliates currently intend to tender all
Shares held of record or beneficially owned by them pursuant to the Offer,
except David K. Stevenson and W. Dieter Zander, whose tenders may be subject
to Section 16(b) under the Exchange Act. Messrs. Stevenson and Zander intend
to vote all Shares held of record or beneficially owned by them that they do
not tender in favor of the approval and adoption by the stockholders of the
Company of the Merger Agreement and the transactions contemplated thereby. The
foregoing does not include any Shares over which, or with respect to which,
any such executive officer, director or affiliate acts in a fiduciary or
representative capacity or is subject to the instructions of a third party
with respect to such tender or vote.
Item 5. Persons/Assets, Retained, Employed, Compensated or Used.
The Company has retained Chase Securities as its financial advisor in
connection with the Offer and the Merger. Pursuant to the terms of Chase
Securities' engagement, the Company has agreed to pay Chase Securities for its
services an aggregate financial advisory fee equal to approximately $5,000,000
payable upon consummation of the transaction. The Company also has agreed to
indemnify Chase Securities and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Chase Securities' engagement.
The Chase Manhattan Corporation and its affiliates, including Chase
Securities, has, in the ordinary course of business, in the past provided, and
in the future may continue to provide, commercial and investment banking
services to the Company and Parent and their respective affiliates unrelated
to the Offer and the Merger, for which services Chase Securities has received
customary compensation. In the ordinary course of business, Chase Securities
or its affiliates may actively trade or hold the debt and equity securities of
the Company and Parent and their respective affiliates for their own accounts
and those of their customers and, accordingly, may at any time hold a long or
short position in such securities.
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Neither the Company nor anyone acting on its behalf has employed, retained
or compensated, or currently intends to employ, retain or compensate, any
person to make solicitations or recommendations to the stockholders of the
Company on its behalf with respect to the Offer or the Merger.
Item 6. Interest in Securities of the Subject Company.
No transactions in Shares have been effected during the past 60 days by the
Company or any subsidiary of the Company or, to the best of the Company's
knowledge, by any executive officer, director or affiliate of the Company.
Item 7. Purposes of the Transaction and Plans or Proposals.
The Company is not undertaking or engaged in any negotiations in response to
the Offer that relate to:
(1) a tender offer for or other acquisition of the Company's securities
by the Company, any of its subsidiaries, or any other person;
(2) any extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries;
(3) any purchase, sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; or
(4) any material change in the present dividend rate or policy, or
indebtedness or capitalization, of the Company.
There are no transactions, board resolutions, agreements in principle or
signed contracts entered into in response to the Offer that relate to one or
more of the matters referred to in this Item 7.
Item 8. Additional Information.
The Company Rights Agreement.
Each Right issued pursuant to the Rights Agreement, when it becomes
exercisable, entitles the registered holder to purchase from the Company one
one-thousandth (1/1000th) of a share of Preferred Stock (a "Preferred Share")
at a price of $50 per one one-thousandth (1/1000th) of a share, subject to
adjustment in certain circumstances (the "Purchase Price").
The Rights are not exercisable until the Distribution Date. The
"Distribution Date" is the earlier of (i) such time as the Company learns that
a person or group (including any affiliate or associate of such person or
group) has acquired, or has obtained the right to acquire, beneficial
ownership of more than 15% of the outstanding Shares (such person or group
being an "Acquiring Person"), unless provisions preventing accidental
triggering of the distribution of the Rights apply, and (ii) the close of
business on such date, if any, as may be designated by the Board following the
commencement of, or first public disclosure of an intent to commence, a tender
or exchange offer for more than 15% of the outstanding Shares.
At such time as there is an Acquiring Person, each holder of a Right (other
than such Acquiring Person) is entitled to purchase, for the Purchase Price,
that number of one one-thousandths (1/1000ths) of a Preferred Share equivalent
to the number of Shares which at the time of such event would have a market
value of twice the Purchase Price. In the event the Company is acquired in a
merger or other business combination by an Acquiring Person or an affiliate or
associate of an Acquiring Person that is a publicly traded corporation or 50%
or more of the Company's assets or assets representing 50% or more of the
Company's revenues or cash flow are sold, leased, exchanged or otherwise
transferred (in one or more transactions) to an Acquiring Person or an
affiliate or associate of an Acquiring Person, each Right entitles its holder
(other than Rights beneficially owned by such Acquiring Person or its
affiliates or associates) to purchase, for the Purchase Price, that number of
common
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shares of such corporation (or, if such corporation is not a publicly traded
corporation, that number of common shares of an affiliate of such corporation
that has publicly traded shares) which at the time of the transaction would
have a market value or, in certain circumstances, book value of twice the
Purchase Price.
On July 23, 2000, the Board unanimously approved the amendment of certain
terms of the Rights Agreement. The Company then executed Amendment No. 1 dated
as of July 23, 2000 to the Rights Agreement (the "Rights Agreement
Amendment").
The Rights Agreement Amendment provides that, notwithstanding anything to
the contrary contained in the Rights Agreement, (i) neither Parent nor
Purchaser will at any time come within the definition of an Acquiring Person
as a result of the transactions contemplated by the Merger Agreement and (ii)
prior to the termination of the Merger Agreement, no person (including without
limitation the Company or any affiliate thereof) that becomes the beneficial
owner of more than 15% of the then-outstanding Shares shall come within the
definition of an Acquiring Person if the existence of an Acquiring Person
would cause any condition to the obligations of Parent or Purchaser under the
Merger Agreement or the Offer (as defined in the Merger Agreement) not to be
satisfied or cause a Fee (as defined in the Merger Agreement) to become
payable to Parent or Purchaser.
The Rights Agreement Amendment also provides that, notwithstanding anything
to the contrary contained in the Rights Agreement, (i) no Distribution Date
will occur as a result of any of the transactions contemplated by the Merger
Agreement and (ii) prior to the termination of the Merger Agreement, no
Distribution Date will occur as a result of any person (including without
limitation the Company or any affiliate thereof) becoming the beneficial owner
of more than 15% of the then-outstanding Shares if the occurrence of a
Distribution Date would cause any condition to the obligations of Parent or
Purchaser under the Merger Agreement or the Offer (as defined in the Merger
Agreement) not to be satisfied or cause a Fee (as defined in the Merger
Agreement) to become payable to Parent or Purchaser.
Finally, the Rights Agreement Amendment provides that, notwithstanding
anything to the contrary contained in the Rights Agreement, upon effectiveness
of the Merger, as defined in the Merger Agreement, all Rights granted by the
Rights Agreement will become null and void, the Rights Agreement will be
terminated and all provisions of the Rights Agreement, collectively and
separately, will be without effect (including, without limitation, all
sections pertaining to Redemption Rights (as defined in the Rights
Agreement)).
The Rights Agreement Amendment is filed as Exhibit (e)(11) and is
incorporated herein by reference. The foregoing description of the Rights
Agreement Amendment does not purport to be complete and is qualified in its
entirety by reference to Rights Agreement Amendment.
Section 14(f) Information Statement.
The Information Statement attached as Annex B hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders.
Offer to Purchase, Letter of Transmittal and Related Documents.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal, form of letter to brokers, dealers, commercial banks, trust
companies and other nominees and form of letter to clients which are filed as
Exhibits (a)(1), (a)(2), (a)(5) and (a)(6) hereto, respectively, and are
incorporated herein by reference in their entirety.
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Item 9. Exhibits.
The following Exhibits are filed herewith:
Exhibit No. Description
----------- -----------
(a)(1) Offer to Purchase dated August 4, 2000 (incorporated by reference
to Exhibit (a)(1) to the Schedule TO filed by Parent and Purchaser
on August 4, 2000).
(a)(2) Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(a)(3) Letter from the Chairman of the Company to the Company's
stockholders dated August 4, 2000 (filed herewith).
(a)(4) Joint Press Release issued by Parent and the Company on July 24,
2000 (incorporated by reference to Exhibit 3 to the Form 8-K filed
by the Company on July 26, 2000).
(a)(5) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated by reference to Exhibit
(a)(4) to the Schedule TO filed by Parent and Purchaser on August
4, 2000).
(a)(6) Form of Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (incorporated by
reference to Exhibit (a)(5) to the Schedule TO filed by Parent and
Purchaser on August 4, 2000).
(a)(7) Opinion of Chase Securities Inc. dated July 23, 2000 (included as
Annex A to this Schedule 14D-9).
(e)(1) Agreement and Plan of Merger dated as of July 24, 2000 among
Parent, Purchaser and the Company (incorporated by reference to
Exhibit 1 to the Form 8-K filed by the Company on July 26, 2000).
(e)(2) Amended and Restated Employment Agreement dated as of July 11,
2000 between the Company and Michael A. Griffith (filed herewith).
(e)(3) Amended and Restated Employment Agreement dated as of July 11,
2000 between the Company and Francis Jackson Wright (filed
herewith).
(e)(4) Amended and Restated Employment Agreement dated as of July 11,
2000 between the Company and Thomas I.H. Dubin (filed herewith).
(e)(5) Amended and Restated Employment Agreement dated as of July 11,
2000 between the Company and Jon E. Tropsa (filed herewith).
(e)(6) Consulting Agreement dated as of July 24, 2000 among the Company,
Parent and Michael A. Griffith (incorporated by reference to
Exhibit (d)(4) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(e)(7) Consulting Agreement dated as of July 24, 2000 among the Company,
Parent and Francis Jackson Wright (incorporated by reference to
Exhibit (d)(5) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(e)(8) Employment Agreement dated as of July 24, 2000 among the Company,
Parent and Ian D. Shott (incorporated by reference to Exhibit
(d)(7) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(e)(9) Employment Agreement dated as of July 24, 2000 among the Company,
Parent and Stuart E. Needleman (incorporated by reference to
Exhibit (d)(9) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(e)(10) Employment Agreement dated as of July 24, 2000 among the Company,
Parent and Bruce P. Shutts (incorporated by reference to Exhibit
(d)(8) to the Schedule TO filed by Parent and Purchaser on
August 4, 2000).
(e)(11) Amendment No. 1 dated as of July 23, 2000 to the Rights Agreement
between ChiRex Inc. and The First National Bank of Boston, as the
Rights Agent (incorporated by reference to Exhibit 2 to the Form
8-K filed by the Company on July 26, 2000).
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
ChiRex Inc.
/s/ Michael A. Griffith
By: _________________________________
Name: Michael A. Griffith
Title: Chairman and
Chief Executive Officer
August 4, 2000
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Annex A
[LOGO]
[LOGO]
July 23, 2000
Board of Directors
ChiRex Inc.
300 Atlantic Street, Suite 402
Stamford, CT 06901
Members of the Board:
You have informed us that Rhodia (the "Parent"), Cousin Acquisition, Inc.
("Purchaser"), a wholly-owned subsidiary of Parent, and ChiRex Inc. (the
"Company") propose to enter into an Agreement and Plan of Merger dated as of
July 24, 2000 (the "Agreement") which provides, among other things, for the
tender offer (the "Offer") by Purchaser for all the outstanding shares of
common stock of the Company, par value $0.01 per share (together with the
associated Rights, the "Shares") at $31.25 per share in cash (the "Per Share
Amount"), to be followed by the merger of Purchaser with and into the Company
(the "Merger") pursuant to which each then outstanding Share will be converted
into the right to receive an amount equal to the Per Share Amount in cash. The
Offer and the Merger, taken together as a whole and not separately, are
referred to herein as the "Transaction". Capitalized terms not defined herein
shall have the same meanings given to them in the Agreement.
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Shares (other than Parent and its
affiliates) of the Per Share Amount to be received by such holders in the
Transaction.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft of the Agreement in the form provided to us and
have assumed that the final form of such agreement will not vary in any
regard that is material to our analysis;
(b) reviewed certain publicly available business and financial
information we deemed relevant relating to the Company and Parent and the
respective industries in which they operate;
(c) reviewed certain internal non-public financial and operating data
provided to us by the management of the Company relating to the Company's
business, including certain forecast and projection information as to the
future financial results of such business;
(d) discussed with members of the senior management of the Company, the
Company's operations, historical financial statements and future prospects,
as well as such other matters as we deemed necessary or appropriate;
(e) compared the financial and operating performance of the Company with
publicly available information concerning certain other companies we deemed
comparable and reviewed the relevant historical stock prices and trading
volumes of the Shares and certain publicly traded securities of such other
companies;
(f) reviewed the financial terms of certain recent business combinations
and acquisition transactions we deemed reasonably comparable to the
Transaction and otherwise relevant to our inquiry; and
(g) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading.
A-1
We have neither made nor obtained any independent evaluations or appraisals of
the assets or liabilities of the Company nor have we conducted a physical
inspection of the properties and facilities of the Company. We have assumed
that the financial forecast and projection information provided to or
discussed with us by or on behalf of the Company have been reasonably
determined on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company. We express no view as to such forecast or
projection information or the assumptions upon which they were based.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Company.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of Shares (other than Parent or its affiliates) of the Per Share
Amount to be received by such holders in the Transaction and we express no
opinion as to the merits of the underlying decision by the Company to engage
in the Transaction. We express no opinion on matters of a tax, accounting or
legal nature related to the Transaction. This opinion does not constitute a
recommendation to any holder of Shares as to whether such holder should tender
Shares in the Offer or as to how such holder should vote with respect to the
Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
connection with the Transaction and will receive a fee for our services,
including for rendering this opinion, the payment of which is contingent upon
the consummation of the Transaction. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement. As we have
previously advised you, The Chase Manhattan Corporation and its affiliates,
including Chase Securities Inc., in the ordinary course of business, have from
time to time provided, and in the future may continue to provide, for
customary compensation, commercial and investment banking services to the
Company and Parent and their respective affiliates. In the ordinary course of
business, we or our affiliates may trade in the debt and equity securities of
the Company and Parent and their respective affiliates for our own accounts
and for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Per Share Amount to be received by the holders of Shares
(other than Parent and its affiliates) in the Transaction is fair, from a
financial point of view, to such holders.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Transaction and shall not be used for any
other purpose without the prior written consent of Chase Securities Inc.
Very truly yours,
/s/ Chase Securities Inc.
Chase Securities Inc.
A-2
Annex B
CHIREX INC.
300 Atlantic Street, Suite 402
Stamford, Connecticut 06901
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about August 4, 2000 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of ChiRex Inc. (the "Company"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser (as defined below) to a majority of seats on the Board
of Directors of the Company (the "Board"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings set forth in the Schedule
14D-9.
On July 24, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Rhodia, a French corporation ("Parent"), and its
wholly-owned subsidiary Cousin Acquisition, Inc., a Delaware corporation
("Purchaser"). Pursuant to the Merger Agreement, Purchaser has commenced a
tender offer to purchase all outstanding shares of the Company's Common Stock,
including the associated preferred shares purchase rights, at a price per
share of $31.25, net to the seller in cash.
The Merger Agreement requires the Company to cause the directors designated
by Purchaser to be elected to the Board in the event that Purchaser acquires a
majority of the outstanding Shares on a fully diluted basis pursuant to the
Offer.
This Information Statement is being mailed to you in accordance with Section
14(f) of the Securities Exchange Act and Rule 14f-l promulgated thereunder.
The information set forth herein supplements certain information set forth in
the Schedule 14D-9. Information set forth herein related to Parent, Purchaser
or the Purchaser Designees (as defined herein) has been provided by Parent.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with the matters set forth
herein.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on August 4,
2000. The Offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on Thursday, August 31, 2000, unless the Offer is extended.
GENERAL
The Company's Common Stock, par value $0.01 per share, is the only class of
equity securities of the Company outstanding which is entitled to vote at a
meeting of the stockholders of the Company. Holders of Shares are entitled to
cast one vote per Share on matters presented for a vote at such meetings. As
of August 3, 2000 there were 15,306,525 Shares outstanding. As of the date
hereof, Parent owns 75,100 Shares.
RIGHT TO DESIGNATE DIRECTORS AND PURCHASER'S DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of a majority of the then-outstanding Shares on a fully-diluted basis pursuant
to the Offer and from time to time thereafter, Purchaser will be entitled to
designate up to such number of directors (the "Purchaser's Designees"),
rounded up to the next whole number, on the Board as shall give Purchaser
representation on the Board equal to the product of the total
B-1
number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
following such purchase bears to the total number of Shares then outstanding,
and the Company shall, at such time, promptly take all actions necessary to
cause Purchaser's designees to be elected as directors of the Company,
including increasing the size of the Board or securing the resignations of
incumbent directors, or both.
Notwithstanding the foregoing, if Shares are purchased pursuant to the
Offer, there will be until the Effective Time at least two members of the
Board who were directors on the date of the Merger Agreement and who are not
officers of the Company or successors selected by such non-employee directors.
The Purchaser's Designees will be selected by Purchaser from among the
individuals listed below. Each of the following individuals has consented to
serve as a director of the Company if appointed or elected. None of
Purchaser's Designees currently is a director of, or holds any positions with,
the Company. Purchaser has advised the Company that, to the best of
Purchaser's knowledge, except as set forth below, none of the Purchaser's
Designees or any of their affiliates beneficially owns any equity securities
or rights to acquire any such securities of the Company nor has any such
person been involved in any transaction with the Company or any of its
directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the Commission other than with
respect to transactions between Purchaser and the Company that have been
described in the Schedule TO or the Schedule 14D-9.
The name, age, present principal occupation or employment and five-year
employment history of each of the individuals who may be selected as
Purchaser's Designees are set forth below. Unless otherwise indicated, each
such individual has held his or her present position as set forth below for
the past five years. Unless otherwise indicated, the business address of each
person listed below is Rhodia, 26, quai Alphonse Le Gallo, 92512 Boulogne-
Billancourt, France.
Name, Age, Principal Occupation and Employment History
Present Principal Occupation or
Employment;
Name, Position with Parent and Material Positions Held During the Past
Citizenship Age Five Years
------------------------------ --- ---------------------------------------
Jean-Claude Bravard.............. 53 Deputy President of Rhodia and
France President of the Fine Organics Division
since January 1, 1999. Mr. Bravard was
previously Vice President of
Development and Industry between
January 1998 and December 1998. Between
1995 and 1997, Mr. Bravard was
President of the paper, paint and
construction materials enterprise of
Rhone-Poulenc Chimie. Mr. Bravard is
also a director of Rhodia Services,
Rhodia Recherches, Rhodia Inc. and
Rhodia Organique Fine Ltd.
Myron Galuskin................... 55 President of the North American Zone of
U.S.A. Rhodia and President of Rhodia Inc.
since July 1998. Mr. Galuskin served as
Rhodia Inc.'s Vice President between
January 1998 and July 1998. Prior to
1998, Mr. Galuskin held various
position within the Rhone-Poulenc
group.
The business address of Rhodia Inc. is
259 Prospect Plains Road, Cranbury, New
Jersey 08512, U.S.A.
Paul Pham........................ 44 Senior Vice President Finance and
France Administration, Fine Organics Division
of Rhodia since January 1999. Between
1996 and 1999, Mr. Pham was Vice
President Economy, Asia Pacific Zone,
of Rhodia, and between 1994 and 1996,
he was Director Finance, Chemical
Sector, North American Zone, of Rhodia.
Mr. Pham is also the representative of
Rhodia Chimie on the board of ICMD and
the representative of Rhodia
Investissements on the board of
Novacarb.
B-2
STOCK OWNERSHIP
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 31, 2000 with
respect to the beneficial ownership of the outstanding Shares by (i) all
persons owning of record, or beneficially to the knowledge of the Company,
more than five percent of the outstanding Shares, (ii) each director of the
Company, individually, (iii) the Chief Executive Officer and each of the four
Named Executive Officers included in the Summary Compensation Table set forth
below and (iv) all directors and officers of the Company as a group. Unless
otherwise indicated, the mailing address of each of the persons shown is c/o
ChiRex Inc., 300 Atlantic Street, Suite 402, Stamford, Connecticut 06901.
Shares Percent
Beneficially Beneficially
Beneficial Owner Owned Owned
---------------- ------------ ------------
Brown Capital Management, Inc. (1).................. 1,341,300 8.8%
1201 N. Calvert Street
Baltimore, MD 21202
Putnam Investment Management Inc. (1)............... 1,084,800 7.1%
One Boston Post Office Square
Boston, MA 02109
Michael A. Griffith (2)(9).......................... 595,000 3.8%
Dirk H. Detert (3).................................. 21,400 *
Eric N. Jacobsen (2)................................ 53,517 *
W. Dieter Zander (4)................................ 34,635 *
Ian D. Shott (2)(9)................................. 175,000 1.1%
Bruce P. Shutts (5)(9).............................. 55,000 *
Stuart E. Needleman (6)(9).......................... 66,550 *
Jon E. Tropsa (7)(9)................................ 151,000 *
All Executive Officers and Directors as a Group
(thirteen persons) (8)(9).......................... 1,596,346 9.5%
- --------
* Less than 1% of the outstanding common stock.
(1) As reported on Schedule 13F filed with the Securities and Exchange
Commission ("SEC") for the period ended March 31, 2000.
(2) Represents Shares subject to options that are exercisable within 60 days.
(3) Includes 18,400 Shares subject to options that are exercisable within 60
days.
(4) Includes 18,635 Shares subject to options that are exercisable within 60
days.
(5) Includes 50,000 Shares subject to options that are exercisable within 60
days.
(6) Includes 65,000 Shares subject to options that are exercisable within 60
days.
(7) Includes 150,000 Shares subject to options that are exercisable within 60
days.
(8) Includes an aggregate of 1,540,909 Shares subject to options that are
exercisable within 60 days.
(9) Includes Shares subject to options that will become exercisable as a
result of the Offer.
B-3
BOARD OF DIRECTORS
Terms of Directors
The directors are divided into three classes. At each annual meeting, the
term of one class expires. Directors in each class serve three-year terms.
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Michael A. Griffith.............. 41 Director and Chief Executive Officer
Ian D. Shott..................... 43 President, Manufacturing Division
Bruce P. Shutts.................. 46 President, Development Division
Executive Vice President, Corporate
Frank J. Wright.................. 52 Development
Ian M. Brown..................... 44 Vice President, Annan Operations
Vice President, General Counsel and
Thomas I. H. Dubin............... 38 Secretary
Stuart E. Needleman.............. 41 Vice President, Business Development
Roger B. Pettman, Ph.D........... 44 Vice President, Technology
Jon E. Tropsa.................... 44 Vice President, Finance
Dirk H. Detert, Ph.D............. 59 Director
Eric N. Jacobsen, Ph.D........... 40 Director
David K. Stevenson............... 56 Director
W. Dieter Zander................. 84 Director
MICHAEL A. GRIFFITH, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Griffith has
served as Chairman of the Board since September 1, 1998, and Chief Executive
Officer of the Company since July 7, 1998. Prior to his appointment as Chief
Executive Officer, Mr. Griffith served as Chief Financial Officer from April
10, 1996 and as Secretary from September 5, 1996, to September 1, 1998. He has
been a member of the Board since October 17, 1996. From 1994 until April 1996,
Mr. Griffith was a Director at Credit Suisse First Boston. Mr. Griffith holds
a Master of Management in finance, marketing and international economics from
the J.L. Kellogg Graduate School of Management at Northwestern University and
a Bachelor of Science in Business Administration from the University of
Kansas.
IAN D. SHOTT, PRESIDENT, MANUFACTURING DIVISION. Mr. Shott became Chief
Operating Officer of the Company on September 1, 1998, and was appointed
President, Manufacturing Division of the Company during August, 1999. From
1993 until joining the Company, Mr. Shott served as an executive at Lonza Fine
Chemicals, a Swiss-based contract manufacturing firm. At Lonza, he held the
positions of General Manager, Exclusive Fine Chemicals, and Head of
International Supply Chain Management. Previously, he served at ICI and then
Zeneca Fine Chemicals for 15 years, culminating in the position of Business
General Manager. Mr. Shott holds a B.Sc. in Chemical Engineering from the
Imperial College in London.
BRUCE P. SHUTTS, PRESIDENT, DEVELOPMENT DIVISION. Mr. Shutts became Vice
President, Development Operations of the Company on July 5, and was appointed
President, Development Division of the Company during August, 1999. Prior to
joining the Company, Mr. Shutts spent 16 years in positions of increasing
responsibility at Schering Plough Corporation, most recently as Vice President
of Chemical Development, where he directed the discovery, development and
implementation of processes for the manufacture of all new chemical drug
candidates. Prior to Schering Plough, Mr. Shutts spent 7 years with Bristol
Myers Squibb, most recently as the Department Head of Chemical Intermediates
Production. Mr. Shutts earned his B.S. in Chemical Engineering from Cornell
University in 1975 and his M.B.A. in Finance from Syracuse University in 1981.
FRANK J. WRIGHT, EXECUTIVE VICE PRESIDENT, CORPORATE DEVELOPMENT. Mr. Wright
became Executive Vice President, Corporate Development, of the Company on
December 17, 1998. Mr.
B-4
Wright joined the Company as Vice President, Annan Operations, in November
1997, following the acquisition of GlaxoWellcome's Annan facility by the
Company. During the previous 16 years, Mr. Wright served in senior positions
at GlaxoWellcome in outsourcing and procurement, manufacturing strategy and
corporate development. Prior to GlaxoWellcome, Mr. Wright spent 15 years at
ICI, most recently as Project Manager. He trained as a mechanical engineer and
studied strategic business and management development at Liverpool University
and London Business School.
IAN M. BROWN, VICE PRESIDENT, ANNAN OPERATIONS. Mr. Brown became Vice
President, Annan Operations, of the Company on September 1, 1998. Mr. Brown
joined the Company in November 1997, following the acquisition of
GlaxoWellcome's Annan facility by the Company. During the previous ten years,
Mr. Brown served in various senior positions at Annan in manufacturing. Mr.
Brown holds a B.Sc. degree in chemistry from Heriot-Watt University,
Edinburgh, is a Member of the Royal Society of Chemistry and has a general
management qualification from Henley Business School.
THOMAS I. H. DUBIN, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Mr. Dubin
became Vice President, General Counsel and Secretary of the Company on March
15, 1999. From 1992 through 1999, Mr. Dubin held positions of increasing
responsibility at Warner-Lambert Company, most recently as Assistant General
Counsel, Corporate Affairs. From 1987 through 1992, Mr. Dubin was an attorney
at the law firm of Cravath, Swaine & Moore. Mr. Dubin earned his B.A. from
Amherst College in 1984, and his J.D. from New York University in 1987.
STUART E. NEEDLEMAN, VICE PRESIDENT, BUSINESS DEVELOPMENT. Mr. Needleman
became Vice President, Business Development of the Company on February 1,
1999. Prior to joining the Company, Mr. Needleman served since 1995 as Vice
President of Business Development, North America, for Oxford Asymmetry
International, managing the company's sales and marketing programs and
establishing alliances and collaborations, concentrating on the life sciences
industry. Prior to his position with Oxford Asymmetry, Mr. Needleman was
employed by Cambrex Corporation for eight years, where he served as Manager,
Contract Manufacturing. He earned a B.S. degree in Chemical Engineering in
1980, and an M.B.A. in 1981, both from Rensselaer Polytechnic Institute.
ROGER B. PETTMAN PH.D., VICE PRESIDENT, TECHNOLOGY. Dr. Pettman became Vice
President, Technology during August, 1999. Prior to this date, he served as
General Manager, ChiRex Technology Center since September 1, 1998 and Vice
President, Sales and Marketing, from March 1996. From 1992 until the March
1996, Dr. Pettman was Vice President, Sales and Marketing of SepraChem Inc. He
holds a B.Sc. degree and Ph.D. in chemistry from Sheffield University and
completed two years postdoctoral study at Stanford University.
JON E. TROPSA, VICE PRESIDENT, FINANCE. Mr. Tropsa became Vice President,
Finance, of the Company on September 1, 1998. He served as Vice President,
Controller and Treasurer from July 1998 to September 1998 and as Corporate
Controller of the Company from September 1997 to July 1998. From April 1997
through September 1997, Mr. Tropsa was Corporate Controller for Dynacast Inc.,
in Yorktown Heights, New York and from March 1990 through March 1997 Mr.
Tropsa was Corporate Controller of Hargro Associates of Stamford, Connecticut.
Mr. Tropsa holds a B.S. in accounting from Babson College and is a Certified
Public Accountant.
DIRK H. DETERT, PH.D., DIRECTOR. Dr. Detert has 28 years of experience in
the pharmaceutical industry. Dr. Detert was formerly the General Manager of
Wellcome GmbH with responsibility for Central Europe and Germany, as a
Managing Director. He is a former Member of the Board of the German
Pharmaceutical Association and the German Chemical Association. Dr. Detert
holds a Ph.D. in Chemistry from the University of Alberta, Edmonton, Canada
and a Bachelor of Science in chemistry from the University of Kiel.
B-5
ERIC N. JACOBSEN, PH.D., DIRECTOR. Professor Jacobsen is a Professor in the
Department of Chemistry and Chemical Biology at Harvard University. He is a
member of the Company's Scientific Advisory Board and, as of October 1, 1998,
serves as the Scientific Director of the Company's Boston facility on a
consultancy basis. He also currently serves as consultant to Merck & Co., Inc.
and Versicor, Inc., where he is co-founder and Chairman of the Scientific
Advisory Board. Prior to joining the faculty at Harvard, Professor Jacobsen
served from 1988 to 1993 at the University of Illinois at Urbana-Champaign,
most recently as Associate Professor. He received his B.S. in Chemistry from
New York University, his Ph.D. from the University of California, Berkeley,
and has served as a National Institute of Health Postdoctoral Fellow at the
Massachusetts Institute of Technology.
DAVID K. STEVENSON, DIRECTOR. Mr. Stevenson was a Tax Partner with Arthur
Andersen from 1978 through 1998 in Boston, Massachusetts, specializing in
international manufacturing and technology companies. Mr. Stevenson is a
Certified Public Accountant, and a member of the AICPA and Massachusetts
Society of CPAs. Mr. Stevenson currently serves as a Trustee of the Deaconess
Glover Hospital in Needham, Massachusetts. He earned his B.A from Bowdoin
College in 1965, and his M.B.A. in Professional Accounting from Rutgers
University in 1966. Mr. Stevenson is currently enrolled at the Harvard
Divinity School, with a concentration in practical ethics.
W. DIETER ZANDER, DIRECTOR. Mr. Zander was educated in Germany and
Switzerland and founded Henley & Co., Inc., a chemical pharmaceutical company
with offices in the United States and Canada. In 1980, Henley & Co., Inc. was
sold to Boehringer Ingelheim GmbH. Mr. Zander later joined Arnhold and S.
Bleichroeder, Inc., a privately owned investment bank, where he is currently a
Managing Director in the International Corporate Finance Department.
Except as otherwise indicated, the directors and executive officers have
held the principal occupations described above during the past five years.
Indemnification of Directors and Officers
The Company's certificate of incorporation requires the Company to indemnify
each person who is or was, or agrees to become, a director or officer of the
Company against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred, if such person
acted in good faith and in a manner such person reasonably believed to be in,
or not opposed to, the best interests of the Company, and, with respect to any
criminal action, had no reasonable cause to believe such person's conduct was
unlawful. No indemnification will be made in respect of any claim as to which
such person shall have been adjudged to be liable to the Company unless and
only to the extent that the Delaware Chancery Court determines that such
person is fairly and reasonably entitled to indemnity for such expenses which
the court deems proper.
Director Compensation
The Company pays to its non-employee directors a $25,000 annual fee payable
at the Annual Meeting of Shareholders plus $1,500 per meeting of the Board
attended per day and reimburses directors for their out-of-pocket expenses
incurred in attending meetings. Directors who are members of any committee of
the Board also receive $1,000 per committee meeting attended. In addition,
each non-employee director participates in the Company's Amended and Restated
1995 Director Stock Option Plan, as described below.
The Amended and Restated 1995 Director Stock Option Plan (the "Director
Plan") was adopted by the Board in February 1997 and approved by the
stockholders of the Company at the 1997 Annual Meeting. Under the terms of the
Director Plan, members of the Board of the Company who are not employees of
the Company or any subsidiary of the Company are eligible to receive non-
statutory options to purchase Shares. A total of 100,000 Shares may be issued
upon exercise of options granted under the Director Plan. Each eligible member
of the Board will be granted an option to purchase 3,000 Shares on the date of
his or her initial election to the Board (an "Initial Option"). Pursuant to an
amendment to the Director Plan that was adopted by the Board on
B-6
February 9, 1999 and approved by the stockholders of the Company at the 1999
Annual Meeting, each eligible member of the Board then in office will receive
an additional option (an "Annual Option") to purchase a specified number of
Shares to be determined by the Board upon the close of business on the date of
each annual meeting of the stockholders. Each eligible member of the Board
received an Annual Option to purchase 10,000 Shares following the 1999 Annual
Meeting. Each Initial Option will become exercisable on a cumulative basis as
to one-fifth of the Shares subject to the option on each of the first, second,
third, fourth and fifth anniversaries of the date of grant of such option.
Each Annual Option will become exercisable in full immediately prior to the
annual meeting of the stockholders next following the date of grant. The
exercise price of options granted under the Director Plan will equal the
closing price of the Common Stock on the Nasdaq National Market on the date of
grant. Except in cases of death or disability, options granted under the
Director Plan must be exercised within 90 days after the date the holder
ceases to be a member of the Board. In addition, the options are personal and
no rights granted under the Director Plan may be transferred, assigned,
pledged or hypothecated in any way, except by will or by the laws of descent
and distribution. No option is exercisable after the expiration of seven years
from the date of grant.
On June 27, 2000, the Board appointed David K. Stevenson and W. Dieter
Zander to work with and advise management regarding potential transactions
with third parties and related management retention and compensation issues.
Each of Messrs. Stevenson and Zander will receive a fee of $10,000 per week in
consideration of this work, to a maximum of $100,000 each.
Meetings of the Board in 1999
During 1999, 13 meetings of the Board were held. The Audit Committee met
twice and the Compensation Committee met twice during 1999. Each director
attended at least 90% of the total meetings of the Board and the committees on
which they served.
Committees of the Board in 1999
The Board has Audit and Compensation Committees. There is no Nominating
Committee.
Audit Committee. The Audit Committee reviews the results and scope of the
audit and other services provided by the Company's independent public
accountants. Current members of the Audit Committee are Mr. Zander, Dr. Detert
and Mr. Stevenson.
Compensation Committee. The Compensation Committee makes recommendations
concerning salaries and compensation for employees of the Company, and
administers and grants stock options and awards pursuant to the Company's
equity incentive plans. Current members of the Compensation Committee are Mr.
Zander and Mr. Stevenson.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Common Stock, to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock and any other equity
securities of the Company. Officers, directors and greater than ten-percent
stockholders must furnish the Company with copies of all Section 16(a) forms
they file. The Company believes that during fiscal year 1999 its executive
officers and directors have complied with Section 16(a) of the Securities
Exchange Act of 1934, and the rules and regulations adopted thereunder.
B-7
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1999, 1998
and 1997 compensation paid or accrued by the Company to (i) its Chief
Executive Officer and (ii) its four other most highly compensated executive
officers who were serving as executive officers as of December 31, 1999 (the
"Named Executive Officers"):
Summary Compensation Table
Long-Term
Compensation
------------
Securities
Annual Compensation Underlying
-------------------- Long-Term All Other
Name and Salary Bonus Compensation Compensation
Principal Position Year ($) ($) Awards ($)(2)
- ------------------ ---- ------- ------- ------------ ------------
Michael A. Griffith (1)......... 1999 300,000 225,000 200,000
Chief Executive Officer and 1998 266,667 150,000 175,000
Chairman 1997 180,000 69,009 200,000
Ian D. Shott (3)................ 1999 240,000 144,000 75,000 106,042(4)
President, Manufacturing 1998 77,937 49,800 100,000 38,894(4)
Division
Bruce P. Shutts (7)............. 1999 97,849 50,000 50,000 30,000(7)
President, Development Division
Jon E. Tropsa (5)............... 1999 127,500 100,000 50,000
Vice President, Finance 1998 118,750 25,000 90,000
Stuart E. Needleman (6)......... 1999 142,083 75,000 65,000 37,500(6)
Vice President, Business
Development
- --------
(1) Pursuant to his employment agreement, Mr. Griffith's current annual salary
as Chief Executive Officer and Chairman is $300,000 plus a guaranteed
annual minimum bonus of $150,000.
(2) Mr. Griffith, Mr. Tropsa, Mr. Needleman and Mr. Shutts participate in a
Company sponsored 401(k) program. The incremental cost of such perquisite
in 1999 was not in excess of the lesser of (a) $50,000 and (b) 10% of the
amounts reported as Salary and Bonus for 1999 in the Summary Compensation
Table.
(3) Mr. Shott became an employee as of September 1, 1998. Accordingly, his
compensation for 1998 reflects compensation from September 1, 1998 to
December 31, 1998. Pursuant to his employment agreement, Mr. Shott's
current annual salary is (Pounds)150,000 (approximately $224,000 based on
the noon buying rate on August 3, 2000 of $1.4947 per Pound).
(4) All other compensation for Mr. Shott of $38,894 and $106,042 in 1998 and
1999, respectively, represents compensation for relocation-related
expenses including rent and living allowance, and the cost of a Company
leased automobile.
(5) Mr. Tropsa was elected Vice President, Finance, as of September 1, 1998.
Accordingly, his compensation for 1998 includes compensation as Vice
President, Finance, only from the effective date. Pursuant to his
employment agreement, Mr. Tropsa's current annual salary is $150,000.
(6) Mr. Needleman became an employee as of February 1, 1999. Accordingly, his
compensation for 1999 includes compensation only from that date. All other
compensation of $37,500 for Mr. Needleman in 1999 represents a signing
bonus received upon joining the Company. Pursuant to his employment
agreement, Mr. Needleman's current annual salary is $175,000.
(7) Mr. Shutts became an employee as of July 6, 1999. Accordingly, his
compensation for 1999 includes compensation only from that date. All other
compensation of $30,000 for Mr. Shutts in 1999 represents a signing bonus
received upon joining the Company. Pursuant to his employment agreement,
Mr. Shutt's current annual salary is $225,000.
B-8
Stock Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock options
granted in fiscal year 1999 to the Named Executive Officers.
Potential
Realizable Value at
Percentage of Assumed Annual
Number of Total Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise or for Option Term(1)
Options/SARs Employees in Base Price Expiration -------------------
Name Granted(1) 1999 $/Share Date 5%($) 10%($)
- ---- ------------ ------------- ----------- ---------- --------- ---------
Michael A. Griffith..... 200,000 22.2% 32.375 07/25/2006 2,635,975 6,142,943
Ian D. Shott............ 75,000 8.3% 32.375 07/25/2006 988,491 2,303,604
Bruce P. Shutts......... 50,000 5.5% 31.060 07/05/2006 632,227 1,473,358
Jon E. Tropsa........... 50,000 5.5% 32.375 07/25/2006 658,994 1,535,736
Stuart E. Needleman(2).. 65,000 7.2% 21.060- 01/31 and 626,375 1,459,720
32.375 07/25/2006
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock and the date on which
the options are exercised.
(2) Mr. Needleman received two option grants in 1999. The first was granted on
February 1, 1999 for 50,000 Shares at an exercise price of $21.06. The
second was granted on July 26, 1999 for 15,000 Shares at an exercise price
of $32.375. The grants have been consolidated for the table above.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Value of Unexercised
Securities Underlying in-the-Money
Shares Unexercised Options/SARs Options/SARs
Acquired On at FY-End ($)(1) at FY-End ($)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
Michael A. Griffith..... 30,000 704,220 160,000 435,000 510,688 764,625
Ian D. Shott............ -- -- 40,000 135,000 15,625 62,500
Bruce P. Shutts......... -- -- 0 50,000 0 0
Jon E. Tropsa........... -- -- 30,000 120,000 40,063 142,750
Stuart E. Needleman..... -- -- 0 65,000 0 0
- --------
(1) Options to purchase Shares.
Retirement Benefits
Employees of the Company who are domiciled in the U.K. are entitled to
participate in the ChiRex Pension Plan (the "Pension Plan"). Mr. Shott
currently participates in the Pension Plan.
Currently, the Company is required to make a contribution equal to 9% of
each participant's annual salary and each participant is required to make a
contribution equal to 3% of his or her annual salary. The funding of the
Pension Plan has been designed to provide sufficient assets to satisfy the
pension liabilities of all participants on a going forward basis. In order to
satisfy the past service liabilities of Pension Plan participants who had
previously participated in the pension plan maintained by Sanofi Winthrop,
assets valued at approximately (Pounds)31 million were transferred from Sanofi
Winthrop to the trust maintained for the Pension Plan. The amount of the asset
transfer was calculated by the Company's actuary and is sufficient to satisfy
the past service liabilities under the Sanofi Winthrop plan that were assumed
by the Company.
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Upon reaching age 65, a vested participant in the Pension Plan is entitled
to receive a basic benefit equal to the product of (i) 1/60th, multiplied by
(ii) years of continuous service (up to a maximum of 40 years), multiplied by
(iii) final average basic earnings in excess of the state basic pension. For
purposes of the Pension Plan, final average basic earnings is defined as a
participant's highest average 12 months of basic salary in the past 5 years,
plus such participant's average additional compensation defined as the average
of the highest 3 consecutive years of additional earnings in the past ten
years (excluding the value of any stock options).
Vesting occurs under the Pension Plan after the completion of two years of
service. The Pension Plan provides for annual pension increases for
participant's pay status equal to the lesser of (i) 5% a year or (ii) the
increase in the Retail Price Index. The Pension Plan also provides for early
retirement, ill health retirement and death in service benefits.
The following table provides estimates of annual retirement benefits payable
under the Pension Plan:
Pension Plan Table
Years of Service
Final Average --------------------------------------------------------------
Compensation(1) 10 20 30 40 or more
--------------- ------- ------- ------- ----------
$ 80,000 $12,900 $25,800 $38,700 $ 51,600
100,000 16,250 32,500 48,750 65,000
120,000 19,580 39,160 58,740 78,320
140,000 22,900 45,800 68,700 91,600
160,000 26,250 52,500 78,750 105,000
180,000 29,580 59,160 88,740 118,320
--------
(1) Compensation and annual retirement benefits for all employees
covered under the Pension Plan are paid in Great Britain pounds
sterling and amounts shown were translated from Great Britain
pounds sterling into U.S. Dollars at the rate of $1.66 per Pound.
The Pension Plan defines "compensation" generally to include all
remuneration to an employee for services rendered, including base pay, bonuses
and special forms of pay. The definition of "covered compensation" under the
Pension Plan is not substantially different than the amount reflected in the
Annual Compensation column of the Summary Compensation Table set forth above.
Executive Employment Agreements
The Company is party to employment agreements with each of the Named
Executive Officers. Under each agreement, such executive is entitled to
receive an annual base salary and, in certain cases, an annual bonus that is
guaranteed and/or based on the Company's performance. The agreements also
entitle the executives to participate in certain retirement benefit programs
maintained by the Company. The Company shall have the right to terminate each
executive's employment immediately upon the occurrence of certain for "cause"
events. Each executive's employment may also be terminated by the Company
without cause, but in that event the Company must pay the executive a
specified percentage of his salary and other compensation and certain expenses
in connection with such termination. On July 11, 2000, the Company entered
into amended and restated employment agreements with Michael A. Griffith,
Francis Jackson Wright, Thomas I.H. Dubin and Jon E. Tropsa (the "July 11
Employment Agreements"). A description of these agreements is set forth under
the caption "Item 3. Past Contacts, Transactions, Negotiations and
Agreements--Conflicts of Interest--Employment Agreements dated July 11, 2000"
in the Schedule 14D-9 and is incorporated herein by reference. The summary is
qualified in its entirety by reference to the July 11 Employment Agreements,
which are filed as Exhibits (e)(2) through (e)(5) hereto and are incorporated
by reference herein in their entirety. At the time the Merger Agreement was
executed, the Company entered into consulting agreements with Messrs. Griffith
and Wright and employment agreements with Ian D. Shott, Stuart E. Needleman
and Bruce P. Shutts, all of which become effective upon consummation of the
Offer (the "New Consulting and Employment Agreements"). These
B-10
agreements, which were negotiated by Parent, will supersede the existing
employment agreements between the Company and these individuals. A summary of
the terms of these agreements is set forth under the caption "Background of
the Offer; Contacts with the Company; the Merger Agreement and Related
Agreements--Consulting and Employment Agreements" in the Offer to Purchase and
is incorporated herein by reference. The summary is qualified in its entirety
by reference to the New Consulting and Employment Agreements, which are filed
as Exhibits (e)(6) through (e)(10) hereto and are incorporated by reference
herein in their entirety.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Professor Jacobsen, a director of the Company and a member of the Company's
Scientific Advisory Board, entered into a new consulting agreement dated
October 1, 1998, with the Company and its wholly-owned subsidiary, ChiRex
Technology Center Inc. Such consulting agreement supersedes the earlier
agreement dated July 19, 1996. During 1999, the Company paid Professor
Jacobsen $180,000 for consulting services rendered pursuant to his consulting
agreement.
B-11